China plans to increase petchem production as a way of stimulating its economy. According to the China Daily, the government intends to allocate 400bn yuan ($58bn) from its fiscal stimulus to accelerate the implementation of petchem expansion plans. Bloomberg adds that the givernment could approve plans next week to increase “tax rebates for the exports of some petrochemical products”. In addition, refiners will gain increased subsidies, allowing them to support downstream pricing.
This news is a disaster for other Asian petchem producers. China has been the main export market for NEA/SEA countries in recent years, accounting for up to 50% of output. This demand has already been reduced by the West’s recession, as production has slowed in China’s manufactured goods sector. Now, the use of subsidies will make China’s own production even more competitive in the short-term. Whilst the decision to accelerate capacity increases will increase regional and global over-capacity in the medium term.