By John Richardson
WE used to live in a linear world where GDP growth was nearly always on the increase and there was a very close linkage between the growth in any overall economy and the rise in demand for chemicals and polymers.
It’s all about throwing darts at a metaphorical dart board, of course. No one is ever going to hit the bull’s eye consistently (if we did we’d all become traders). Instead, it is about getting as close to the bull’s eye as possible.
And so it might be that, even in this non-linear and now more iterative world, the old ways of measuring growth might still get everyone close-enough to the bull’s eye.
Autos demand growth in China serves as, perhaps, another good example of how everything feels as if it has changed.
Environmental concerns might mean that car ownership growth will have to slow down over the long term because:
- China’s middle-income earners are having to put up with not only a rising cost of living in the major cities, but also terrible air quality. For example, Harbin, the capital of northeastern Heilongjiang province and home to some 11 million people, was virtually closed-down this week because PM2.5, or particulate matter with a diameter of 2.5 micrometers (PM2.5), reached a reading of 1,000 in some part of the city. A level above 300 is considered hazardous, while the World Health Organisation recommends a daily level of no more than 20.
- Despite a huge road-building programme, congested roads and also railways are a big burden on China’s economy. Logistics costs equalled 10% of China’s GDP in 2010, double that of Japan. Building more roads and railways might seem the answer but what would this do for air quality? And how would this fit in with China’s efforts to rebalance the economy away from investment?
- On the subject of rebalancing again, now that its demographic dividend is coming to an end, can China escape the middle-income trap? If it cannot, and, given that there will be less young people around to buy autos, what will this mean for future car sales?
Add in all these variables and how quickly will the new capacities we have detailed above be absorbed? Butadiene and synthetic rubber are, of course, used to make tyres.
And what do these variables mean for the total amount of butadiene and synthetic rubber capacity that will be needed in the future, the scale of individual plants and where the plants should be located?