China allocates $58bn to stimulate petchem exports

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China plans to increase petchem production as a way of stimulating its economy. According to the China Daily, the government intends to allocate 400bn yuan ($58bn) from its fiscal stimulus to accelerate the implementation of petchem expansion plans. Bloomberg adds that the givernment could approve plans next week to increase “tax rebates for the exports of some petrochemical products”. In addition, refiners will gain increased subsidies, allowing them to support downstream pricing.

This news is a disaster for other Asian petchem producers. China has been the main export market for NEA/SEA countries in recent years, accounting for up to 50% of output. This demand has already been reduced by the West’s recession, as production has slowed in China’s manufactured goods sector. Now, the use of subsidies will make China’s own production even more competitive in the short-term. Whilst the decision to accelerate capacity increases will increase regional and global over-capacity in the medium term.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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