chemical industry in china-final

8/8/2019 Chemical Industry in China-Final

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Chemical Industry in China



y Eastern Asia, bordering the East China Sea, Korea Bay, Yellow Sea, and South China

Sea, between North Korea and Vietnam

LAND BOUNDARIES

y total: 22,117 kmborder countries: Afghanistan 76 km, Bhutan 470 km, Burma 2,185 km, India 3,380

km, Kazakhstan 1,533 km, North Korea 1,416 km, Kyrgyzstan 858 km, Laos 423

km, Mongolia 4,677 km, Nepal 1,236 km, Pakistan 523 km, Russia (northeast) 3,605

km, Russia (northwest) 40 km, Tajikistan 414 km, Vietnam 1,281 km

regional borders: Hong Kong 30 km, Macau 0.34 km



y Literacy:

definition: age 15 and over can read and write

total population: 90.9%

male: 95.1%

female: 86.5% (2002)

Government

Country name::People's Republic of China

Government type: Communist state

Capital: Beijing

Legal system:a complex amalgam of custom and statute, largely criminal law;rudimentary civil code in effect since 1 January 1987; new legal codes in effectsince 1 January 1980; continuing efforts are being made to improve civil,administrative, criminal, and commercial law

Political parties and leaders: Chinese Communist Party or CCP [HU Jintao,General Secretary of the Central Committee]; eight registered small partiescontrolled by CCP



y Literacy:

definition: age 15 and over can read and write

total population: 90.9%

male: 95.1%

female: 86.5% (2002)

Government

Country name::People's Republic of China

Government type:Communist state

Capital: Beijing

Legal system:a complex amalgam of custom and statute, largely criminal law;rudimentary civil code in effect since 1 January 1987; new legal codes in effectsince 1 January 1980; continuing efforts are being made to improve civil,administrative, criminal, and commercial law

Political parties and leaders: Chinese Communist Party or CCP [HU Jintao,General Secretary of the Central Committee]; eight registered small partiescontrolled by CCP



Key China indicators: GDP growth

y After four years of 10%+ GDP growth, growth slumpedin the fourth quarter of 2008 to an annualized rate of 6.8%.



China indicators: imports and exports

y Rapidly falling exports and imports since September 2008narrowed Chinas trade surplus. Exports rebounded somewhat

in March. A Yuan-based cross border payment system could

bring new growth in trade



Overview

y China Chemical Industry holds the third position inthe nation. Though it has got a ranking after theTextile Industry and Machinery Industry, itcontributes almost 10% of China's GDP.

y China Chemical Industry has established aconsistent growth path over the years. In 2004, itrecorded a 30% increase in production ofpetrochemicals. This achievement awarded the

China Chemical Industry the tag of the fastestgrowing industry in China



Chemical Industry of Chinay China has become the largest importer of chemicals and the third-largest

consumer of chemicals in the world.

y China's demand for industrial chemicals has already made it account for

15% of the market worldwide.

y Its outputs of sulfuric acid, ammonia, fertilizer, calcium carbide, dyes,phosphate and synthetic fiber, and its consumption of polypropylene and

synthetic rubber all rank first in the world.

y 2nd largest country for chemical consumption and ethylene production

after the U.S.

y

China's demand for petrochemicals and plastics is expected to risebetween 6% and 8% each year over the next decade, outpacing growth in

Asia (5.4%) and the world (3.6%) for the same period.

y Chinas chemical industry as a whole is expected to grow at an average rate

of more than 10% through 2016.



