China And Xi Jinping: The Five Big Challenges You Must Understand

Business, China, Company Strategy, Economics, Environment, Middle East, Naphtha & other feedstocks, Oil & Gas, Sustainability, Technology

By John Richardson

THE above slide, from my speech at this year’s Gulf Petrochemical Association Forum, is a summary of much of the analysis on this blog over the past 12 months. This is another of my print-out-and-keep guides. Please pin to your chemicals company boardroom wall as you plan your scenarios for China.

In the centre of my five big challenges is of course Xi Jinping whose authority to get the job done has been greatly increased following last month’s crucial 19th National Party Congress meeting.At the same time though, the pressure on Xi and his reformers is sure to build. This is the result of of the expectations for success that this increased authority brings, and the scale and complexity of what needs to be achieved. Do not underestimate the scale and complexity of what lies ahead for China, and thus the consequences for growth if reforms go wrong.

Here are the five challenges in detail:

  1. Xi and his fellow reformers need to deal with overbuilding in petrochemicals and other industries such as steel and cement. As this  FT article indicates, big progress has been made during 2017 this critical area as China tries to deal with its bad debts.
  2. At the same time, Xi and his core team need to find a way of narrowing the income gap between poor China and rich China. Poor China is its northern and western provinces where per capita GDP is way behind its rich eastern and southern provinces. How can this be achieved when jobs are being lost through the closure for economic reasons of inefficient petrochemicals, steel and aluminum plants and coal mines?
  3. There is another driver behind industrial restructuring and that is the environment. How can Xi again balance growing pressure from China’s rich middle class for a cleaner environment and the pressure to raise income levels in northern and western provinces? Close petrochemical and steel plants down etc. and China will improve air quality, thus satisfying its coastal rich middle class. But this could lower income levels in poor China as jobs in lower value, basic manufacturing are destroyed. Does he face an impossible balancing act?
  4. Meanwhile, China plans to spend vast sums of government money on innovation as it tries to climb up the manufacturing value chain in order to escape its middle-income trap. Perhaps vast sums of government money is the answer. The state-driven approach to financing start-ups in sectors such as renewables, mobile internet technologies and electric battery vehicles might prove to be very successful. But the risk of failure is clear. What if this money is largely wasted, and what if China also cannot access the overseas technology support that it needs because of trade and geopolitical tensions? China has to be successful in this critical area if it is to avoid economic stagnation.
  5. And unlike the US, China has no chance of being energy independent. It has to secure the hydrocarbons at the right price and in the right quantities if it is going to sustain strong economic growth.

And remember: Success will largely depend on whether or not China can implement its One Belt, One Road initiative.

 

 

PREVIOUS POST

How US Could Be Squeezed Out Of Europe's Polyethylene Market

24/11/2017

By John Richardson EARLIER this year a commonly held view was that globalisation...

Learn more
NEXT POST

Peak Oil And The Aramco/SABIC Petchems Project

01/12/2017

By John Richardson THERE is an important connection between this week’s announ...

Learn more
More posts
China’s economic dominance carries many short and long-term risks for petrochemicals
19/01/2021

By John Richardson JUST 5% of US companies with revenues of more than $500m plan to relocate operati...

Read
Petrochemical companies must invest more in new methods of assessing demand
17/01/2021

By John Richardson INVESTORS must look beyond measures of GDP growth if they are going to understand...

Read
New China pandemic outbreak China single-biggest risk for global petchems in 2021
14/01/2021

By John Richardson CHINA FACES another test of its pandemic control capabilities because of new outb...

Read
The energy transition and how it will define tomorrow’s petrochemical Winners
12/01/2021

    By John Richardson MOST OF the time historical events move at a snail’s pace. The me...

Read
China polyethylene imports set to remain strong in 2021 despite big local capacity growth
09/01/2021

By John Richardson IT WAS a tremendous year. China’s 2020 polyethylene (PE) demand growth over 201...

Read
Collapsing battery costs point to ever-declining forecasts for oil demand
05/01/2021

By John Richardson THE END of the oil age is arriving. Sooner than many people think, demand for oil...

Read
Sustainability means reducing carbon emissions as well as plastic waste
22/12/2020

By John Richardson THIS IS VERY much a personal plea to our industry about what I see as the biggest...

Read
China’s BRI will go from strength to strength, redrawing global petrochemicals map
20/12/2020

By John Richardson CHINA’S Belt & Road Initiative (BRI) is alive and kicking and will, in my v...

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