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Taking a Closer Look at the Hong Kong & China Printing Industry Treating the U. S. tariffs as another business challenge–along with rising production costs, slimmer profit margins, and more stringent regulations–is the pragmatic way forward for Hong Kong and China print manufacturers Tan, Teri Publishers Weekly.

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Taking a Closer Look at the Hong Kong & China Printing Industry: Treating the U. S. tariffs as another business challenge–along with rising production costs, slimmer profit margins, and more stringent regulations–is the pragmatic way forward for Hong Kong and China print manufacturers Tan, Teri Publishers Weekly. August 26, 2019, Vol. 266 Issue 34, p50, 11 p. PWxyz, LLC 2019 United States China It’s on. It’s off. Back to the dtawing boatd. Renegotiate. Pause, Now it’s on again. Sound familiar? The whole U.S.-China trade debacle and ensuing tariff threats (and reversals) […] English 0000-0019 COPYRIGHT 2019 PWxyz, LLC Copyright 2019 Gale, Cengage Learning. All rights reserved. edsgcl.598538037 Gale Literature Resource Center FEATURES

Taking a Closer Look at the Hong Kong & China Printing Industry

Treating the U.S. tariffs as another business challenge—along with rising production costs, slimmer profit margins, and more stringent regulations—is the pragmatic way forward for Hong Kong and China print manufacturers

It’s on. It’s off. Back to the drawing board. Renegotiate. Pause. Now it’s on again. Sound familiar?

The whole U.S.-China trade debacle and ensuing tariff threats (and reversals) is not all that dissimilar from the stages leading up to a print order placement, whether it is about striking the right deal, fixing the appropriate terms and conditions, or putthe ink onto paper. But of course, the repercussions from tariffs print products manufactured in China are far more serious.

In the latest decision (released on August 13) from the U.S. Trade Representative, Bibles and religious books are excluded from the first list of products subjected to 10% tariffs starting September 1, while picture books, drawing books, and coloring books received a reprieve, with tariffs delayed until December 15. All other types of books—trade, education, and professional—printed in China are still subject to 10%

tariffs come September.

For print manufacturers in Hong Kong and China, there is no avoiding the elephant in the room. While there seems to be little sense of enfeebled buyer sentiment brought on by the tariffs (or threats or tantrums—all of which do apply) so far, there are palpable worries of a down-trending global economy, fueled by the U.S.-China trade dispute and by other trade standoffs going on in different parts of the world. Confusion and uncertainty reign.

Reactions to the Tariffs

“Unpredictable” is the summation from Ken Kong, managing director of Jade Productions, on the trade dispute. “I still believe that books will be the last item on the list of products subjected to the tariffs,” he says, “and that U.S. publishers and associations will do their utmost to ensure that books are tariff- exempted.”

“Hoping for the best and prepared for the worst” is the motto of Henry Woo, general manager of Leo Paper’s OEM business department. “We are definitely not looking forward to any incident that will adversely affect the close relationships and strong partnerships between American publishers and Hong Kong/ China print manufacturers,” Woo says. “Ongoing trade disagreements are never positive and will cast far-reaching implications beyond economic losses, and no one—definitely not Leo Paper—wants that. Having said that, we are collaborating with clients to explore possible ways to minimize the tariff impact.”

The U.S. tariffs will bring about “higher prices and a short supply of innovative, tactile, and interactive children’s educational products into the U.S.,” says Richard Lim, COO of Hung Hing, which has a diverse portfolio covering printing (especially children’s books), packaging, and paper trading. “And if cost becomes the only consideration for printing in China due to the tariffs, then there may be downspeccing of products, which will then lead to less creativity and innovation.

This will be a big loss not just to the U.S. book market—especially for children, parents, and educators— but also to the rest of the world.” The trade war and subsequent tariff implementation—whether it is at 10% or 25%, or if it will be lifted in the near future—has changed publishers’ views on their supply base, says Howard Musk, president and CEO of Imago. “It has now become a more complex equation than simply choosing between the U.S. and China for print manufacturing, and one of Imago’s roles is to help solve that equation.”