Industry Classification

Segments characteristics Constituent industries

Basic - high volume- limited product

differentiation

- petrochemicals- fertilizers- organic chemicals- other industrial

chemicalsSpecialty - typically small production

units- high production

differentiation-

low capital investment

- adhesive sealants- catalysts- industrial gases- plastic additives

Knowledge - differentiated chemical andbiological substances

- high investments in R&Dand marketing

- agrochemicals- pharmaceuticals- biotechnology



Industry Classification

Basic chemicals dominant inChina

Market share 2004,%

Organic and inorganic feed stocks13.9

Agrochemicals3.8

Polymers 47.6

Pharmaceuticals 3.5

Paints and lacquers 23.2

Detergents and bodycare products

1.1

Other chemicals 6.9



Major Chemical Products Output



Major Chemicals



Import and Export of Selected

ChemicalsImport (US$ billion)

Growth (%) Export (US$ billion)

Growth (%)

Organic chemicals 30.8 7.3 12.7 36.6

Specialty

chemicals

7.4 -7.5 4.1 -21.8

Inorganicchemicals

6.0 28.2 7.6 10.4

Paint and dye 3.5 14.0 3.0 20.7

Rubber product 3.2 54.7 18.2 24.8

Fertilizer 2.5 -18.2 1.2 15.1

Synthetic material 1.8 13.8 4.5 39.5

Chemical ore 0.8 -8.4 0.5 -7.4

Pesticide 0.2 16.8 1.0 -25.7

Other 32.4 25.5 0.6 17.4



Top 10 Chemical Companies

in China



y Most of these companies are state-owned.

y As the chemicals industry occupies a key position in the

economy, the Chinese government continues to actively steer

market entry for foreign companies.y The best possible foreign investment currently is a joint

venture with a Chinese partner. To avoid economic

overheating, the government has recently established entry

barriers for selected industries.

y The basic chemicals market and especially the market for

petrochemicals are affected. Only major projects with a

production volume of 800,000 tonnes p.a. are currently being

permitted.



Regional Disparities By output

(top 15 provinces, Unit: million ton)



Tariff on Chemicals

y China joined the World Trade Organization in 2001, which committed it tocutting tariffs on chemicals. In coming years, this could expose weaknessesin various parts of the domestic chemical manufacturing center.

- obstacles for chemicals imports have been reduced largely.- Now, Chinese companies at least are no longer obliged to buy raw

materials primarily in their home country.

- Liberalization progress due to the new membership eliminatedstructural deficits

and highly improved the quality of China as a business location.

- import tariffs for more than 1,000 chemicals were reduced from 15% to7%,

y Regulatory Policies (REACH Agreement, June 1, 2007)



Global Chemical Industry

Africa1%

Asia7%

Japan9% India

2%

Ko

rea4%

China10%

Latin America5%

NAFTA

25%

Restof

Euro

pe5%

EU32%

Global Chemical Industry=$2.4 trillion



Future Prospectsy

As a result of all these initiative, the Chinese Economyis expecting that China Chemical Industry will be able

to increase its world market share to 13% from

present 10% within 2015.

y According to a Deutsche Bank survey, China Chemical

Industry is going to experience a tremendous Growth

Boom in the near future which will place China

Chemical Industry in the rank of second largestManufacturer of Chemicals only after U.S.



Chemical Turnover in ChinaBooming

0

100

200

00

400

500

600

700

800

900

1000

2004 2005 2010 2015

EU-25

China

Germany



Chemical Turnover ForecastUSD billion

2004 2005 2010 2015

EU-15 559 581 700 851

Germany 142 149 172 200

EU-10 27 28 38 51EU-25 586 610 737 902

USA 415 430 510 606

Japan 186 186 186 186China 137 151 243 392

India 48 51 76 111

World 1,776 1,865 2,380 3,038



Entry of Foreign Playersy

Since 2005, the chemical market in China has become the thirdlargest market after the U.S. and Japan in terms of industry output,reaching US$223 billion.

y The FDI in Chinas chemical industry has been the highest in theworld for five successive years.

y After joining the World Trade Organization, China has made it easier

for foreign companies to enter the domestic market.y This has forced domestic enterprises to face competition from

foreign players, at a time when they were changing their strategy tofocus on capital output instead of goods output.

y The foreign players have acquired mature technology for theproduction of some chemicals which are still considered new

materials by domestic companies (e.g. silicone, polyurethane andengineering plastics).

y While domestic companies are still in their research anddevelopment stage, foreign rivals have already entered thesemarkets.



