Coatings SMEs face severe challenges in 2019 with increasing number of shutdown 08-22-2019

According to the statistics regarding public information from the People’s Court Announcement, more and more small and medium enterprises (SMEs) in the Chinese coatings industry are confronted with bankruptcy. This phenomenon has aroused concerns among many market insiders in terms of the future development of Chinese coating SMEs.

A great number of coatings SMEs in China have been closed so far in 2019, such as Jiangmen Texin Coating Co., Ltd., Zhejiang Zhuchao Coatings Co., Ltd., Hangzhou Zhuchao Paint Chain Co., Ltd. and Kunlun Coatings (Shanghai) Co., Ltd. Recently on August 4, another coatings company declared bankruptcy because of a private lending dispute, according to an official post from the People’s Court Announcement.

Private financing considered as what ends Chinese coatings SMEs

It is found that the enterprises declaring bankruptcy are characterized by small or medium sizes and most of them are located at the third or fourth tier cities in China.

Take Jiangmen Texin Coatings Co., Ltd. (Texin Coatings) mentioned above for instance. Seated at Zhongxin chemical industrial zone in Jiangmen, Guangdong, Texin Coatings used to produce and sell water-based paint. Its main products included acrylic varnish and thinner for acrylic resin paint. On April 29, 2019, the company was accused in a contract dispute and a private lending dispute. After nearly two months, it announced to go bankrupt.

At present, bank loans, financing platforms and private financing are the most popular financing ways for coatings enterprises in China. However, due to the long and complicated process of bank loans, a lot of SMEs turn to private financing at the cost of high interest, which is what brings them into bankruptcy.


High-quality enterprises to exceed SMEs with more market shares in Chinese coatings industry, despite slowdown of production

In the view of some market insiders, the financing environment of Chinese coatings industry is more inclined to high-quality enterprises. With the expansion of capacities, high-quality coatings companies occupy more shares in the market than SMEs, which cuts down the living space for SMEs.

Besides, under the strict environmental policy in China, enterprises are under great pressure when it comes to the safety during production, which is likely to cause a slowdown in coatings output. It is estimated by the China National Coatings Industry Association (CNCIA) that the Chinese output of coatings will get to 18,600,000 tonnes in 2019, with a rate of growth at around 6%. The value of the output is predicted to reach RMB 343 billion with a rate of growth at about 5%.


Competition to increase among leading coatings enterprises in China

Due to the increasing prices of raw materials, production costs and labour force, a lot of uncertainties are faced by the production and the market of coatings, according to an observer of the coatings industry. Hence, the entrance for SMEs into chemical industrial zones gets higher and higher. Enterprises have to alter themselves for more development space and sustainable business.

In the future, competition will focus more on the leading brands in the coatings industry and it will be very difficult for SMEs to develop themselves. It is predicted that the market demand tends to direct more at eco-friendly coatings with high performance, such as powder coatings and waterborne wood coatings. Therefore, innovation of technology is considered as an important advantage in the coatings industry.

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