The Paint Industry's Winter: 200 Companies Bankrupt

According to data released by the China Coatings Industry Association, from January to September 2024, the total paint output in China reached 26.398 million tons, remaining basically flat compared to the same period last year. The main business income was 298.27 billion yuan, a year-on-year increase of 0.6%, while total profits reached 18.33 billion yuan, a year-on-year increase of 3.1%. Despite this, the growth rates of output, main business income, and total profits are all lower than in previous years.

Amid an overall sluggish market demand, many coating companies are facing growth pressures and even risks of exit. In recent years, due to multiple factors such as macroeconomic slowdown, a continuing weak real estate market, insufficient domestic effective demand, intensified market competition, and rising comprehensive costs, many coating companies have encountered difficulties in production and operation, resulting in frequent bankruptcies or closures due to broken capital chains.

On December 3, 2024, information from the National Enterprise Bankruptcy Restructuring Case Information Network disclosed that the People's Court of Gaoming District, Foshan City, Guangdong Province, issued a notice on November 21, 2024, regarding the bankruptcy liquidation case of Guangdong Langshi Coatings Co., Ltd. The announcement indicated that Langshi, a subsidiary of Jianlang Hardware Group, had declared bankruptcy, with management provided by Guangdong Huaibo Law Firm.

According to the civil ruling published by the Foshan Gaoming District People's Court, Guangzhou Jieding Machinery Equipment Co., Ltd. applied to the court for the bankruptcy liquidation of Langshi on October 21, 2024, citing that Langshi was insolvent. Langshi did not raise objections within the statutory period, and the court notified Langshi on October 28, 2024.

In its bankruptcy liquidation application, Langshi stated that since the end of 2023, it had failed to timely adjust its industrial structure amid rapid expansion and market changes, leading to the inability to recover payments for most projects. Coupled with financial difficulties and chaotic management, the company's business shrank sharply, severely limiting operational activities.

In March 2024, Langshi could no longer maintain normal operations and began laying off employees to reduce losses. On June 11, 2024, all shareholders unanimously agreed to dissolve the company, halt production and operational activities, and proceed with liquidation. The liquidation team consisted of all shareholders, with He Junyou serving as the team leader.

After the establishment of the liquidation team, they registered and commenced work legally. On October 22, 2024, a special audit report from Guangdong Deyou Accounting Firm indicated that as of September 30, 2024, Langshi's total assets were 10,051,052.75 yuan, total liabilities were 11,536,602.24 yuan, equity was -1,485,549.49 yuan, and the debt ratio was 114.78%. The company's assets were insufficient to repay maturing debts.

The Foshan Gaoming District People's Court determined that Langshi could not maintain normal operations since March 2024 and had ceased production and operational activities for liquidation since June 11, 2024. The company's assets were insufficient to cover all debts, indicating a clear lack of repayment capacity, which met the bankruptcy cause stipulated in Article 2, Paragraph 1 of the Bankruptcy Law. Therefore, the court accepted the bankruptcy application filed by Jieding.

Public information shows that Langshi is a company focused on the manufacturing, sales, and R&D of coatings and new material technologies, producing various interior and exterior wall paint products such as true stone paint, water-based paint, and sand-based paint, widely used in the internal and external walls, roofs, and floors of buildings. Langshi's newly constructed project for an annual production capacity of 60,000 tons of water-based paint, with a total investment of 20 million yuan, began production in April 2022, with an expected annual output value of about 700 million yuan.

Langshi's controlling shareholder, Jianlang Hardware, was established in 2003 and listed on the main board of the Shenzhen Stock Exchange in 2016, primarily engaged in the R&D, manufacturing, and sales of building hardware and accessories. Jianlang has become a well-known brand in the construction field, with over 16,000 employees and more than 60 subsidiaries, exporting products to over 100 countries and regions. According to annual reports, the company achieved revenue of 7.802 billion yuan in 2023.

Jianlang once stated that Langshi Coatings would rely on Jianlang's platform advantages to integrate resources, strengthen product R&D and technological innovation, focus on developing the external wall architectural coatings market and construction team chain, forming an integrated service system dedicated to providing high-quality products and services to the industry.

