Paint tax introduced paint leader or leader

The introduction of a paint consumption tax has become both a blessing and a curse for the industry. For leading water-based paint companies, it’s an opportunity to solidify their market position, while small-scale manufacturers face an existential threat. As the policy takes effect, many smaller firms will be forced to exit the market, and mid-sized companies may struggle to maintain their footing. However, this turmoil also presents a golden chance for larger companies looking to grow through strategic acquisitions at discounted prices.

Within the next 2-3 years, the paint sector is expected to undergo a major restructuring, similar to the shakeup that followed the acquisitions of Xiupu and Oulong Paint. Industry consolidation is inevitable, driven by the low barriers to entry that have allowed thousands of small players to flood the market. These companies often compete on price, leading to overcapacity and fierce price wars. This has pushed the industry into a period of thin margins, where survival depends heavily on cost-cutting and low pricing strategies.

For small manufacturers, low prices are not just a strategy—they’re a necessity. But this competitive edge is fragile. When the paint excise tax comes into play, it could wipe out these advantages overnight. Small furniture makers and door companies, who rely on affordable paints, will see their costs rise. In response, they’ll likely pass these increased expenses back up the supply chain, blaming paint suppliers as the main cause of their rising costs.

If small paint producers want to stay afloat, they’ll have to keep lowering prices even after the tax is implemented, risking a downward spiral. With profit margins already near 5-10%, further price cuts could lead to financial collapse. Once the cash flow dries up, many will be forced to shut down, much like what happened with Jiuquan Paint.

As the market becomes more concentrated, the remaining companies will seize the opportunity to capture the market share left behind. Meanwhile, the real estate sector, which is closely tied to paint demand, may face its own challenges. Although the government continues to support housing development, the property market has been inflated for years. A bubble burst could have far-reaching consequences, but the state is still focused on urbanization and domestic demand growth to cushion the impact.

The government hasn’t taken direct action against the paint industry until recently, when overcapacity and weak production became apparent. Now, it’s using environmental standards, access thresholds, and even tax policies to manage the sector. While no extreme measures have been introduced yet, the pressure is growing.

For small paint manufacturers, the road ahead is tough. Whether they choose to upgrade, merge, exit the industry, or face the storm head-on, each option comes with its own set of risks. Upgrading requires significant investment in technology and capital, while mergers require strong distribution networks or regional dominance. Those who prepare early—both in terms of technical innovation and market reach—will be better positioned to weather the storm and turn it into an opportunity.

Many paint companies now find themselves in a difficult position: either they must accept devaluation or risk being left behind. For those with strong capital and leadership, however, the current turmoil offers a unique chance to acquire struggling businesses at a discount. This isn’t just a crisis—it’s a turning point, one that could shape the future of the entire industry.