By Malini Hariharan
The Taiwanese government is once again talking of removing a ban on cracker investments by Taiwanese companies on the mainland.
The country's minister of economic affairs said late last week that the government is willing to consider lifting the ban provided certain conditions are met.
Taiwanese companies must have a controlling stake in any joint venture and guarantee exports of raw materials back to Taiwan. Companies would also need to upgrade their operations in Taiwan.
The minister disclosed that these conditions would be negotiated with the Chinese government during the next Economic Cooperation Committee meeting likely to take place end of this month.
The minister's statement comes after Sinopec, the Fujian government and a consortium of Taiwanese companies including China Petrochemical Development Corp, Ho Tung Chemical Corp , LCY Chemical Corp and USI Corp, signed a letter of intent for a $4.5bn joint cracker project.
The 1.2m tonnes/year cracker complex, to be located in Gulei, Zhangshou city, will be adjacent to a new 16m tonnes/year refinery. The companies did not disclose their stakes in the venture or provide a timeline for the project which has yet to be approved by the Chinese authorities.
The minister's statement offers hope to private Taiwanese companies that have already invested in derivative plants in China and interested in upstream expansions. An investment overseas, especially in the fast-growing China market, is the only alternative available to these companies as they have been unable to expand at home because of a powerful green lobby.
But it should be remembered that this is not the first time that the government has talked of relaxing the ban. Politics have previously come in the way and although relations between China and Taiwan have improved with the implementation of the Economic Co-operation Framework Agreement (ECFA) the blog thinks the Chinese government may not be willing to concede to all the conditions identified by the minister.
For instance, there is no reason why the Chinese government should accommodate to the the stipulation that Taiwanese companies have a majority stake. Currently foreign shareholding in cracker joint ventures is restricted at 50%.
And rather than ship raw materials such as ethylene and propylene to Taiwan, the Chinese are likely to be keen on capturing all the value addition.
The Taiwanese minister's statement is certainly welcome but companies still have a lot of work to do in softening their government's very rigid position on cracker investments on the mainland.