CHINA MARKET POTENTIAL1. SICHUAN

- POPULATION:87,250,000

- CAPITAL: CHENGDU,1,000,000

2. HUBEI

- POPULATION:60,160,000

- CAPITAL: WUHAN,9,700,000

3. HUNAN- POPULATION:

67,000,000- CAPITAL: CHANGSA,

6,100,000

4. CHONGQ ING- POPULATION:

31,000,000



Entry of Foreign Playersy Dow Corning (US) and Wacker (Germany) have set up factories in China to produce 200,000 tons of

siloxane and fumed silica per year.

y Titanium dioxide is one of Chinas key exports but none of the domestic companies have mastered

the chlorination technology. DuPont from the U.S. has started to build a 200,000 ton titanium

dioxide facility with chlorination technology in Shandong Province, which is three times bigger than

the largest domestic factory. The Australian Astron also signed an agreement with Liaoning Coastal

Industrial Base in 2008 to build a 400,000 ton titanium dioxide facility in Yingkou City.

y In the polyurethane field, after Germanys BASF and U.S.s Huntsman set up their 240,000 ton MDIand 160,000 ton TDI facilities in the Shanghai Chemical Park in 2006, BASF built a new 400,000 ton

MDI factory in Chongqing, which will commence operation in 2010. Germanys Bayer is also building

its 350,000 ton MDI and 160,000 ton TDI facilities in the Shanghai Chemical Park, and plans to launch

them in 2008 and 2009 respectively.

y In the polycarbonate (PC) field, Bayer is now constructing its 100,000 ton PC unit in the Shanghai

Chemical Park and plans to expand its capacity to 200,000 tons by the end of 2008. Japans Teijin has

also set up two 50,000 ton PC units in Zhejiang and intends to build a new 60,000 ton unit which willcommence operations by March 2009. GE Plastic will cooperate with CNPC to build PC units using

the non-phosgene, melting method.

y In other chemical fields, multinationals are also strengthening their direct investment in China. By

the end of 2005, the worlds top 10 tire manufacturers had all set up their factories in the country.

Their total output volume reached 76 million units in 2006, accounting for 30% of the nations total

tire output. The multinationals also bought nearly



Chemical Industrial Parks in China

y In China the chemical industrial parks (CIPs) arespecial zones which focus on one industry, namelychemicals.

y Chemical industry parks were set up as satellite sites

at Economic and Technological Development Zones(ETDZ) or as separate, independently operatedindustrial parks.

y The main goals include restructuring and

improvement of technological standards in theChinese chemical industry and promotion ofregional economic development by makinginvestment more attractive to foreign and domesticcompanies



Chemical Industrial Parks inChina

y China's chemical industrial parks have grown alongwith the nation's economy.

y China Petroleum and Chemical Industry

Association (CPCIA) in 2004 listed 17 chemicalindustry parks in China.

y The locations Shanghai (Caojing), Nanjing undTianjin (TEDA) are national level parks, and theothers are managed at the provincial level.

y Most chemical industry parks are in the easterncoastal re ions.



Chemical Industrial Parks inChina

Compared to ordinary industrial zones inChina, chemical zones have the advantage ofbeing able to provide investors with:

y industry-specific infrastructure, such as

y well-established industrial waste and watertreatment facilities,

y high-standard warehousing facilities for chemicalmaterials storage, and

y effective bulk transportation networks.



Chinese (national level) ChemicalIndustrial Parks

Chemicalregion

Industrialzone

State(s)/

Province

Totalindustrialsurface

area [ha]

Availablespace [ha]

No. of sites

Highlights/specialties

TEDA/TED

A West

Tianjin 12,260 2,700 f ive f ine chemicals

Nanjing(two sites)

Jiangsu 4,500 Changlu: 2,600Yudai: 1,900

one basic and f inechemicals,polymers,pharmaceutica

lspetrochemicals, logistics

Shanghai(Caojing)

Shanghai

2,940 2,940 three(sites)

petrochemicals, polymers



The Tianjin Economic andTechnological

Development Area (TEDA)y As one of the f irst national development zones the TEDA

was founded in 1984.y It is located 40 km f rom Tianjin and 120 km f rom

Peking.y The principal industries in the zone are:

- telecommunications (61%),- machinery manufacturing and car production (25%),- biopharmaceuticals (5%) and- food (6%).

