Home Blogs Asian Chemical Connections China Announces “The End Of GDP Growth Supremacy”

China Announces “The End Of GDP Growth Supremacy”

China, Company Strategy, Economics, Environment
By John Richardson on 08-Oct-2014

By John Richardson

???????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????THE views of the small number of men who run China – i.e. the country’s Politburo – have long been viewed as the best possible guide to where the country is heading.

Chemicals manufacturers were right to build lots of capacity both in China, and overseas, in response to the headline message of the Politburo, which was: We will do everything to support economic growth. Growth for growth’s sake is all that matters.

It didn’t matter, almost, what kind of capacity you built, how you built it, when you built it and where you built it.

You could build anything, including basic standard-grade polymers, and China would buy all of it up because it was desperate for any kind of economic growth, as long as it was growth.

How you built it, if you were building locally, also didn’t seem to always matter. Can every foreign investor say, hand on heart, say that they always adhered to the highest of environmental standards when there was virtually no pressure to do so?

When you built it was also pretty much irrelevant. OK, if you brought your plant on-stream a few quarters too early, before the market was big enough to easily absorb your capacity, it was just a minor problem because growth was so strong it would soon catch up. You might have lost a bit of money for a few quarters, but it still wouldn’t take very long for you to sell out and to start discussing your next investment.

Where you built your plant was also pretty much irrelevant. You could build basic chemicals capacity in the Middle East, Europe or the US because China wasn’t bothered about being heavily import dependent, as the dash for growth was all that counted. Just about every molecule that anyone could make, anywhere, was eagerly purchased by China.

The big problem is that this headline message changed last year and yet some chemicals companies assume that, this time, the Politburo no longer means what it says. They keep thinking that the old world will eventually re-assert itself.

Thus, for example, “if not this month then next month” is still the  mantra about big new government economic stimulus.  This means that it is still fine to pursue chemicals investments, whatever products they comprise, wherever they are located and whenever they are due on-stream.

But a very important article in the government-owned China Daily further underlines, in very thick black ink, that you ignore the Politburo at your extreme peril.

In summary, the article tells us that:

  • The era of GDP growth supremacy is over.
  • Innovation, the environment and an improvement in people’s livelihoods are now much more important than growth for growth’s sake.
  • “Double-digit growth may have propelled China to become the world’s second-largest economy, but to a large extent it was pursued by government officials simply because it determined their promotions, and had many undesirable consequences: Industrial overcapacity, environmental damage and uneven development,” wrote the newspaper.
  • Quoting Li Keqiang, China’s prime minister, the newspaper added these other priorities: Reducing the gap between urban and rural incomes and conserving energy.

Why have some people chosen to ignore what the Politburo is saying, when, only so recently, they took so much notice?

Because change is never comfortable and it is much more comforting to assume that the old world will re-assert itself, provided you wait long enough.