Crouching dragon

Three little words, “made in China,” have changed the shape of the U.S. consumer industry forever. The United States imported 40 percent of its consumer goods from China this past year, according to an article in Time magazine, June 28. The volume of consumer goods from China has nearly tripled since 1997, and the U.S. government has little leverage to impose new restrictions on Chinese goods, partly because it is lobbying China to open up its markets to U.S. goods, the article reported.

Consequently, along with most other industries, the U.S. glazing industry is feeling the heat from its Chinese counterpart and trying to find the best way to stay in the game.

The strength of the Chinese industry is “simply the number of people who can produce a daily output of widgets,” says Kris Vockler, vice president, operations, ICD High Performance Coatings, Vancouver, Wash. “Their strength is the fact that they can make cheap product that the rest of the world will buy.”

The industry “operates in an environment where the government subsidizes businesses in order to make them competitive on the world market, and the labor cost differential versus the U.S. is enormous,” says Michael Collins, an investment banker with Jordan Knauff and Co., Chicago.

The research agencies in China also strongly support their industrial base, says Marc LaFrance, technology development manager, U.S. Department of Energy, Washington, D.C.

“The biggest mistake any business can make when it comes to China is thinking that it is winning only on wages and not improving quality and productivity,” says author Thomas Friedman in his book “The World is Flat.” “In the private, non-state-owned sector of Chinese industry, productivity increased 17 percent annually—I repeat 17 percent annually—between 1995 and 2002, according to a study by the U.S. Conference Board. This is due to China’s absorption of both new technologies and modern business practices, starting from a very low base.”

State of the industry
Europe, China and North America together account for around three-quarters of global demand for glass, according to the “Pilkington and the Flat Glass Industry 2006” report. “The significance of China as a market for glass has been increasing rapidly since the early 1990s as the country has become more open to foreign investment and the economy has expanded,” according to the report. In the early 1990s, China accounted for about one-fifth of world glass demand but now accounts for more than one-third, the report states.

At the end of 2005, 143 float lines were in operation with only 21 of Western style design, according to the report. “The quality and output of Chinese float is increasing quickly. In terms of consumption and output, the market has been growing faster than 10 percent per annum, a trend which looks set to continue,” according to the report.

Today, China has about 165 float glass plants in operation, and many under construction, says Daniel Lau, managing director of XYG Glass, Richmond, British Columbia, a subsidiary of Xinyi Glass Holdings Ltd., Shenzhen, China. “It is estimated that by the end of 2007, there will be some 180 float glass plants in China.”


In comparison, the U.S. has an estimated 38 float plants, plus two in Canada and four in Mexico, says Nick Limb, partner, Ducker Worldwide, Troy, Mich. Europe, excluding Turkey, has an estimated 55 float plants, he says.

Processing of float glass in China is still low compared to Europe and North America, but it is showing strong growth as the quality of domestic and commercial developments improves, the Pilkington report says. However, most of the housing market still uses monolithic, uncoated clear glass.

“Traditionally, relatively low-grade glass products were produced to meet domestic market demand for low cost products, such as sheet glass, or simple glass pane for windows and doors,” Lau says. “[However,] with recent rapid economic development in China over the last 10 years, there has been increasing demand for high quality glass products.”

Nigel Rees, chief executive, Glass and Glazing Federation, United Kingdom, agrees. “The standard of glass today is vastly better than that of a few years ago,” he says. “They are keen to keep improving their product to meet international standards.”

China is one of the countries that the U.S. DOE is working with as part of the Asia Pacific Partnership on Clean Development and Climate to encourage the use of high-quality double glazing, LaFrance says. The market is “predominately single-pane glass with very small production of low-E glass, less than 5 percent,” he says. “For the industry to transition to double-pane glass, that alone would double the demand.”

Low-e glass production began only four years ago in China, says Leon Duan, business development manager, HB Fuller China, but performance improved quickly. “Low-E glass is now one of the most popular products whose performance has been proven. That is why more and more global customers have begun to import glass from China.”

The development of the Chinese glass industry has come on the heels of the country’s fast commercial development, said Mo Wenyi, professor, engineer and secretary general, XVII International Congress on Glass, at GPD China 2007 in May. “In 2006, GDP reached [$2.7 billion]. This is an increase of 10.7 percent. Currently … building area [is increasing] 20 percent per year in China. And finished area covers 2 billion square meters per year. … China has developed as the biggest façade-producing and consuming country; the yearly demand is more than 50 million square meters.”

The total building area in the U.S. is 1.2 billion square meters, Limb says.

In 2006, China’s total flat glass capacity exceeded 22.7 million tons. “This capacity shares 42 percent of the total global capacity,” Wenyi said. The country’s 11th five-year plan requests raising the processing level of glass to the rate of 40 percent by the year 2010, he said.

Codes and standards
China is in the process of developing building codes; however, they do not yet have a national window rating and labeling program in place, LaFrance says. “There has been work going on for several years by the U.S. Department of Energy’s Lawrence Berkeley National Laboratory and the Alliance to Save Energy with funding from the Energy Foundation,” he says. “Recently, the National Fenestration Rating Council also has been working on this and has a Country Partnership Program in place that could possibly assist in finding a solution.”

