OBORTrump2

By John Richardson

CHINA can become the world’s No1 Superpower, replacing the US, if it can rise to challenges such as these:

  1. Asia needs US$8trn of investment in the decade to 2020 to deal with its infrastructure deficit. As countries with urban populations expand, demand for transport, logistics and utilities will place a major burden on public funds.
  2. The Iranian government announced in April that unemployment was at “crisis point”. It said that the problem was particularly acute amongst 15-29 year-olds where the unemployment rate was 23.3%.
  3. Lack of electricity generating capacity means that the whole of sub-Saharan Africa, with a population of 910m consumes only 145 terawatt hours of electricity a year—less than the 4.8m people who live in the state of Alabama. That is the equivalent of one incandescent light bulb per person for three hours a day.
  4. In the absence of electricity, the usual fall-back is paraffin (kerosene). Lighting and cooking with that costs poor people the world over $23bn a year, of which $10bn is spent in Africa. Poor households are buying lighting at the equivalent of $100 per kilowatt hour, more than a hundred times the amount people in rich countries pay.

As America becomes more isolationist, China is moving in the opposite direction.

Its Free Trade Area of the Asia Pacific initiative, involving the whole of the Asia-Pacific, could fill the gap created by the collapse of the US-led Trans-Pacific Partnership.

But a much, much bigger deal is the multi-generational ambition behind China’s One Belt, One Road (OBOR) initiative that comprises 65 countries, 4.4bn people and 40% of global GDP. In terms of petrochemicals, as the above chart indicates, the OBOR is an even bigger deal.

The OBOR involves investments by China in roads, bridges, railways, ports, water and electricity supply in its OBOR partner countries. Lots of jobs will also be created, in countries such as Iran, through relocation of manufacturing that is no longer competitive in China because of higher labour costs.

China is taking a leaf out of the US history book. America’s post-Second World War Marshall Plan involved spending $12bn in late 1940s-early 1950s money on rebuilding Europe. This created a big new market for US exports.

What the US recognised is that people cannot afford to spend money on goods and services unless they have their basic needs met – the kind of basic needs highlighted above. Europe, following the devastation of World War II, was also short of roads, bridges, electricity supply and jobs etc.

The OBOR is a Marshall Plan on steroids as it is vastly bigger in scale.

This is not intended as any kind of comment on the rights or wrongs of Donald Trump’s “America First” policy. I will leave you to make your own judgements. But every change in political and economic direction obviously has consequences, and the consequences for the US petrochemicals industry are as follows:

  • The immediate risk is that you will end up behind trade barriers imposed not just by China, but also by its OBOR partners. As I wrote on Wednesday: If America travels down the road of protectionism, it is easy to imagine many of these 65 countries lining-up on the side of China in what could become a full-blown global trade war. The US polyethylene industry will not be able to sell its rising surpluses.
  • Longer term, the old approach of building a heavily export-focused petrochemicals plant in the US to serve develop emerging markets will no longer make sense.

Our focus must now turn to the potential for Populist political upheavals in Europe. As in the US, these populists have found space to operate because of the failure of mainstream politicians to address the issue of ageing populations.

For instance, Marine Le Pen has a good chance of winning next May’s presidential election in France. The pundits are claiming that she will be easily beaten in the election’s second round run-off, but this sounds very much like the obviously wrong analysis that there was no way Mr Trump could win.

If Ms Le Pen were to become president she would follow-through on her promise to hold a referendum on France’s continued membership of the EU. If France withdrew from the EU, it is hard to see the EU surviving in its current form.

Mainland Europe could end up moving in the same direction as Britain following Brexit, as free trade breaks down across the continent. Europe is a major importer, rather than exporter, of petrochemicals, and so the implications for its industry would be different. More protected “local for local” markets seem likely.

China might not win the 21st century geopolitical and economic game, though. It could instead fail to deal with its debt crisis, and/or fail to escape its middle-income trap. The OBOR may also flounder.

If the US continues on its current isolationist course there would then be nobody with enough economic muscle to build all the bridges, roads and hospitals that the emerging world so badly needs.

Even more frightening is that this could well lead to major global military conflicts. With the US turning is back on its internationalism, and with China unable to take its place as the top global Superpower capable of keeping the peace, war on the scale that we haven’t seen since the end of the Second World War becomes very possible.

What would add to the geopolitical tension would be shortages of food and water resulting from climate change. With nobody providing the money to solve these problems, wars over food and water seem very, very likely.

PREVIOUS POST

Trumponomics And A Global Recession

16/11/2016

By John Richardson FIRST of all there was no chance he would win the nomination....

Learn more
NEXT POST

China: Planning For What Once Seemed Almost Impossible

20/11/2016

By John Richardson FIVE years ago, the probability you would have attached to th...

Learn more
More posts
Global polyethylene oversupply, the highest in 19 years, hasn’t gone away
03/07/2020

By John Richardson BRENT crude futures surged by 80% during the second quarter and enjoyed their bes...

Read
China could be in complete polypropylene self-sufficiency by 2022
28/06/2020

By John Richardson SORRY to labour the point but this comes from a genuine concern for the readers o...

Read
Asian polyethylene price recovery faces multiple challenges
25/06/2020

By John Richardson THERE are reports of significant cuts in Middle East polyethylene (PE) operating ...

Read
China’s long-term ambition for paraxylene self-sufficiency seems close to being realised
21/06/2020

On Friday, I examined how China’s paraxylene (PX) net imports could fall to as little 8m tonne...

Read
China’s big declines in 2020 PX and PP imports: the impact on its major trading partners
18/06/2020

By John Richardson CHINA’S refineries and petrochemicals plants came roaring back to almost fu...

Read
Paraxylene demand collapses as higher China production threatens 6m tonne fall in imports
15/06/2020

By John Richardson DON’T SAY I didn’t tell you that a decline in stock markets would happen. The...

Read
Coronavirus will severely damage the developing world unless we take the right steps
12/06/2020

By John Richardson IT IS a fantastic achievement. “Over the last 25 years, more than a billion peo...

Read
Main Street versus Wall Street and the crisis in the developing world
10/06/2020

By John Richardson RISING equity and oil markets do not necessarily point to a V-shaped recovery. 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
X

Uncover exclusive industry upates from ICIS

Interested to uncover more articles related to this topic? Explore additional news, insights and intelligence, tailored to the markets you are interested in by accessing exclusive content from ICIS.com

DISCOVER MORE