Eastern promise lures German firms

02 January 1994 00:00  [Source: APC]

For the past five years, Asia's economic star has been rising. German chemical firms, disappointed with their east European investments, are now looking to China for lucrative returns. Alan Tyler reports.

German industry is belatedly joining the rush of foreign investment in China, hoping to cash in on that country's double digit economic growth rates of the past few years.

After the unification of Germany in 1990, many firms from western Germany concentrated on developing new investments in the east. But now, with disappointing investment returns at home and in other areas of eastern Europe, German capital is looking towards Asia and particularly China.

The German federal government decided officially to concentrate on developing new markets in the Far East last October when it adopted a new 'policy concept' for Asia. This built on high level business delegations to Singapore, India, Indonesia and Japan last March led by German Chancellor Dr Helmut Kohl.

In November 1993 Chancellor Kohl led another delegation to China seeking trade and investment opportunities. They came back with contracts and statements of intent totalling more than US$4bn.

China, with its domestic market of 1.2bn consumers, low labour costs and wealth of raw materials, is seen as the biggest prize of all for foreign investors.

In the first nine months of 1993 alone, it is estimated that nearly US$20bn of direct foreign investment (DFI) was utilised in China, with four times that sum committed. These figures are more than double their equivalents for the whole of 1992 and four times those for 1991.

The majority of China's DFI has so far come from Hong Kong, Taiwanese and other overseas Chinese investors, but Japanese, US and west European companies are now joining the stampede to establish joint venture ties with mainland Chinese companies.

Recently it has been German chemical firms leading the way. The biggest series of chemical industry deals has been struck by Bayer, which late last year signed investment and production agreements with Chinese counterparts worth some US$200m, to produce chemicals, plastics and photographic film.

BASF and Degussa have also been busy, signing joint venture deals to produce cationic dyes and carbon black respectively.

And Hoechst, which wants to double the Asian share of its worldwide profits to 20% by the turn of the century, has set up deals for insecticides and cellulose acetate across China.

In November 1993 Bayer signed what it described as a comprehensive agreement with China's ministry of chemical industries, as well as six joint venture agreements with local companies for a member of projects to come onstream later this year.

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These include a joint venture with Shanghai Chloro Alkali Chemical and the Shanghai Chemical Industry Bureau to build a 12 000 tonne/year polycarbonates factory.

Shanghai Leather Chemicals is to build plants with a total capacity of 8000 tonne/year for the manufacture of tanning agents, pigments and binders for the leather industry.

With Shanghai Coating, Bayer will build a 20 000 tonne/year iron oxide grinding and mixing plant which is scheduled to come onstream in mid-1995.

A 12 000 tonne/year hydrazine plant in Tianjin is planned with the Tianjin Bohai Chemical Group and China National Chemical Construction Corp, north of Beijing.

Bayer is also discussing with the same parties plans to build a 4000 tonne/year azodicarbonamide (ADC) plant to begin production in 1996.

Negotiations are currently in progress with the Wuxi Dyestuff Factory, in Jiangsu province, over the formulation of 2000 tonne/year of dispersion dyes, with startup in 1995.

Agfa, Bayer's photographic film subsidiary, is planning a joint venture, also at Wuxi, with Aermi Film and Chemical Corp for cutting, setting and packaging photographic film, colour paper and x-ray film.

The projects will be co-ordinated by a new holding company which Bayer will set up in Beijing later this year. Meanwhile, BASF's Shanghai joint venture will build a 3000 tonne/year cationic textile dye plant at Pudong, the city's main industrial zone. The joint venture partner is Shanghai Dyestuffs Corp.

The plant, which is part of Shanghai BASF Colorants and Auxiliaries' US$170m capital investment programme, will mainly produce dyes for acrylic fibres.

A plant for the production of 6000 tonne/year of pigments has already been agreed and will be constructed on a nearby site.

Also planned in a 25 000 tonne/year textile and leather auxiliary plant for which a formal agreement is expected soon.

BASF is already involved in three China joint ventures, manufacturing polymer dispersions for paper, board and flooring coatings, and unsaturated polyester resins.

Degussa is forming a carbon black joint venture with Deutsche Investitions and China's Zhenya Carbon Black Co.

The new venture, Qingdao Degussa Chemical, will produce rubber and tire blacks. Production will take place at Zhenya's two existing factories in Qingdao, one of which opened only last year, producing under license of Degussa. They have a combined capacity of 53 000 tonne/year.

Degussa will announce further investment in the plants, to take advantage of the domestic market - it says China's demand for carbon black is growing at 8-10% a year - and exports to Japan, Korea and southeast Asia.

Hoechst's investments stretch from Yunnan province in the southwest to the special economic zones (SEZ) bordering Hong Kong and the northern port city of Tianjin.

In Nantong, Hoechst's wholly-owned subsidiary Hoechst Celanese is a 30% partner in a cellulose acetate venture. Production started back in 1989 and capacity has since been doubled to 25 000 tonne/year. Construction is underway at the same site for a cellulose acetate flake factory, which is slated to begin production later this year.

Construction has also started on two additional 12 500 tonne/year cellulose acetate plants, both for a Hoechst Celanese/China National Tobacco Corp joint venture. They are due to open later this year in Kunming, Yunnan province and Zuhai, a SEZ in Gaungdong province. The Tianjin project, through Hoechst's French subsidiary Roussel Uclaf, is a 50:50 venture with a local company to produce insecticides. Startup was late 1992.

Further projects are expected. A German Council for Asia-Pacific Affairs has been established to promote private sector projects in the region it also aims to promote Germany's image as a future site for Asian economic investment.

By: Alan Tyler
+44 20 8652 3214

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