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Sinopec’s Role In China’s New Normal

Business, China, Company Strategy, Economics, Environment
By John Richardson on 25-Mar-2015


By John Richardson

SINOPEC has published its first-ever environmental report, as fellow blogger Paul Hodges points out in this blog post.

What an amazing turnaround. Before the pivotal November 2012 Third Plenum meeting, there was little pressure on Sinopec or any other Chinese company to improve its environmental performance. Instead, the focus was on growth for growth’s sake, whatever the pollution costs incurred.

Now, though, Sinopec along with PetroChina – the other predominantly state-owned oil gas, refining and chemicals major – are set to become very, very different companies. This became even clearer last month when Beijing allowed the on-line film, Under The Dome, to go viral. The movie, made by a Chinese investigative reporter, singled-out Sinopec and PetroChina for fierce criticism over very poor fuel standards that have greatly contributed to poor air quality.

And now we have yesterday’s release of Sinopec’s financial results, including the environmental. It seems inevitable that PetroChina will follow suit.

So what does this mean for the global chemicals industry?

If you want to do future business with these two giants, you will have an edge if you can provide the products and services that it needs to tackle its environmental problems – both in fuels production and how it runs it chemicals plants.

Another message from the Sinopec results statement is its plan to play a key role in helping China escape its “middle income trap”.  This will mean moving further downstream in its main value chains, in order to provide the electronic and other speciality needed by domestic manufacturers of smartphones etc. This is another reason for you to forget the outdated idea that China a low-cost copycat economy.

In chemicals, this means a “transition towards high-end materials and differentiated fine chemicals”. The company will also increase R&D investment, promote innovation-driven development and establish an integrated service platform.

Again this is, of course, a fantastic opportunity for overseas suppliers of all the above expertise. But for how long? Ten years, five years or less? China will eventually close the innovation gap in both chemicals and finished-goods manufacturing.

There is a third vital take way from the Sinopec results statement: The company has produced very poor returns on investment before and this is set to continue, as Sinopec is not really a profit centre, but is instead a public utility that exists to help grow the wider economy.