Plastics companies look to China's auto industry

In the past few months, car purchases in China have exploded, driven by tax rebates and subsidies provided by the government.

"This is the first indication that the subsidies the Chinese government is paying are having an impact," said Rainer Rettig, senior vice-president of Bayer MaterialScience's Asia Pacific polycarbonates, advanced resins division.

Sales of China's domestically-made vehicles started to climb after the Chinese government released a set of tax breaks and subsidies on small-engine vehicles, with additional incentives aimed at rural areas. Sales taxes on cars with engines smaller than 1.6 litres were reduced by half by the end of last year. In rural areas, an old-for-new swapping programme was also adopted, offering subsidies totalling 5bn Yuan ($730 million) to replace old three-wheeled vehicles or trucks with new, small-engine cars.

After the incentives took effect, Chinese auto sales surpassed auto sales in the US for the first time. In April, according to the China Association of Automobile Manufacturers, 1.15m units were sold domestically. The upswing caused car companies such as General Motors and Volkswagen to revise their 2009 forecasts upward.

This upward trend is being felt throughout the plastics industry in the country.

"We were actually quite surprised," said Juergen Heise, general manager at Clariant Chemicals (Guangzhou). "You focus on the US and Europe and there all you see is car companies going bankrupt."

Heise said the boost is much appreciated by many companies operating in China. "In Asia, this is really the first time we've seen a crisis impact China," he said. "During the Asian financial crisis there was really no impact, but this time around you could see and feel the crisis in China."

Some companies are taking the increase in car sales as their cue to refocus on the auto industry. Francois Hinker, vice-president of Rhodia Polyamide, engineering plastics, said one of the company's main priorities now is to support local car makers and moulders in China.

For those companies pinning their hopes on the auto industry, sales look likely to continue climbing. China's government recently expanded its rural subsidy program to a select number of cities, including Beijing, Shanghai, Tianjin and several provinces along China's coast.

"The question is really how quickly people have access to money," Heise said. "And the Chinese government has a lot of money to spend."