For Alice Fan, overseas sales manager at Magnum Offset, the uncertainty over the tariff implementation is fast becoming a new normal. “The negotiations—on, off, and then on again, and at this percentage or that—are very distracting, with no one really knowing the next U.S. or China game plan. What we do know is that we need to treat all these as a part of the usual business environment, where there are ups and downs, threats and opportunities, and we adjust our operations accordingly while staying optimistic and pragmatic.”

Dealing with the Tariffs

By now, most print procurement teams at major U.S. publishing houses would have done their preliminary scoping out of alternative print sources in their contingency plans, says global business director John Currie of CTPS, which supplies to higher education, STM, and reference book publishers.

“For the segments that we cater for,” Currie adds, “some questions have risen from the tariff threats: Is there sufficient capacity—especially in the U.S., where printer consolidations and mergers and acquisitions have been ongoing for some time now—to absorb the sheer volume of print coming from these big publishers? And can these publishers get the same price points, quantity, and quality that they have enjoyed from China print suppliers for so long? These answers will determine the extent of the migration and the long-term impact on the U.S.

book industry and China’s print manufacturing.” Depression in the print segment, Currie says, will then exert an upstream disruption to paper mills and agents in Hong Kong and China. “Reduced inventory of paper is one potential outcome,” he says. “Increased paper pricing is another.” As for CTPS’s own contingency plan vis-à-vis the trade dispute, Currie says that the scale will depend on the eventual percentage of the imposed tariffs. “This may range from downsizing operations and workforce to achieve even higher production efficiency to seeking non-U.S. replacement export business. The latter, of course, will take some time to achieve.”

Chinese print manufacturers, says Matthew Yum, executive chairman of Hung Hing, will not be able to absorb the cost of the tariffs if they are implemented on books. “For Hung Hing, market diversification has proven to be helpful, since we are also active in Europe, the U.K., China, and other markets within Asia Pacific. Our operations are spread across several business verticals, and we continually evaluate each segment for its commercial contribution or cost challenges—with or without tariff implementation. In fact, we have been redirecting some of our capacities and resources to other business categories including premium and promotional products for fast-food retailers, which are not operating within the U.S.”

The last few weeks have seen Francis Ho, deputy general manager at C&C Offset, and his management team having long discussions and production planning with clients. “Given the way the U.S.-China trade war is going, we want to be prepared for all eventualities while we keep our fingers crossed for the best— in this case, zero tariff. In any case, the next one month will give us a much better indication of our publishing clients’ plans regarding manufacturing their titles in China. At the same time, we are also actively exploring opportunities to print outside of China.”

Staying proactive, Ho adds, is about reacting quickly to the changes in global political and business environment. “It is always good to know what is going to happen or is already on the way. As the saying goes, ‘forewarned is forearmed.’ ”

Kong, of Jade Productions, has also been preparing for any tariff fallout, including keeping less paper stock for potential orders from the U.S. “We had considered moving print back to Hong Kong, but we found that only paperbacks are possible within the current price range. Illustrated and coffee-table books

will be much more expensive, while labor-intensive children’s books are almost impossible to move back at all. The higher manufacturing cost and inadequate production capacity and expertise in Hong Kong make such relocation not feasible.”

For major U.S. clients placing orders with Jade Productions, Kong is going an extra mile in the event that the tariffs come into effect mid-production. “I am offering a certain percentage of discounts to help them out in such cases. That, I think, is the most we can do given the situation.” And in case the tariffs are levied strictly based on supplier invoice, Kong and his team are taking steps to ensure that his manufacturing costs are listed separately from the freight charges.

Asked if publishing clients are rushing orders and shipments or holding back on print orders due to the tariffs, Fan, of Magnum Offset, says, “Not at all. We have new clients looking for quotations and established ones placing new orders. So far, we have not received any inquiries about the trade war and tariffs. Instead, clients are asking if we work on Sundays—and yes, we do, since our frontline production team is 24/6, and our sales team works from home after office hours to meet the needs of our customers.”

