Xi Jinping Further Underlines China’s “New Normal”

Xi JinpingCHINA’S president Xi Jinping, in a landmark speech at the weekend, talked about the “New Normal” of lower economic growth and a different type of growth altogether.

He qualified this different type of growth as follows: “Through innovation and technological development, the country should push for the transformation from ‘Made in China’  to ‘Created in China’, from ‘China speed’ to ‘China quality’ and from ‘Chinese products’ to ‘Chinese brands’ “.

His message to everyone was “get used to it” –i.e. there will be no let-up in the boldest, most-sweeping set of economic reforms that China has seen for at least the last 20 years.

This finally puts paid to any realistic chance that China will “blink” by launching another big, old-style stimulus programme.

What does this mean for the petrochemicals industry? Here are some thoughts for discussion as delegates gather for this year’s Asia Petrochemical Industry Conference (APIC) in Pattaya, Thailand, which takes place on 16-17 May:

  • The 7.4% GDP growth that China recorded in Q1 of this year will be the biggest increase in 2014. Deceleration to growth of 6%, or perhaps even lower, in Q2-Q4 will happen. This will result in chemicals demand growth lower than many people had expected.
  • As the slowdown in credit growth continues , major chemicals end-use sectors will see much-lower growth including, for example, autos. The jury is out over whether some of  the chemicals capacities being added to serve these end-use industries will end up as overcapacities during the next few years.
  • Chemicals companies will have to be very careful about who they sell to as China’s manufacturing consolidation accelerates.
  • They will also need to focus on which regions of China offer the greatest sales potential over the next few years.
  • The longer-term opportunities, though, are nothing short of fantastic.
  • But the new type of growth that Xi talked about will not lift all boats, as was the case in the past. China’s emphasis on quality will require more focus on higher-value grades of chemicals and polymers. But the danger, of course, is that if too many companies enter these markets, higher-value grades will end up being commoditised.
  • Partnership with China’s government will be a vital ingredient for success as Beijing tries to resolve a man-made environmental crisis that is probably one of the worst, if not the .worst, that we have ever seen. Chemicals companies will need to walk all their talk about helping China to, for example, preserve and treat drinking water and build more sustainable cities.
  • Ground-breaking and patient innovation will be essential here, instead of just chasing quarterly profits growth. Many of the products and services that China needs to fix its environmental crisis haven’t even been invented yet.

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