National
Casting Industry Profiles:

Die Casting and Other Non-Ferrous
Steel & Heavy Duty
Fittings & Municipal
Understanding China: MM(M)
What China needs
1,000 separate investments
Representative websites
Key contacts
For more info . . .
UPDATE: CNH tractors in China

Dragon Trading
We produce a full range of casting and forging products in China at extremely competitive prices. With offices in Qingdao and Shanghai, our engineers inspect all orders prior to shipment. Cast or forged parts quoted based on either detailed dimensional specs or samples.
www.dragontradinginc.com
See profile in the CastingTrade.com Input Supplier Guide

Macro and Micro, but no Mezzo

If you want to do business with China, whether as a buyer or supplier, a partner or a competitor, the most important thing to understand is this concept: "Macro and Micro, but no Mezzo." I'll explain what that means below, but first let's look at the basic parameters of the casting industry in China.

There are over 12,000 foundries in China, according to the Chinese Foundry Association. Many of them are exceedingly small. This report focuses on the small number of relatively more modern foundries in China, like the 100 leading foundries that are profiled on the website of the China Foundry Association and/or have their own websites.

Several separate casting regions -- China, like the U.S., has major industrial pockets dispersed throughout the country. The manufacturing "engine" of China is the area around Shanghai, often referred to as "East China." There is also a traditional motor vehicle and heavy industry production center in "Northeast China", and several of the foreign automakers and manufacturers of heavy equipment and engines have made investments there. Finally, "South China" [the region centering on Hong Kong and Guangzhou (Canton)] is a powerful center of light manufacturing and assembly operations, with a tendency toward smaller, more flexible plants.

Ironbound -- As the chart below of Chinese production in the '90s indicates, China is heavily oriented toward iron casting.

It is evident at a glance that, over the the course of the '90s, casting production in China was locked in a rather static pattern dominated by iron. There appears to have been conspicuous lack of growth in higher-end aluminum production, or even steel.

Key process segments are discussed below, with links to sub-reports on separate pages.

Investment Casting -- Investment Castings represent a significant opportunity for investment and commerce in China. Because of the large amount of handling involved in investment castings, production in China can benefit from low labor costs. On the other hand, the quality requirements of many investment castings -- both in the casting itself and finishing options -- still remain above the level achievable by many Chinese operations. Opportunities for collaboration and adding value abound. (View Investment Casting in China, including a list of major Chinese investment casting foundries.)

Die Casting and Other Non-Ferrous -- China is on the brink of a great leap forward in this area, based on production of aluminum diecast parts for the auto industry. Overall, non-ferrous production in China is about 1/3 the level of U.S. production -- annual output of about 1 vs. 3 million tons, with aluminum constituting about 70% in each country. Diecasting, however, is less developed in China -- only about 1/5 the level of U.S. output. (View Diecasting and Non-Ferrous in China, including a list of major Chinese diecasters and non-ferrous foundries.)

Steel and other Castings for Heavy Equipment and Trucks -- China's rapidly growing economy means increased casting business for firms focussing on earthmoving equipment, oil equipment, railroad cars & locomotives, and other industrial equipment, as well as machinery, power generation, aerospace, and many other segments. (View Steel Casting in China, including a list of major Chinese steel foundries.)

Fittings and Municipal -- China has been a major supplier to U.S. importers of municipal castings -- so much so that they attracted an anti-dumping action by the U.S. industry in the '80s. Because CastingTrade.com will devote a special report to world trade in municipal castings in the near future, they are not considered in detail here. As indicated above, China's domestic infrastructure projects are ongoing on a huge scale, and they are huge consumers of municipal and construction castings.

Here are websites for representative foundries in China:

Understanding China: MM(M) -- As mentioned in the introduction, there is widely dispersed fundamental metal know-how in China, and an unusually large number of small foundries dispersed throughout the country. This is the "micro" part -- due,at least in part, to China's experiments with localized micro-production of steel during the Great Leap Forward at the end of the '50s. At the same time, China's centralized industrial development process, and the political importance Beijing placed on the iron & steel industry and on military production, has led to the creation of a small number of giant foundry enterprises, covering all of the main processes. This is the "macro" part. It is these latter foundries that have provided a few big opportunities for a handful of foreign firms -- either by using Chinese foundry capacity as a foundation for business development in China (e.g. through joint ventures or by purchasing components for their assembly operations) or by selecting a few highly-competitive China-made cast products for export to their own countries.