The TEDA·s specialized industrial parks:

1. the Microelectronics Industrial Park (4.6 km2),2. the Yat-Sen Scientif ic and Industrial Park (10km2)3. the Chemical Industrial Park (27 km2).



Main Chemical Industrial Parks

in China1. Shanghai Chemical Industrial Park

2. Jiangsu Taixing Chemical Park

3. Ningbo Chemical Industry Park

4. Jiangsu Yangtze River Chemical Industrial Park

5. Changjiang International New Chemical Materials Industrial Park

6. Chongqing Changshou Chemical Industrial Park

7. Shenzhen Fine Chemical Industrial Zone

8. Guangdong Maoming Petrochemical Industrial Zone



Main Chemical Industrial Parks inChina

1.Shanghai Chemical Industrial Parky China's f irst industrial zone specialized in the

development of petrochemical and f ine chemistrybusinesses in China.

y Total area of 29.4 km2

y Total investment (2007) was USD 100 billion and ishome to major multinational companies in the chemicalindustry including Bayer, BP Amoco, Mitsui Chemicals,Huntsman, Vopak and BASF Chemicals.

2. Jiangsu Taixing Chemical Parky Established in 1991, located in Jiangsu Taixing

Economic Development Zone,y Over its 16 years of development, the zone has attracted

over 142 enterprises, of which 32 are foreign-invested or joint ventures companies.



Cont«3. Ningbo Chemical Industry Park

y Provincial chemical industry park established in1998.

y With a total area of 56 km2, the park enjoys apowerf ul transport network with national highway

329 and the Hangzhou Harbor Bridge nearby.y According to the 2002-2010 development plan,

the zone will give priority to oil ref inery, f inechemicals, composite materials and the high

polymer m

ateri

alind

u

stry

.y more than 70 enterprises, including LG Yongxing

Chemical, Zhenghai Petroleum & Chemical,Hangzhou Bay Acrylic Fiber.



Cont«

4. Jiangsu Yangtze River Chemical Industrial

Parky The Park was established in 2005 as a provincial

zone in Jiangsu, located in Zhangjiagang FreeTrade Zone (46 km2)

y Ha s 4 petrochemical terminals and can provideinvestors a convenient transport network andhigh-standard storage facilities.

y The primary focus of the chemical industrial park

is f ine chemicals.y over 500 enterprises since 2002 and is home to

China's largest market exchange for liquidchemicals.



Cont«5.Changjiang International New Chemical Materials

Industrial Parky Location in the Jiangsu Nantong EconomicDevelopment Area (NETDA), a national level industrialzone in China.

y one of the four specialized parks in NETDA, (2 km2)y the park has built f ive ten-thousand ton f reight

terminals and 530,000 m3 of chemical storage tanks.y Major investors Japan OJI Paper, CJ China and

Mitsubishi Rayon.

6.Chongqing Changshou Chemical Industrial Parky Located in Changshou district of Chongqing, 2001.y Major investors include BP, Sinopec, China National

Petroleum, BASF, LindeGas, Praxair, Dalkia, Degussa, and Mitsubishi Gas

Chemical.



Cont« 7.Shenzhen Fine hemic l In ustri l ne

y With a planned area f 3. 5 km2, Shenzhen Finehemical ndustrial zone is a relatively small park,

but with its location in the earl River Delta, one that

enjoys a convenient transport network.y The zone is only 3 km f rom ong Kong's Sha Tau

Kok ort and 27 km f rom Shenzhen Yantian Port.

y The zone specializes in the development of high-

value added and pollution-f ree f ine chemical

products.y ncouraged industries include new composite

materials, engineering plastics and specialtychemicals.