However, despite Jianlang's support, Langshi still could not escape bankruptcy and has been listed as a subject of enforcement by multiple courts. Data from Tianyancha indicates that since September, Guangdong Langshi Coatings Co., Ltd. has been repeatedly listed as a subject of enforcement by different courts, involving significant amounts.

Li Mingyue, an observer in the coatings industry, analyzed that architectural coatings companies are directly influenced by the downstream construction industry, which is closely related to the real estate sector. According to data released by the National Bureau of Statistics, domestic real estate development investment growth rates were 4.4%, -10%, and -9.6% from 2021 to 2023, respectively. The decline in domestic real estate development investment growth has led to a slowdown in overall demand in the architectural coatings market, particularly with engineering coatings seeing a decrease in demand for two consecutive years.

Li further analyzed that due to the overall slowdown or even contraction in the architectural coatings market, Langshi, as a company primarily engaged in architectural coatings, has also been adversely affected. Additionally, the company’s rapid expansion without timely adjustments to its industrial structure, coupled with financial difficulties and chaotic management, led to a sharp decline in business and severely restricted operational activities, ultimately resulting in bankruptcy.

Information disclosed by the National Enterprise Bankruptcy Restructuring Case Information Network indicates that several other coating companies, including Anhui Zunding Coating Technology Co., Ltd., Heilongjiang Shouchuang Coatings Co., Ltd., Fujian Guomei Coatings Co., Ltd., Hainan Xingguang Green Building Coatings Co., Ltd., Shanghai Jiasheng Coatings Co., Ltd., Shandong Kailai Coatings Co., Ltd., Shanghai Styan Coatings Co., Ltd., Foshan Shunde Longjiang Wan'an Coatings Co., Ltd., Foshan Shunde Lunjiao Shunshili Coatings Co., Ltd., Wuxi Yufa Colorful Coatings Co., Ltd., and Jinan Pilot Coating Technology Co., Ltd., have also undergone bankruptcy liquidation this year.

Although most of the bankrupt companies are small and micro enterprises, some once-thriving large factories have also not escaped unscathed. Shanghai Jiasheng Coatings Co., Ltd. is a typical example. On June 28 of this year, the Shanghai Third Intermediate People's Court ruled to accept the company's compulsory liquidation case. The closure of Jiasheng Coatings, once a well-known coatings company in Shanghai, has left industry insiders lamenting that no one can remain unscathed in this storm.

Even more lamentable is that some time-honored enterprises with a long history have also fallen victim to misfortune. Guizhou Crystal Organic Chemical (Group) Chongqing Coating Factory is one such example. Established in 1999, this company applied to the Fifth Intermediate People's Court of Chongqing to terminate the compulsory liquidation procedure on July 25 of this year. Even companies specializing in high-end coatings have not escaped calamity. Shanghai Styan Coatings Co., Ltd., which specializes in producing high-end industrial coatings, ultimately also met a similar fate.

According to incomplete statistics from "Coating Industry," since the beginning of 2024, over 200 coating companies have exited the market, with the number of bankruptcies significantly higher than in previous years. At the same time, many coating distributors have also closed down. While companies in the coatings industry often face closures annually, this year has seen a gradual market recovery, with many enterprises achieving record high revenues, yet some still could not avoid bankruptcy.

What is even more concerning is that among the closed enterprises, there are not a few with advanced technologies. Shandong Kailai Coatings Co., Ltd. is one such example. This company, which holds multiple patented technologies, ultimately could not escape bankruptcy. On June 20, the company’s management applied to the People's Court of Donggang District, Rizhao City, Shandong Province, stating that it was unable to repay debts and requested the court to declare bankruptcy.

In addition to closures and bankruptcies, some coating companies are also seeking investments and asset auctions on major platforms, with varying degrees of financial issues. Notably, if successful in attracting investment or finding someone willing to "take over," these companies may have a chance for rebirth, avoiding direct asset auctioning and retaining some potential for restoring production and operations, thus optimizing resource allocation in the industry.

Every enterprise understands the importance of capital, yet there remains a group of coating companies whose debts have been exposed and are being auctioned off. In short, asset holders are eager to sell the coating companies they own because they foresee poor operational conditions. They want to offload quickly to avoid scenarios where the company cannot pay back debts and interest. Once a coating company’s capital chain issues arise, the necessary "lifeblood" for operational activities cannot be supplied anymore.