Foreign Investment Reshapes Chinese Disposables Market

By Karen Bitz McIntyre, Editor | October 8, 2012

Baby diapers, adult incontinence see explosive growth as feminine hygiene streamlines and wet wipes face lower pricing levels.

As the Chinese nonwovens industry awaits significant investments to come onstream, market watchdogs are eager to see how an unprecedented number of new and sophisticated spunbond lines will reshape the market. These investments, being made by local and international companies, alike are considered a must for anyone who wants to do business in China.

Among the many new lines coming onstream is the First Quality investment in Wuxi, Avgol’s third line in Hubei (which will bring the company’s Chinese capacity to 40,000 tons), Toray Saehan’s two lines, which will bring the company’s total Chinese output to 58,000 tons on three lines, and the Jofo Group’s 30,000 ton line in Weifang. These investments join a number of other lines already operational that have transformed the Chinese nonwovens market into a major global force, ready to serve a population that is hungry for disposable goods. This hunger is evident in the rapid rate of foreign investment on the end use side of the business. In 2012, alone, at least four major diaper plants have been established or are in the process of being built.

In March, Kimberly-Clark (K-C), Procter & Gamble (P&G) and Japan’s Pigeon all started construction on new diaper plants, while in August, Japan’s Kao Corporation completed construction of a diaper plant in Anhui Province, a new manufacturing base that represents an investment worth more than $100 million, according to reports. This new manufacturing base and product development center, integrating product manufacturing, quality control, product innovation, engineering project management and logistics management will chase growth in China where sales are increasing rapidly. In fact, accrding to the Chinese National Household Paper Industry Association (CNHPIA), total output reached 19.55 billion pieces last year, representing 26% growth. Meanwhile, sales grew 27.7% to reach 18.46 billion yuan or about $3 billion.

Also looking to capitalize on this growth is P&G, the maker of Pampers and Luvs diapers, which has started stage one of a three-stage investment in Luogang, Guangzhou, China, that will ultimately be one of the largest manufacturing sites in Asia. The first stage of the plant will reportedly make a number of consumer goods, including Pampers, and is part of the company’s goal of investing as much as $1 billion in China by 2015. The plant is expected to add as much as $490 million worth of production value to the Cincinnati, OH-based company annually.

Meanwhile, K-C, Dallas, TX, announced in March that construction had started on its new diaper manufacturing base in the Jiangning Development Zone, according to China Sourcing News. The company will reportedly invest more than $100 million in this new manufacturing base and product development center, integrating product manufacturing, quality control, product innovation, engineering project management and logistics management.

Also investing in the Chinese diaper market’s future growth is Japan’s Pigeon Corporation. In early March, the company voted to increase investment in its Changzhou-based Chinese operation, which was completed in late 2011. According to company documents, this site currently makes breast pads, baby wipes and other baby items, and the new investment will add baby diaper production to the site. When construction is complete, which is forecasted for 2013, the site will be able to make about 85 million diapers per year. Pigeon also operates a manufacturing site in Shanghai.

According to those familiar with the market, growth in the baby diaper market is being driven by increased income, allowing Chinese parents to spend more on their children. In 2011, market penetration reached 39.1%, which allowed sales for many medium-sized companies to surge.

As foreign companies increase their footprint in the country, local manufactrers like Hengan, Guangdong Baisun, Fujian AAG and Fujian Angel are also increasing their investment in the baby diaper market. In 2011, the Vinda Group launched Babyfit diapers and Dongshun Grup began producing the Habby Baby brand.

Therefore, despite the huge potential of the Chinese baby diaper market, all of this investment has intensified competition as companies like Hangen Group continuously launch upgraded versions of products like Q-MO, a premium product that is expected to be sold nationwide by the end of this year.

Feminine Hygiene: Streamlining the Market

According to those familiar with the market, the disposable baby diaper is more dominated by multinational, well-known brands than other nonwovens-related businesses like feminine hygiene, however, this area is not reporting the same staggering growth levels as baby diapers.

According to statistics from the CNHPIA, the market for feminine hygiene products, including napkins and pantyliners, grew about 7.9% to reach 26.2 billion yuan or $4.2 billion. This level of growth, while significantly lower than other areas of disposable goods, is still significantly higher than the global growth rate, which is around 2-3%. Like in diapers, growth has been caused by increased incomes. The average per capita usage of sanitary napkins has increased because women use more products per cycle. At the same time, consumer demands in this market have become more sophisticated, paving the way for more premium products featuring wings or other innovations.

