FocusChina chems heading into the interior

25 April 2008 14:59  [Source: ICIS news]

By Andy Brice

LONDON (ICIS news)--Attempts by the Chinese government to lure chemical companies away from the coast to settle deeper within the country are starting to bear fruit, industry observers said on Friday.

The imbalance of GDP, city development, wages and wealth between the coast and the interior is finally starting to be addressed, according to Edouard Croufer, director of chemical practice at consultancy Arthur D Little.

“Of course the Chinese government wants to develop further inland,” he said.

“It’s clearly part of its strategy because there is a huge disparity between the wealth on the coast and that inland. They absolutely have to do this, otherwise they may face social unrest.”

Moves away from the thriving eastern seaboard by companies such as BP to Chongqing and BASF to Nanjing came as a surprise a few years ago, he said, but many more are now starting to follow.

Domestic producers and foreign investors have plants under construction in the interior or are planning new units. Many coal-chemical projects are sprouting up in Inner Mongolia and Shanxi, Shaanxi and Ningxia provinces.

Labour-intensive companies, such as those in the textiles or shoemaking industries, are increasingly being lured inland as wages are generally cheaper there as the cost of living is lower.

Some petrochemical producers are also starting to shift their downstream operations closer to their customers further inland, attracted by government tax incentives, according to Marcus Huebel, lead partner for the chemicals and natural resources business in Greater China at global consultancy Accenture.

With some exceptions, however, few companies are yet venturing more than 1,000km into the country because of the inadequate road and rail networks.

To address this, China is ploughing billions of dollars into improving the infrastructure.

Some $250bn is earmarked towards the development of the roads over the next 30 years. China’s 11th five-year plan, which runs from 2006-2010, has also set aside around $20bn to upgrade the rail network.

Similarly, the administration is working on improvements along the Yangtze River. These include raising port capacity, improving lifting equipment and transport connections.

“I see two other factors that could fundamentally help. China could reduce its dependency on crude oil by realising the impact of its coal-to-chemicals initiatives” said Huebel.

“Strengthening other transportation modes - like rail and pipeline - could also make it possible; Shell is examining opportunities to transport oil produced in Kazakhstan to China. This would make crude available in other parts of the country.”

For more on China see the 19 May issue of ICIS Chemical Business

By: Andy Brice
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