The U.S. DOE recently participated in a meeting with Chinese officials to develop an improved durability standard for insulating glass, LaFrance says. “While this is currently a draft version, the U.S. representatives at the meeting were concerned that the standard was predominantly based on the European EN1279 standard,” he says. China also is trying to minimize the test burden associated with the production of insulating glass units, he says. Associations, such as the Insulated Glass Manufacturers Association [of Ottawa], will be made aware of this situation and hopefully will respond as an industry, he says. 

News of these efforts is not yet common knowledge among the members of the U.S. glazing industry.

“I am sure some of the bigger players that are exporting are following some sort of standard on their material, but there’s simply no way they are going through anything like folks in North America do,” says Max Perilstein, vice president of sales and marketing for Arch Aluminum & Glass Co. of Tamarac, Fla.

Vockler voiced a similar opinion: “I am not aware of any code-making body in China,” she says. “If product is made to any code, it’s a demand of the company asking for the product. … There is a government department in China called the National Development and Reform Commission, People’s Republic of China, [and] some time ago they put a rule in place for the use of laminated safety glass. The regulations are coming and this can only mean good things for outside market, and quality products will be produced as a norm.”

The burden is definitely on the U.S. companies buying glass from China to ensure that it meets local codes, Collins says. “While we are aware of one Chinese impact window manufacturer that exports to the U.S.—whose products have passed the U.S. hurricane standards— this is the exception rather than the rule.”

Lau, however, says that China has national standards that clearly specify glass quality. “With continual upgrading, the Chinese national standards are similar to the specifications and requirements of American National Standard Institute or the European requirements,” he says. Some of the national standards are: GP11614 for float glass, GB15763 for fire-resistant glass, GB/T 11944 for insulating glass, GB15763.2 for safety tempered glass, GB17841 for heat-strengthened glass, GB9962 for safety laminated glass and GB/T18915.2 for low-E coated glass.

However, keeping standards is self-monitored and “it is not certain if all glass imported meet all national standards,” Lau says. “Hence, it is important to deal with reliable, credible Chinese glass manufacturers to ensure that the glass products meet the U.S. safety glass standards. In addition, customers should request for ANSI testing certification.”  

Quality concerns
The quality of Chinese glass remains a huge concern among U.S. companies. “My impression of the Chinese market is one of the Wild West: boom growth and high demand for product sometimes lowers the quality so production can be met,” Vockler says.

Many producers make good products and many glaziers install correctly in China, Vockler says, “but there is for sure a scare of bad product being made. ... Yes, the China market is full of those who will take money and not do the job or do it well, much like what has to be dealt with in Eastern Europe as well. It’s not just a China thing.”

Perilstein sites other reasons to be concerned about the republic’s business practices.

“The Chinese glass industry is supported by the communist government’s subsidies and handouts,” Perilstein says. “It’s an industry that is living off of others’ technology and making no strides to create their own. As for glass that’s produced, a majority is not of good enough quality to be acceptable in North America, but is fine for use in their own country.”

However, more and more U.S. projects are using Chinese glass, and the number of such projects will continue to grow, Collins says. “In areas such as curtain wall, where there are a large number of pieces of uniform size and shape, Chinese companies are well positioned to sell a competitive product,” he says. “Products manufactured in high-volume, uniform production runs are at the greatest risk from overseas competition. In the next few years, stories about Chinese companies winning high-profile projects will be headline news in much the same way as Japanese real estate companies buying high-profile U.S. properties in the late 1980s and early 1990s.”

Using Chinese glass can be risky, Vockler points out. “Much of the glass products I’ve seen put into U.S. buildings these days are left with not a soul knowing if they passed any safety or durability tests,” she says. “Unless you know the manufacturer and have a good relationship, it’s buyer beware anytime you don’t buy locally.”

Low prices are luring people in the U.S. to buy Chinese glass, Perilstein says. “However it’s the classic ‘you get what you pay for,’ as some of the projects have been abject failures and the glazier/fabricator have been stuck holding the ball because the Chinese company has no desire or need to make things right. What are you going to do, sue them?”

Perilstein gave examples of three U.S. projects that allegedly went awry from Chinese glass use. However, officials involved in the projects said they were successful without any issues.

If U.S. companies keep buying from the Chinese, the fabricators and the glaziers will go out of business because the Chinese are selling direct to the general contractor or end user, Perilstein says.
To avoid that and for long-term business success, do not simply go for the low cost supplier, Lau says. “For sourcing overseas, it is important to do due diligent to qualify suppliers and to ensure that you are dealing with a quality supplier with sufficient production capability, reliable delivery, good supporting services, and proven track record of performance.”

Looking ahead
“The Chinese economy will definitely continue to grow significantly in the short term, at three to five times the rate of the Western economics,” says Dino Fenzi, president of Vitrum, Italy, and honorary president of Gimav, an association of Italian manufacturers and suppliers of machinery. “Yet it is just as true that in the medium/long term the country will find itself having to make some fundamental political/economic decisions that could upset the current situation and players, bringing totally unexpected results.”

