China’s G20 shutdowns will impact global economy

Economic growth

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China G20 Jun16Imagine your government decided to shutdown most of the industry in two major cities for 2 weeks or more?  Say Detroit and Chicago in the US, or Milan and Turin in Italy, or Leeds and Manchester in the UK.  Now you will have some idea of the scale of the shutdowns being mandated in China for Shanghai and Ningbo ahead of the G20 Summit in Hangzhou on  September 4-5.

The reason is the need to improve air quality during the summit, as I noted last month.

Hangzhou itself is China’s 4th largest city, with a population of 21m.  And as the map shows, it is bordered by Shanghai (with 24m people), and Ningbo (8m people).  Together, they are one of the biggest industrial conurbations in the world.

Now, as ICIS news reports, more details are starting to emerge of the scale of the likely disruption:

Hangzhou is home to major polyester producers, which are expected to implement the prescribed temporary measures to curb pollution until after the summit, market sources said.

“For Shanghai, the production cuts and shutdowns will take effect from 24 August to 6 September, according to a document published on the Shanghai Environment Protection Bureau website.  Other industries such as steel, coking and cement sectors in Shanghai are also being required to restrict production for a prescribed period, based on the document.

“In Ningbo City, a number of industries were likewise given orders to help out in the efforts to reduce pollution in preparation for the G20 summit.  Cement, non-ferrous metal, chemical fibre companies are due to shut down their plants during the summit, while refining and chemical companies must reduce operation more than 50%, according an official statement obtained by ICIS.”

More information will obviously follow in the next few weeks.  But already details have begun to emerge on the scale of the planned shutdowns in Ningbo:

  • In the polyester sector, Yisheng Petrochemical will shut 5 million tonnes of PTA capacity
  • In polyurethanes, Wanhua Chemical will shut 1.2 million tonnes of MDI capacity
  • There will also be 1.2 million tonnes of propylene capacity shutdown
  • In addition, production of at least 16 major petrochemicals will be disrupted including PVC, ethylene, styrene. ethylene glycol, acrylic acid and polypropylene
  • CNOOC’s Ningbo Daxie refinery complex will also be operating at reduced rates

These closures/cutbacks will obviously have a very disruptive impact on a whole range of supply chains.  Some companies will lose their raw material supplies – others will lose their customers for finished product.  So there will be no easy answers for managements – and even if their immediate suppliers or customers are still operating, there may well be closures or disruption in another part of the value chain.

Companies outside China, whether suppliers or customers, will clearly also be impacted, given the importance of this region in global markets.  My suggestion would be that you need to check as soon as possible with your business partners to gain their insights into the likely outcome, now that details of the plans are becoming clear.  Then you will have time to work out alternative options.

One other important conclusion is clear.  No government would lightly create this level of disruption, particularly at a time when the domestic economy is already under pressure.  The fact that President Xi Jinping is taking these major steps, is a sign of the severity of China’s pollution problems.  The country simply cannot go back to the Old Normal way of doing things – the New Normal policies are here to stay.

 

 

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