Trade Rhetoric Worsens As China Becomes Net PTA Exporter

Business, China, Company Strategy, Fibre Intermediates

ChinaPTAJune2016

By John Richardson

TIME Magazine made the “Chinese Worker” runner-up in its 2009 Person of the Year contest (by the way the winner was Ben Bernanke, the then chairman of the US Federal Reserve).

It was the hard graft of these workers, and lots of government spending, that Time said had enabled China to achieve its minimum target of 8% GDP growth, despite the Global Financial Crisis (GFC).  In 2009, China launched a Yuan4trn ($609bn) stimulus package that led to a huge new wave of investment in all sorts of manufacturing capacity, including chemicals plants.

The world sighed with relief because if it hadn’t been for all of this investment that kept China’s working population very busy, the GFC would have been a great deal worse than it actually was.

How times have changed. Last week, US Treasury Secretary Jack Lew warned about the damaging and distorting effect that excess Chinese capacity was having on world markets.

“Implementing policies to substantially reduce production in a range of sectors suffering from overcapacity, including steel and aluminium, is critical to the function and stability of international markets,” he said.

He is in an incredibly difficult position as of course are government officials and politicians in many countries. The reason is that too much supply is chasing too little demand. Jobs are under threat and when people can find work in the US in particular, income stagnation is a major issue.

But it isn’t going to be easy for China to do what Lew suggests.

Take the city of Dongguan in Guangdong province as an example, which now has a population of 8m people. Just 552,000 people lived in Dongguan in 1990. So if China suddenly closed down lots of factories in Dongguan, what we would it do with all the displaced workers?

Another problem for Dongguan is that is in a very developed part of China, and so it faces the added pressure of rising wage costs, now that China’s working-age population is in decline.

Guangdong province in general is, though, a hub for the higher-value manufacturing and service industries that China needs if it is going to escape its “middle income trap”. Workers in Dongguan have other options, provided they have the right skills.

This is not as much the case for workers in Songting, in the northern province of Hebei. Like many other cities in China’s “rust belt”, Songting is very reliant on one heavy industry- in its case steel. A loss making steel mill in Songting has, as a result, been reopened to ease local unemployment pressures.

In response to Lew’s comments, China’s finance minister Lou Jiwei made these very valid points: “China contributed over half of the global economic growth between 2009 and 2011 via infrastructure investment, which brought the accumulation of excessive capacity such as in coal and steel. Now [the West is] blaming us for overcapacity.”

This is all very worrying, as this is exactly the kind of rhetoric I warned about last week. Chemicals companies must build scenarios where ever-stronger rhetoric turns into many more trade barriers – even a global trade war.

Meanwhile, in the here and now, the chemicals industry confronts oversupply in many value chains resulting from Chinese investment that was at the time welcomed by so many people.

Take the chart above as a stark example of this. China has now become a net exporter of purified terephthalic acid (PTA). As recently as January-April 2009, China imported more than 2m tonnes of PTA.

PREVIOUS POST

Emerging Markets: 67.7 More Years To Catch Up With US

10/06/2016

By John Richardson IF I had a dollar in my pocket for every time I had read or h...

Learn more
NEXT POST

German Bond Yields Go Negative On End Of Economic Supercycle

15/06/2016

By John Richardson OIL markets remain fundamentally long. There is little to sup...

Learn more
More posts
Omicron, petchems and the developing world: we might get lucky this time, but maybe not next time
02/12/2021

By John Richardson UNTIL ALL of us are adequately vaccinated none of us are sufficiently protected i...

Read
Benzene, the need for a new global Industrial Revolution and the big challenges that lie ahead
30/11/2021

By John Richardson THE CHART BELOW shows that 60% of global benzene production in 2021-2040 is forec...

Read
Global polypropylene could also move from inflation to deflation in Q1 next year
23/11/2021

By John Richardson WE ALL NEED TO ASK ourselves whether the global patterns in polyethylene (PE) and...

Read
Global polyethylene could move from inflation to deflation by as early as Q1 2022
22/11/2021

By John Richardson THE BALTIC DRY INDEX, one of the excellent barometers of overall economic activit...

Read
As China coal shortages end, polyolefins margins reach historic lows on oversupply
17/11/2021

By John Richardson AGAIN, DON’T say I didn’t tell you. In my 11 October blog post, having talked...

Read
Dip in Chinese PP exports only temporary with Q1 2022 resurgence looking likely
15/11/2021

By John Richardson TRADE DATA when combined with price assessments, supply and demand estimates and ...

Read
Global polyethylene supply could lengthen, becoming a buyers’ market, sooner than many people think
12/11/2021

By John Richardson RARELY, IF EVER, have events felt so bafflingly complex in the global polyethylen...

Read
China could either see net imports of 63m tonnes in 2021-2031 or net exports of 18m tonnes!
09/11/2021

By John Richardson CONFUSED BY the above chart? Once again I certainly hope so, provided confusion i...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more