China Printed Circuit Industry Facing Crucial Changes

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Driven by domestic and overseas market and policy changes, the increasing requirements of environmental protection and China's policy changes to industry development, the electronic circuits industry in China is entering into a changing phase for adjustment and relocation in which environment and standards are the key for sustainable development.

China's PCB industry developed quite fast in past years and the strong growth of output in China is one of the main drivers for world development. However, for the China PCB industry and the challenges it's facing today, especially in the areas of environment and standards, should be solved to ensure further development.

A Turning Point in the PCB Industry

According to CPCA information department statistics, in 2007 the total output of the China PCB industry reached 150 million square meters--a production value of US $15.5 billion (with an exchange rate of 7.5 R MB to 1 USD). According to the Administration of Custom General, the import and export total reached US $20.37 billion with deficit of US $1.23 billion. The output of China accounts for approximately 30% of the world total. However, since 2007, the PCB industry in China has entered a turning point compared to traditional development and growth.

Presently, the global green industry is the trend. After the EU released RoHS, WEEE and REACH directives, China RoHS was released and made energy saving, emission reduction, consumption saving and efficiency improvements the primary objectives. China is enforcing the currency policy, which reduced the cost advantage of the processing trade industry in China.

In 2008, the global oil price is increasing quickly and exceeded US $140 per barrel. A weak USD and strong RMB increased raw materials prices. Domestically, the increased requirement for waste treatment, tax reform, new labor law and salary increase also increased production costs. In the first half of this year, many enterprises, including PCB and CCL, increased their sales revenue, but the profit is dropping significantly. This is a general condition which has serious impacts upon the industry as whole.

Recently, manufacturing companies communicated with the association that raw material prices are driving up internal costs--leading to drops in profit margins. Enterprises are now survival mode. Facing increasing costs, China production enterprises should revise strategies immediately by communicating with those throughout the supply chain. Factories should have a clear understanding of costs and impacts and then change product structure and develop competitive and innovative technology and products with management to be competitive in a global market. Meanwhile, the price of their products should be flexible according to the cost change environment.

Sacrificing enterprise sustainable development to compete in a low-level, low-technology market is not applicable today. We believe that, with the domestic and overseas changes in environment requirements, as well as China's industry policy change, the PCB industry in China is entering a re-structuring period. The technology level will grow, self-developed technologies will increase, management level will be increased, profit will reach a reasonable level and waste treatment will reach an international high.

Environment Protection and Standards are Key Points

Contradictory standard is the capital issue--the China national standard GB/5479-2006 for drinking water requires the Cu content to be less than 1.0mg/L (The same standard in the U.S. is 1.3mg/L). However, the PCB industry effluent discharging water Cu content standard is less than 0.5mg/L. This means that if PCB shops discharge the drinking water as sewage, they will be fined for exceeding the standard. The discharging standard is twice that of drinking water.

In developed countries, such as Japan, the U.S. and the EU, the Cu content standard is much higher than that of China, and we do not see any serious pollution issue caused by discharged Cu.

The consuming of material, equipment, manpower and energy to treat water to reach the 0.5mg/L standard is several times that of 1.0mg/L. The standard is not only unrealistic, but also is against energy saving, emission reduction, consumption saving and efficiency improvement policies.

The industry relocation should be considered in a broader view of all China. Presently, China electronic circuits industry (including PCB, CCL, material and equipment) 77% to 78% distributed in Zhujiang Delta and Yangtze Delta. In Guangdong province, in locations such as in Shenzhen, some PCB factories were forced to re-locate or shut down because of the environment concerns. The PCB industry is not heavy polluting industry, but has a certain level of pollution. We are taking active steps to reach zero discharge. New technologies, such as additive or semi additive technologies, are developed. Presently, we have to make harder and continued efforts to reach clean production.

For the relocation of industry, from the all-China view, the industry should be located in coastal areas or areas far from rivers or lakes.

Recently, the governments and development zones of Shantou city of Guangdong, Suzhou city of Anhui, Jian city of Jiangxi, Changde city of hunan, Tengzhou city of Shandong, Yangzhou city of Jiangsu etc. are contacting CPCA, expressing their desire to take PCB migrated factories and set up an electronic circuits industry park. We think whether these places are suitable for PCB factory building should be considered in all China view and should be supported by the Administration of Industry and Information Department of China as well as province government. For the building of electronic circuits industry parks, we think the local government should take consideration of the following: Design and treatment of wastes should be the world advanced level; build up a electronic circuits college to train labor forces and management; and support the building of an industry research center.

In some locations, local governments take only their own interests into consideration and asked the PCB shops to set up factories there and make unrealistic promises, which will lead to serious potential crisis in case these places have no government and environment quota; the waste treatment could not reach advanced standards; the small and medium enterprises could not treat the waste in concentrated center; the treatment companies are not qualified for technology and equipment; the government policy is not open and just, etc. The results are beyond imagination.

By referring to a foreign environment standard, in general, China's standards level is higher than advanced countries, such as Japan, the U.S. and EU. But, the pollution is much more serious than those countries--this should cause for deep concern.

Private Enterprises Efficiency Improvement

China's electronic circuits industry is correlated to world industry and affected by the global industry environment. China's PCB industry plays an important role in connecting the electronics and information industries in the country and will be influenced by China industry policy changes inevitably. The following issues should cause our attention:

First, production efficiency is critical both in industry and at the factory level. According to statistics, China enterprise average production efficiency is only 1/30 that of U.S, 1/16 that of Japan and 1/7 that of Korea. Production efficiency improvement is one of the most important topics--especially for private enterprises. Secondly, we must attach high importance to industry information, including technology and process, environment, training, research and development, management and government policy, as well as the supply chain environment. Thirdly, we should create and develop new markets and cultivate special technology or enterprises to increase competitiveness to standard out in global competition.

We are concerning those old private enterprises--if they have no special features, do not improve their management, research or product, as well as waste treatment, they will fall into desperate condition since the government and industry market do not allow low-level, low-efficiency, polluting enterprises to exist.

We must take immediate actions to fight for survival and development. We have to be cautious to the earthquake looming in our industry.

PCB Industry Cost Statistics

With the 2008 cost increase, CPCA information department produced a survey and sent it to dozens of PCB and CCL manufacturing companies. According to the survey results, PCB manufacturing materials increase significantly: FR4 CCL, which takes up about 40% of raw material cost, increased by 7%; Cooper foil, copper, prepreg, nickel, tin and lead, gold etc. takes up 25% raw material cost and increased by 12%; chemicals with 10% cost increased by 9%; labor cost increased by 14%; currency change, tax change and others increased by 3%. CCL is also faced with cost increase pressure. The net cost increase reached 7% in the first half of 2008.

In summary, PCB manufacturing net cost increased by 8.5%! It is predicted that the net cost of manufacturing will continue to grow in 2008.



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