Magnum Offset’s main production lines are located right in Hong Kong itself, and that, for Fan, is a big advantage right now. “We do not see any immediate impact on us due to the tariffs, and our printed products are directly exported from Hong Kong ports to the U.S.— and so we are not worried,” he says. “If certain raw materials—inks, plates, chemicals, paper, and packing materials, for instance—are affected by the tariffs, we will be able to weather it without seriously hitting our bottom line.”

Percy Leung, overseas sales manager at Magnum Offset, adds: “Our main strategy is to continue maximizing our capabilities, efforts, resources, and equipment while minimizing unnecessary sub- contractors costs to maintain the highest business performance possible.” And while the U.S. is not Magnum Offset’s biggest export market, it remains an important one. “In the past 12 months, especially, projects from our local market account for a huge percentage of our turnover,” Leung says, pointing out that “our clients come from different parts of the world, and there are opportunities everywhere, including the U.S., despite the tariffs.”

Moving On and Beyond

For some of the print manufacturers, uncertainties caused by the unstable U.S-China relations have turned the spotlight on the growing domestic market, specifically in packaging and publishing sales.

For Hung Hing, its successful foray into the Chinese market and ongoing collaboration with major Chinese publishers are tied to increased consumer spending on books and educational products. “Young Chinese parents with higher disposable income are much more willing to spend on educating their children compared to a decade ago,” says Yum, pointing out that there is a growing appetite for licensed children’s books.

“At the same time, with Chinese publishers busy reinventing or upgrading their products with better

illustrations and content, Hung Hing is able to ride on this growth for better quality books and expand our foothold in the Chinese market.” For 2019, Yum’s major focus is to further improve his current manufacturing facilities while working on completing and commencing its Vietnam operation. “We are optimistic about the Vietnamese market for packaging,” Yum says, “especially given the current trend of manufacturers moving to locations outside of China. In the near future, we may even consider expanding this particular operation to include exports of paper products.”

Leo Paper is also taking the pragmatic way to move ahead. “We do our best to equip ourselves and positively embrace any changes and challenges that are foreseeable or controllable,” says Woo, who is seeing sales growing in China, Germany, and the U.S. “Over the years, we have emphasized and continued the efforts to maintain our quality, cost, and delivery—which is the most important element to staying competitive and sustainable.”

Leo Paper’s product range, Woo adds, is wide, and so is its client base. “We do not rely heavily on a single region or client to maintain our business,” he says. “In fact, diversification is always one of our corporate strategies in expanding our business portfolio and achieving sustainable growth. Market-wise, we started taking a proactive approach by expanding into the domestic China market in 2015, and this has proven to be an astute move given its growing volume of children’s publications, increasing demand for higher product and content quality and stricter copyright protection.”

Meanwhile, Leo Paper’s trademarked valueadded solution Magic Paper World has received positive feedback from publishers, especially from those in Europe. Additional and more exciting solutions will be showcased at the upcoming Frankfurt Book Fair. (More on Magic Paper World on page 62.)

From the beginning, Musk says, Imago offered global print solutions with a focus on China as well as other Asia- and Europebased print options. “We have strengthened our capabilities outside of China,” he adds. “In fact, since 2018 and continuing through 2019, we will be building on our already diverse printing plant network.” A further push to broaden the network came from the tightening of content censorship in China. “The Chinese government’s process for checking content has changed in recent months, resulting in a much longer process while increasing the amount of content being rejected,” Musk says.

Nevertheless, there are many projects, especially those involving lots of handwork or complex finishing, for which China is the only good option. “In recent years,” Musk says, “we have seen a greater demand for very beautiful editions, and it would be very sad if uncertainty over tariffs makes publishers invest less in this area. The industry has seen growth in printed book sales, which is great for us printers, publishers, and booksellers, as well as for readers, who can enjoy getting their content from a well-made book instead of a tablet.”

On the positive side for printing in China, Musk notes that the trade tensions have already put some downward pressure on the yuan, and that paper prices are softer than they have been in recent years, which helps to keep China manufacturing competitive.