Cont« 8.Gu n n Maomin Petrochemical In ustrial

one

y Park was established jointly by the Maoming citygovernment and the Maoming Sino-petrochemical

roup.

y an area is 3 km2, has status of ´Chemical ndustryBaseµ under China's National Torch program.

y The industrial zone is also a production base f orchemical raw materials in China. By mid-200 , thezone had attracted 23 pro jects worth a totalinvestment of RMB 25 billion.



Productsy

Polymers and plastics, especially polye

thylene, polypropylene,polyvinyl chloride, polyethylene terephthalate, polystyrene and

polycarbonate comprise about 80% of the industry·s output

worldwide.y Chemicals are used to make a wide variety of consumer goods,

as well as thousands inputs to agriculture, manufacturing,construction, and service industries.

y The chemical industry itself consumes 2 6 percent of its ownoutput.

y Major industrial customers include rubber and plastic products,textiles, apparel, petroleum ref ining, pulp and paper, andprimary metals.

y Chemicals is nearly a $3 trillion global enterprise, and the EU

and U.S. chemical companies are the world's largest producersy Sales of the chemical business can be divided into a f ew broad

categories, including basic chemicals (about 35 to 37 percent of the dollar output), lif e sciences (30 percent), specialty chemicals(20 to 25 percent) and consumer products (about 10 percent).



Companiesy

The largest corporate producers worldwide, with plantsin numerous countries are:- BASF,- Dow,- Degussa,

- Eastman Chemical Company,- Shell,- Bayer,- INEOS,- ExxonMobil,

- DuPont,- SABIC,- Braskem and- Mitsubishi, along with thousands of smaller firms.



Companies cont«

y

In the U.S. there are 170 major chemical companies.They operate internationally with more than 2,800 facilities

outside the U.S. and 1,700 f oreign subsidiaries or aff iliatesoperating. The U.S. chemical output is $400 billion a year.

yIn Europe, especially Germany, the chemical, plastics andrubber sectors are among the largest industrial sectors.Together they generate about 3.2 million jobs in more than60,000 companies. The chemical sector accounts f or 12% of the EU manufacturing industry's added value.

y Instrumental in the changing structure of the globalchemical industry has been the growth in China, India,Korea, the Middle East, South East Asia, Nigeria, and Brazil.



The main characteristics of thechemical industry competitivenessy The che ic l i str has s e i e characteristics

hich have t e take i t acc t i a c etitive essanal sis

y l alise industr

y Innovation-driven and knowledge-intensive

y Integrated along the value chain into its downstream industries, or directl to consumers

y apital-intensive

y nergy intensive

y Long product development time, re uiring stable and predictable policy framework



industry in which competition takes

place at a global level

Production value growth chemicals excl

pharma p.a. 2000 - 2006

Total trade growth chemicals excl pharmap.a. 2000 - 2006

Markets are booming around the world, with average growth ratesp.a. of trade and production of up to 25% in certain countries

More than 45% of the value of the global chemical industry is traded.

Over 35% of this world trade is intra-company in nature.



Global competition in the chemical industry is benef icial, if everybodycompetes on equal and fair terms

y Competition in the chemical industry takes place on all levels:

y Trade ² f rom and to Europe

y Investment - building up a presence sales and production

y High growth markets aremainly in non ² OECD countries

y But growth in other parts of the world is not a zero sumgame, as long as any playercan benef it f rom it



But, Chinas chemical industry also

faces challengesy Infrastructure

Shortage of electricity

y After years of growth founded on exports:

Finished export demand has weakened Costs are rising (feedstock, environmental protection, labor),

weakening margins in some areas

Domestic demand is rising, but slowly and unevenly, and is not

enough to make up missing exports

The product mix is uncompetitive and in need of revamping

New startups in the Middle East and China threaten to cause

massive overcapacity



Impediments to growth

y Energy shortage is a brake

y Transport also a bottleneck

In China, insufficient freight capacity and the road and rail

infrastructure, which have been poor for a long time, areincreasingly hampering industrial development. It is the

chemicals industry in particular that is dependent on

roads in China that are heavily travelled. Rail

transportation seems a possible alternative and isinevitable in some remote areas, but the rail network,

similar to the roads, is strained to the limit and in even

worse state.

chemical industry in china-final

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