Even though the feminine hygiene market is largely dominated by local manufactures, higher end products tend to be offered by multinational brands, including Whisper from Procter & Gamble, Stayfree from Johnson & Johnson, Kao’s Laurier and Kotex from Kimberly-Clark.

In 2011, P&G launched its Pinkcess series of sanitary napkins designed especially for girls in the global market. In April, P&G launched its Cuican series of napkins that can satisfy the need for soft, dry, breathable and protective products.

In early summer of 2011, Kotex introduced a limited edition of iron box small Q packet and odor-protected pantyliners with weak acid surfaces, and in December, Hengan launched its Space 7 Princess series in seven provinces. These are just some of the many product improvements this category saw last year.

The big difference between the Chinese market and Western markets is that tampon usage continues to be very low compared to a 30% market share in North America and Europe. This has traditionally been caused by concerns over bacterial infections but this is changing as consumers abandon these concerns and pay more attention to fashion trends.

Hengan Group is the largest manufacturer of feminine hygiene products and its sanitary napkin business has continued to grow rapidly despite foreign competition. Sanitary napkin and panty liner sales increased 29%, occupying a 24% market share. Other leaders include Kingdom, Hengli, Foliage and Credible. Foreign companies like P&G and Unicharm have also seen investments in the country pay off.

In 2011, sales revenue of the top 15 feminine hygiene manufacturers, including a sampling of foreign and local producers, comprised about 76.8% of sales.

Adult Incontinence: Selling Comfort

Meanwhile, although its base is much smaller than the diaper market, adult incontinence output is growing fast, up 33.9% to 1.95 billion yuan or about $300,000.

There are currently 297 registered adult incontinence manufacturers, over 100 more than 2010. These are mainly located in Fujian, Jiangsu, Tianjin, Guangdong, Shandong, Hebei, Shanghai and Zhejiang. Zhenqi had the highest sales revenue, up 51.1% while K-C reported 54% sales growth.

Much of the growth in this market can be attributed to a small penetration rate, but as investments in this area heat up, China’s aging population is creating a need for products.

International companies are in fact cultivating an adult incontinence market in China, hoping that the use of these products can gain traction. Switzerland’s SCA established a Chinese Global Innovation Center in Shanghai last year, hoping to develop new technology and products according to the demands of the Chinese market. This led to the formation of a cooperation agreement with Singapore’s Econ Healthcare Group, a well-known healthcare company. SCA hopes to use this group’s first-hand knowledge of the Chinese market to grow its business there. Already, SCA has launched the Tena belt diapers in China, which is designed with Tena’s most advanced technology according to the physiological characteristics of the Chinese people.

K-C’s adult incontinence products rank second in the world and the company began selling its Depend products in China in 2007. Since then, the company has focused on promoting concept instead of selling products, organizing public service activities to care for the elderly and disabled.

Unicharm has launched Lifree, a new series of adult diapers which is safer, softer and thinner, targeting people who can walk independently, sit, stand or walk with assistance.

P&G continues to expand its factory in Tianjin and Unicharm has already begun operation of a new site in Shanghai. This foreign investment as well as the increasing sophistication of local manufacturers has streamlined the market, forcing some smaller or medium sized companies to exit the market. In fact, 2011 saw the first time in years that the number of manufacturers decreased.

Wet Wipes: Growth Wanes

In the wet wipes market, exports and foreign trade represent a big part of China’s business. Of a total output of 24.6 billion pieces, exports represented 10.92 billion pieces, up 31.3%. Despite this growth, the dollar value of the market decreased 9.3% due to lower selling prices.

According to CNHPIA, there are 513 registered wet wipes manufacturers doing business in China, located mainly in Zhejiang, Guangdong, Jiangsu, Shanghai, Fujian, Shandong, Liaoning and Beijing. Manufacturers with the highest growth levels are Shanghai American, Jiangzi SenCen, Dalian Daxin, Kimberly-Clark, Tibet Kanba Garpo, Golden Starry and Yiwu Anrou.

The wet wipes market is largely divided into six categories—common use, baby use, feminine use, makeup removing, home cleaning and other. The largest category is baby wipe, representing 36% of sales, but all wet wipes have been infused with more functions, including skin care ingredients. This market continues to have great market potential but growth is challenged by traditional cleaning habits and cheaper tissue towels. The quality of wet wipe products varies a lot.     

Authors note: Much of the information from this report was taken from “Overview and Prospects of the Disposable Hygiene Products Industry in 2011,” developed by the China National Household Paper Industry Association (CNHPIA). More information: cnhpia@sina.cn; www.chnpia.org.

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