High costs impacting China overseas plants

High upstream costs are a major holdup for Chinese tire makers’ overseas manufacturing projects, according to Shen Jinrong, chairman of Hangzhou Zhongce Rubber Co. Ltd.

(Shen Jinrong, chairman of Hangzhou Zhongce Rubber Co. Ltd., speaks at the recent China Rubber Industry Association annual meeting.)

Many such overseas plants continue making upstream purchases — synthetic rubber, carbon black, antioxidants, steel cord and the likes — from Chinese suppliers, he said during his speech at the 2016 China Rubber Conference in Qingdao in March.

Low export tax rebates for such products and high logistics expenses have made China suppliers’ prices considerably higher than local prices — up to 100-plus-percent higher in Thailand, where Zhongceoperates a 5.8 million unit/year plant.Six Chinese tire makers have started overseas manufacturing projects so far, three in Thailand, with more than $1.6 billion total investment.

“Such elevated costs are causing serious problems to Chinese tire makers’ competitiveness,” Mr. Shen said, while urging upstream suppliers to seek overseas expansion as well.

China’s One Belt One Road program — China President Xi Jinping’s development initiative aiming to promote closer cooperation between China and surrounding regions — is providing such upstream companies with good opportunities, he added.

“The initiative calls for collective efforts. It’s not something that can be accomplished by a single company.”