Greening Is Still the Word For the Chinese government, keeping its manufacturing industry well and alive

(and active) is very much about sustainability. Ecological citizenship is de rigueur while the call for more environmental protection is getting louder. Tree-planting and space-greening activities have taken on a frenetic pace never before seen in every city and township. Tightening regulations are aimed at reducing pollutants and increasing the days of blue skies, hence the closure of many factories around major metropolitan areas and the launch of the three-year eco-sustainability. Blue Skies initiative last year. (See “Of Inks and More,” below, on the vast implication of China’s eco-initiatives.)

For print manufacturers, acronyms such as FSC, SFI, and PEFC and others pertaining to forest stewardship, are now an indispensable part of the industry lingo. Being sustainable and carbon-neutral is the goal—which is easier said than done, but the manufacturers are trying very hard.

Hung Hing, for instance, is equipping its Hong Kong headquarters wth solar panels—which will generate an estimated 200,000 kWh of power annually—and the company is participating in a pioneering project that uses artificial zeolite to absorb volatile organic compounds released by indoor applications. “Another pioneering project that we are carrying out uses advanced electromagnetic methods to kill germs in water and prevent water scale buildup in heat exchange pipes so that our water system can run in peak efficiency at all times,” Lim explains.

C&C Offset is continuing its investments in greening its production facilities, while Leo Paper has initiated a companywide plastic-free movement. In fact, none of the print manufacturers and brokers featured in this report are idling by when it comes to being ecologically aware and active.

Printing press manufacturers are also getting into the act, by increasing machine throughputs and energy efficiencies while decreasing wastage and emissions. Presses are becoming carbon-neutral, using water- based inks, and requiring less (or no) alcohol-based solvents. Some are automating and bypassing tedious processes in the bid to be faster and more eco-friendly. (See “The Case for Digital Print Enhancements,” page 64.)

For Hong Kong and China printing industry players, any solution that will bring forth higher productivity, faster time to market, and eco-friendly practices is lauded and much welcome. Here is a roundup of seven major export print suppliers on their strategies, investments, and hopes for the coming months.

Of Inks and More

Last year, major ink companies—namely Flint, Huber, and Sun Chemical—came out one by one to announce price hikes on their inks and coatings for North American markets.

These companies and other ink suppliers—including DIC, Sakata, Siegwerk, and T&K Toka—have operations in China, where the domestic printing industry is valued at $160 billion and the annual ink sales exceed $1.5 billion. But now, these ink companies are facing two serious challenges far beyond their control.

The first challenge comes from China’s green movement, which aims to shrink outdated production capacity and eliminate those using substandard coal-fired power generators and boilers. Thousands of

factories have been shuttered, and production sputtered as a result. Last year, a three-year Blue Skies initiative was launched to further curb air pollution. Tighter legislations on emissions, waste disposal, and cleaner energy usage are affecting not just pulp-and-paper mills and printing factories but also raw materials manufacturers.

So, up went pulp and paper prices, and short was the supply of raw materials—specifically, photoinitiators, oligomers, and monomers—that are required for making energy-curing printing inks and coatings.

The second challenge started in Washington with tariff talks, threats, and tweets. The ensuing U.S.-China trade war escalated fast with tit-for-tat measures that recently saw the latest round of tariffs imposed on almost all goods manufactured in China.

For U.S. publishers considering pulling print orders from China and going back onshore to avoid the tariffs, the current picture is not ideal. Closures of major printers—Edwards Brothers Malloy and Thomson-Shore come to mind—have destabilized the supply chain, while U.S. and Canada mills closures and production cuts have reduced the tonnage of printing and writing stocks available in the market. And now, printing inks are becoming more expensive.

On the positive side, the devalued Chinese yuan, now at its 11-year low against the U.S. dollar, will reduce the tariff impact on China-made products. The devaluation is making Chinese exports more competitive and cheaper while turning U.S. imports more costly, which will then force Chinese companies to look for alternatives or make/build their own. For China, it seems like a good deal in the long run. For the White House, this is probably going to merit more tweets (and threats, and tantrums, oh my). For these ink companies, only time will tell.

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