What China needs -- However, by focussing our attention on this activity -- the "micro" and the "macro" -- we run the risk of missing the forest for the trees. What China needs are good medium-size foundry operations that are adequately capitalized, market-oriented and flexible, and prepared to compete on a global scale. It is this "mezzo" part of the casting industry that will allow China to make the inputs it needs as it continues to grow, as well as to participate long-term in cross-border trade in cast metal parts. We estimate China needs to develop about 1,000 modern foundry operations to support the needs of its domestic economy, and to take full advantage of global trade opportunties, in the next several decades. This estimate is based on the population of foundries in developed countries, with some adjustment for (a) an assumption of moderate annual progress in the development level of the Chinese economy, (b) the upside potential for growth in an economy with 1.2 billion people, and (c) projected consolidation in the foundry industry worldwide as the supply chain becomes globalized.

1,000 separate investments -- Building 1,000 modern foundry operations will require 1,000 separate investments, and each will require great expertise and wisdom. I think many of the business people reading this report will immediately recognize that the crux of the situation is this: in the coming years, will the Chinese government support the kind of market environment in which closely-held, medium-size businesses can obtain private financing for investments in plant and equipment, plus working capital, in the $10 - $20 million range? Will the Chinese legal and social environment be robust enough to support the level of commitment required by people with the level of assets -- money and talent -- needed by this huge undertaking? It is very difficult to predict what the answer will be.

This "macro and micro, but no mezzo" problem (which we call "MM(M)" for short) is a tough one to fix. Fundamentally, it means that the kinds of mid-size business and government organizations that we usually think of as being the most effective have trouble functioning in China. To put a number on it: A new report by a Chinese researcher estimates that 13-15% of China's GDP has been lost over the last decade -- at a cost of $150 billion -- because of corruption. There have been announcements of renewed determination to lick the corruption problem from the highest levels of the Chinese government. But there also seems to be a lack of understanding about its root causes.

What is the solution to the MM(M) situation? I'm not sure I know the general cause, or its solution; I'm not even sure there are broadly applicable tactics you can use to deal with it. I would advise, however, that you strongly consider using the MM(M) concept as an analytic framework as you go about solving business problems in China.

Metal China, the major foundry exhibition for China, will be held in May, 2002, in China Beijing. More than 800 exhibitors are expected to participate.

FOR MORE INFORMATION, PLEASE CONTACT:

Mr. Chen tong-gang
Deputy Managing Director
China Foundry Association (CFA)
5 Xi-san-huan Bei
Lu, Beijing 100089, P.R.China
Tel.86 + 10 - 6227 5482;6227 5491; 6846 4941
Fax.86-10- 6845.8356; 6227.5482
URL: www.foundry-china.com
E-mail: cfa@foundrynet.com.cn

Foundry Institution of Chinese Mechanical Engineering Society
17 S. Yunfeng St., Tiexi District
Shenyang, 110021, PRC
Tel: 86 24 58-52-311 x 206
Fax: 86 24 58-55-793
E-mail: society@pub.sy.lnpta.net.cn
Contact: Tang Yulin

Other sources of information on business in China:

The U.S.-China Business Council's members include many of the major multinationals with investments in China: Caterpillar, DaimlerChrysler, Dana, FMC, Ford, GM, Halliburton, Ingersoll-Rand, and many others. www.uschina.org

ChinaOnline is an information provider focussing on China business. www.chinaonline.com

View list of profiles of other countries.
NEXT WEEK: Hungary!

UPDATES:

CNH Tractors in China - CNH (Case New Holland) has announced plans to produce 18,000 tractors annually in a joint venture with Shanghai Tractor and International Combustion Engine. The venture will produce tractors in the under-100 hp range, to complement an existing joint venture it has with Harbin Machinery Plant in the over-100 hp range. (More at www.cnh.com.)(04/11/01)