28 March 2004 14:41 [Source: ICIS news]
China's accession to the WTO in September 2001 means local firms have been able to harness the benefits of a globalised economy. Rising foreign direct investment has aided domestic chemical companies in creating globally competitive products, F&S said.
However, the entry of foreign participants into the Chinese chemical market - a pillar of the economy - has also challenged the previously existing monopoly status of local refining and chemical production industries.
Neil Wang, director of F&S’s industrial group in
At the same time, the projected opening of the Chinese financial sector is likely to provide domestic chemical companies with more opportunities to secure foreign direct investment, broaden domestic financing channels and reduce the cost of financing.
The removal of import tariffs has both threatened and benefited the Chinese chemicals market, said F&S. It cited the example of gasoline and fuel import tax has been cut from 9% to 5%, allowing cheaper imports but increasing the risk of lower demand for products of local chemical companies.
Conversely, removing import tariffs on chemical raw materials, technologies and equipment has lowered production costs, leading to accelerated product innovation and higher quality exports by Chinese firms, said F&S. Exports of plastics and textiles are likely to increase as the
Although import tariffs on more than 1100 chemicals are expected to be reduced from 14.74% to around 7% by 2005, F&S said that local production is likely to continue offering numerous advantages. This is because no shipping costs are incurred and manufacturing costs are lower in
The consultancy said foreign chemical companies can also benefit by shifting manufacturing to
Similar prospects are likely to be available in the agriculture industry, where agrochemicals such as fertilisers and crop protection products are used to raise yields in China. Opportunities exist to increase the range of products supplies to the sector, like surfactants and solvents used in the formulations, noted F&S.
The consultancy said legislative restrictions on the Chinese distribution system are expected to be lifted, thereby permitting foreign companies to build sales networks and obtain rights for the wholesale and retail distribution of refined chemical products
Overall, F&S said foreign companies entering the Chinese chemical market must focus on common technology platforms, local competitors and manufacturing norms. Effective technology transfers, wherein the design and manufacturing process are protected from duplication and intellectual property rights (IPR) theft, are likely to be the first step in successful localised production, it added.
Wang concluded: "Foreign companies must either set up a wholly-owned foreign enterprise or adopt direct importation methods to minimise intellectual property rights (IPR) theft. As an alternative choice, companies could directly import core components for further processing in China, thereby taking advantage of the cheap labour and other local resources, and simultaneously protecting their key technologies."
* Opportunities in the Chinese Chemicals Markets (Code: B293). Contact: Frost & Sullivan, 4100 Chancellor Court, Oxford Business Park, Oxford, OX4 2GX, UK. Contact Bill Stringer +44 (0) 1865 398651, firstname.lastname@example.org.
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