The Chinese government’s decision in June to cut back tax rebates for exports to correct its trade surplus could be one of those fundamental changes. The cutback resulted in a decrease from 11 percent to 5 percent in tax rebate for float glass, forcing price hikes from Chinese manufacturers, Xinyi officials say.

An other such change could result from excess capacity, Collins says. “The Chinese glazing industry has built a large number of float plants in the last 10 years, leaving them with excess capacity relative to their domestic needs. As long as their domestic market stays strong, this doesn’t present a huge problem for U.S. manufacturers. However, when the eventual slowdown of China’s double-digit growth does occur, those Chinese manufacturers will look toward export markets as a way to maintain their profitability and growth.”

China needs to address other issues before being a true global player. As Perilstein points out, China is at the bottom of the “green list, [its] pollution rates and lack of care to the environment are epic.”

China’s transformation to an energy-efficient glass economy faces two key issues, LaFrance says. “The first: it is critical that the Chinese develop a robust protocol to ensure that all insulated glass units are fabricated with a high level of quality and that [they] will last a long time,” he says. “The second: they are experiencing the classic high first cost associated with any new product; thus their manufacturing capability needs to mature to allow for cost-effective pricing to be routine.”

With advances in North America and in Europe, the learning curve in China should be much shorter because the key technical issues have been resolved, LaFrance says. “They just need to be applied to the Chinese market.”

Other weaknesses of the Chinese glaziers are communication difficulties and the challenge of shipping products a long distance without breaking them, Collins says. “The time it would take to ship a replacement would be prohibitive, and shipping a replacement via air freight would likely absorb the cost savings of sourcing in China in the first place.”

Even if the industry successfully surmounts these obstacles, the Chinese won’t be able to change the global glass industry, Vockler says. “There are too many large and trenched-in companies across the globe that have been here longer,” she says. “If they want to be successful as a nation, they need to create standards for their own country. This will give greater credibility.”

China also needs to comply with the World Trade Organization and “put an end to pirating of goods and reengineering,” Vockler says. “At this point, they create their own problem by not standing up and saying ‘we have the capability to produce the world’s best and original products.’ If they do this, then I’ll be scared.”

More products will be coming from China, Vockler says. “I’m not a fan of tariffs, but we will see more and more from the Western side created to keep out competition. My worry is Western markets coming down in quality and making cheaper products to compete. U.S. companies demanding quality products will be the key.”

Chinese companies’ cost advantages can be overcome using a combination of competitive price, excellent service and cutting edge product development, Collins says. “Companies that fail to implement strategies such as these will be the first to see themselves lose business to Chinese companies. U.S. and European companies will need to leverage their greater knowledge of domestic markets in order to develop new products that best meet the needs of their customers. By knowing their customers and responding to their needs, U.S. and European companies will be able to defend their positions.”

Superior quality will make a difference between Italian and Chinese products, Fenzi agrees. “There is still a huge ‘cultural’ divide between the way we produce in Italy and what they do in China,” he says. “Of course, we must also be careful about the way we do business. Quality, as well as competitiveness all along the line, and, last but not least, lots of sacrifices.”

Says LaFrance: “Numerous foreign companies will invest in China and will realize significant benefits. Working collaboratively on growing markets such as China and India, could be a catalyst to encourage global harmonization and universal certification of insulated glass standards.”

Sources
Kris Vockler, ICD High Performance Coatings, 13911 NW 3rd Ct., Ste. 100, Vancouver, WA 98685, 360/546-2286

Michael Collins, Jordan Knauff and Co., 140 S. Dearborn Street, Suite 700, Chicago, IL 60603-5225, 866/358-8435

Nick Limb, Ducker Worldwide, 1250 Maplelawn Drive, Troy, MI 48084, 800/929-0086

Daniel Lau, XYG Glass, #1205-13560 Maycrest Way, Richmond, BC V6V 2W9, Canada, 604/273-0813

Nigel Rees, Glass and Glazing Federation, 44 - 48 Borough High St., London, SE1 1XB, England, 0870 042 4255

Max Perilstein, Arch Aluminum & Glass, 10200 NW 67th St., Tamarac, FL 33321, 866/629-ARCH

Mo Wenyi, Beijing Zhonggui Exhibition, No.11, San Li He Road, Beijing, 100831, China, +86 10  68348131

Marc LaFrance, U.S. Department of Energy, 1000 Independence Ave., S.W., Washington, DC 20585, 800/DIAL-DOEpartment of Energy

Dino Fenzi, Vitrum S.r.l., Via Petitti Carlo Ilarione, 16, 20149 Milano (MI), Italy, +39/02.906221, dinofenzioffice@fenzigroup.com

Mike Lewis Liu, CPFilms/Solutia Shanghai, Unit 1018 Ocean Towers, No. 550 Yanan Road (E). Shanghai 200001, People's Republic of China, 86-21-6361-7736, MMLEWI2@solutia.com

Leon Duan, HB Fuller China, Room 3801-02 Huaihai Plaza, No. 1045 Huaihai Road, Shanghai, China, 200031, +86 21 64721986