Access threshold enhances tire industry "self-salvation"

If everything can be repeated, the Chinese tire industry will certainly be willing to take the high-end route, rather than mainly in the mid- to low-end market - not only a meager profit, but will accidentally encounter "special protection." In fact, the Chinese tire industry is already trying to raise the threshold for industry entry.

On January 29, a person from the China Rubber Industry Association (hereinafter referred to as the “China Rubber Association”) told this reporter that “The conditions for the entry of the tire industry (discussion draft)” had been issued to relevant agencies and enterprises in the industry. After the investigation, it has been undergoing revisions and will be reported to the Ministry of Industry and Information.

A tire industry official stated that “after the approval of the Ministry of Industry and Information Technology, the “admission requirements” will require the development and reform commissions and other departments to sign and it will take some time to issue, but it is foreseeable that once the “access conditions” are introduced, it will promote the industrial structure. Adjustments and integration to curb excess capacity."

But not all tire companies are so optimistic. Wang Weiqin, deputy general manager of Shandong Huaqin Rubber Industry Group, told reporters: "If there is a lack of strong promotion, the "access conditions" may not achieve the desired results."

Barriers to entry

"The initial draft of the association has been in place for some time," said the Chinese Association of Rubber Workers. Fan Rende, head of the China National Rubber Association, once stated clearly that, in addition to requirements on the scale of production, the entry threshold will also impose requirements on product categories that encourage and restrict development.

It is understood that the "access conditions (discussion draft)" mainly includes project construction, product recall, supervision and management. The discussion paper mentioned that the production capacity of the new truck radial tire project should reach more than one million, and that of the light truck radial tire project should reach more than five million.

In terms of products, it mainly includes “prohibition of the production of bias tire products, and the products of the radial passenger car no longer on the 65 series or more, and the radial tires will no longer have inner tube products”. In addition, new companies should have the ability to recall tires.

The reporter learned that the discussion draft also stipulated the conditions of the assets of the tire project investors, including the bank credit ratings of major shareholders. Prior to this, Li Jiawei, deputy chief engineer of the China Petroleum and Chemical Industry Planning Institute, had suggested that the total investment for the (newly built tires) project should not be less than RMB 700 million, and the asset-liability ratio of major shareholders should be within 50%, and the bank's credit rating should be AA.

The demarcation of the entry red line will promote the development of tire manufacturers to large scale. At present, the China Rubber Association has proposed that governments at all levels support the approval of energy conservation and environmental protection projects. In the near future, it will no longer approve low-level tire product repetitive construction projects.

With the "access conditions" gradually moving to the front desk, the tire industry may begin a round of reshuffle within five years. The person in charge of a large-scale tire company in Shandong admitted to the reporter: “The “Entry Requirements” has set a threshold for projects newly launched through energy-saving and emission reduction targets, and will not have much impact on large-scale enterprises.”

However, he also stated that “but if the “access conditions” are not supported by force, the new project may be launched as long as there is market space.”

Self-salvation

Defining an entry-level red line for the tire industry is a work that has been undertaken by the Ministry of Industry and Information Technology and the China Rubber Industry Association in the first half of 2009.

In June 2009, the China Rubber Industry Association held a technical and economic committee tire expert group meeting to negotiate and formulate conditions for the tire industry, which was expected to be launched before the end of the year. According to Zhao Wenquan, director of the Technical Committee of the China Rubber Association, the Ministry of Industry and Information Technology referred to the issue of access several times when it started to formulate industrial revitalization plans in March 2009.

The dilemma the Chinese tire industry is experiencing is the direct reason for the increase in access threshold.

According to Feng Shiliang, deputy secretary-general of the China Petroleum & Chemical Industry Association, "The rubber industry has the greatest degree of dependence on the international market and is one of the industries most affected by the financial crisis. In particular, in the fall of 2009, the US tire special security case made rubber products. The worsening situation has already worsened."

According to statistics, in 2009, 302 million tires were exported, and the dependence on exports was about 46%, a decrease of 10 percentage points from the previous year.

The reason why this happens is not unrelated to the current status of the Chinese tire industry. As a tire producing, consuming and exporting country, China's tire production accounts for about a quarter of the world's tire production. “But the current concentration of the Chinese tire industry is too low and too fragmented,” said Wang Weiqin.

It is understood that there are approximately 500 to 600 tire manufacturers in China. Among them, in addition to a small number of enterprises in Jilin and other places, about 60% of tire manufacturers are concentrated in Shandong Province, nearly 400.

An industry expert believes that for a large but not strong Chinese tire industry, the setting of a barrier-free entry will be able to suppress "puffiness" to a certain extent, thereby improving the industrial structure and gradually achieving "self-redemption."

Feng Shiliang is optimistic about the prospects of the tire industry. “In 2009, the industry adopted measures such as actively adjusting product mix, vigorously expanding domestic and foreign markets, and changing export methods. At the same time, the national domestic demand policy has driven the growth of domestic automobile consumption, which has led to the gradual defuse of the crisis in the rubber products industry, and has achieved remarkable results.”

According to Feng Shiliang, in 2009, the output value of the rubber products industry reached 477.47 billion yuan, a year-on-year increase of 16.1%, which is one of the fastest growing sub-sectors in the petrochemical industry.

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