ASIA - Overall, in 2006 Asia’s Packaging sector had another prosperous year with most countries posting industry growth of 12.5 percent.

In 2006, Asia’s packaging industry production value topped US$156.54 billion, around US$28,5 billion higher than its neatest regional rival, North America which turned in total receipts around US$128 billion.

Asia’s average 12.5 percent growth reflects both the booming behemoth that China has become (with growth hitting the 14-15 percent levels) and the lacklustre performances of some of South East Asia’s declining players.

CHINA

2006 was the year everybody suddenly woke up to just how clever the Chinese have been. Quite predictably China has been the regional star performer with its packaging sector growing by 14.5% - 15% on average in 2006, effectively thumbing its communist nose at western economists who have been predicting annually that China is a bubble waiting to burst.

It hasn’t - and it won’t!

In fact, every indication is that China will continue to power ahead and, regardless of the US’s neo-economic sabre-rattling will choose to devalue the RMB against the US dollar at the time and rate of its own choosing. Let’s face it, if I were holding more than one trillion dollars in a rapidly depreciating foreign currency, I wouldn’t be in any hurry to raise the value of my currency – every percentage point slip in the dollar’s value simply adds to China’s exchange holding. A revaluation based on ‘redressing the global economy’ would just be like handing interest from my deposit account back to the bank because the bank asked for it.

That might possibly be a fairly unsophisticated perspective in conventional economic terms, but China is playing by its own rules and has done since it was admitted to the WTO club in 2002.

Apparently western politicians and the mainstream media has only just woken up to the fact that for the past four years China has been busy buying up the raw materials it needs to power its growth, thus driving key commodity prices (petroleum, resin, ore and paper) ever upward.

But then we in the packaging industry have know about this for years; ever since paper-pulp and woodchip prices took a jump back in 2003, the Chinese solution was clear; sidestep the commodity markets and head for the source; which they did by buying a 900 year lease on an Indonesian managed forest!

So the twenty billion dollars invested in the African continent in 2006 will buy an awful lot of raw materials and since not even the most poverty stricken African nation would be daft enough to accept RMB in exchange for its oil, a Chinese with a fist full of dollars trumps almost every other card in Africa.

But how sustainable is the Chinese boom? Frankly, it will continue well past 2010.

Unless there is some major global catastrophe China’s growth will continue to outpace everyone else.

Let’s not forget, that China’s main market is China: in 2006 retail sales of consumer goods in urban areas was $58 billion (RMB 455.1 billion) an increase of 14.4 percent over 2005. No wonder China has become the battle ground in the Carrefour –Wal-Mart retail trade war, as each company pushed ever eastward in their race for market share. Never mind that the average per capita checkout bill is US$5.00 there’s 1.3 billion people in the queue.

Then looming on the horizon is the ’08 Beijing Olympics. The “Olympic Economy” is estimated to be worth more than US$1 billion – Swatch recently paid $20 million to be exclusive time-keeper.

Now just think of the re-design and repackaging which is going to be needed!

PREDICTION: China will continue to power ahead (No crystal ball needed there!).

Thailand in Trouble?

A star performer in the South East Asian region in recent years, Thailand’s packaging industry grew by 11.2% in 2006, driven predominantly by the flexible packaging sector.

Thailand has been the main beneficiary of the Asean Free Trade Agreement, which reduced cross-border tariffs between the 10 member nations – in some cases from 15 percent down to as low as two percent.

As a result of Thailand’s low wages and land costs many of the major FMCG corporations relocate from elsewhere in the region to new industrial areas in the suburbs of Bangkok.

Largely this wholesale relocation of manufacturing to Thailand has been at the expense of neighbouring countries like Malaysia and the Philippines which have seen their production sectors contract to service predominantly domestic producers.

How, or even whether, Thailand can sustain this growth will be put to the test in 2007 following four months of political upheaval.

After more than 11 months of on-off peaceful street demonstrations against pro-business Prime Minister Thakasin, an election, followed by his resignation, followed by his reinstatement, followed by a promise to re-run the election. In September, the military decided that it was time to take matters into their own hands and put troops and tanks into the street in a bloodless military coup.

Military coups have a habit of sending investors scrambling over each other at the airport, however the current batch of foreign investors, like UK retail giant Tesco are made of sterner stuff, after all the Thai Tourism Board brands the country as “Land Of Smiles” and besides Thailand hadn’t had a coup since 1990.

But in the military junta’s opinion the Thai Baht was riding a little too high for their liking and on 19 December ‘06 introduced a package investment restrictions which included, amongst other measures a requirement that foreign investors deposit 30 percent of their investment with the state bank in non-interest bearing fixed accounts for 12 months.

Result? Overnight massive capital flight! The stock market dropped three percent and the baht last 15 percent against the US dollar and the Bangkok’s new airport saw a significant increase in traffic that night.

Realising the error of their ways the Junta reversed their decision immediately. Confidence began to return only to be dashed again when three bombs were detonated in busy street markets on 31 December.

Thailand, the star performer of South East Asia faces an uncertain 2007, as the Packaging Manager of a global FMCG manufacturer told me, in the comfort of a Singapore hotel bar “Problem with Juntas, is that they are quite efficient in taking over countries, not too efficient at running them though!”

VietNam

With packaging growth approaching 12 percent, VietNam has been the quiet performer. Certainly its growth was a little higher than Thailand’s in 2006 but it is coming from a dilapidated industrial base, with plastic exports growing annually in the 40 percent range to reach US$380 million in 2005, output has been largely low value-add plastic bags: highly vulnerable to EU anti-dumping complaints.

This still-communist country hasn’t yet managed to mount a PR campaign to convince he West that it is fully plugged into the market economy and open for business in the way that China has.

But it is early days yet, VietNam didn’t join the WTO Club until November 2006, and it took China at least a year to work out how use the club rules.

VietNam remains Asia’s best kept secret, and Finance Ministry regulations permit direct equity investments in local Joint Stock Companies – unlike China.

Prediction: My money’s on VietNam.