China’s new consumption booster to spur petchems demand

20 May 2009 08:19  [Source: ICIS news]

By Judith Wang

SHANGHAI (ICIS news)--China’s latest effort to boost domestic consumption through the automotive and home appliance sectors should help drive up demand for petrochemicals,  analysts said on Wednesday.

The State Council, the country’s economic policy-making body, announced on Tuesday a new yuan (CNY)7bn ($1.02bn) subsidy to push for the replacement of old automobiles and home appliances with new ones that are more energy efficient.

“Many plastics and rubbers are used in vehicles, their demand will be boosted,” said Lu Zhen, an analyst from brokerage firm Guosen Securities.

The government’s new measure was also in pursuit of an environmental cause of curbing pollution, the State Council said.

“It is [like] killing two birds with one stone,” said Guosen’s Lu.

The automobile sector is an important chemical end market as car parts including rubber hoses, plastic dashboards, catalysts, fibres, adhesives and coatings entailed application of various types of petrochemicals.

Each vehicle uses chemicals worth an average $2,200 according to the American Chemistry Council (ACC).

The Chinese government has been actively pump-priming its domestic economy to ensure it will grow at 8% this year even though most of the world economies are in recession.

China’s subsidies for automobile replacement has been raised to CNY5bn from CNY1bn, with another CNY2bn allocated for home appliance upgrades, said the State Council, which had a meeting presided by Premier Wen Jiabao on Tuesday.

For automobile trade-ins, the government will effectively shoulder the tax, which was 5% for cars with engine sizes under 1,600cc and 10% for those with bigger engines.

Subsidies will also be given to consumers who sell automobiles that do not meet the government's emission standards.

The Chinese government had earlier introduced a scheme that would make homes appliances such as television sets, washing machines, mobile phones, refrigerators and motorcycles more affordable to its 800m rural residents.

The fresh bout of subsidy also expanded the scope of this scheme to nine other urbanised areas such as Shanghai, Beijing, Guangdong and Tianjin, whereby buyers would be granted a 10% subsidy on the purchase prices of selected appliances.

“We think the policy will have a better effect than the earlier subsidy on home appliances to rural area as the consumers in big cities have stronger purchasing power,” Li Hongrong, an analyst from Shenzhen-based Ping An Securities said.

“It is predicted the measure will boost spending for home appliances by an additional CNY20bn at least,” she added.

($1 = CNY6.83)

Bohan Loh and Paris Lv contributed to this article

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