BLOG: China’s options for economic revival in 2022 narrow as HDPE demand outlook worsens

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson.

In 2014, we first flagged up the risks associated with local government spending in China being heavily tied to land sales.

All was fine as long as the demand for land remained strong and land values kept rising. But not now because of the Common Prosperity policy pivot and further oxygen being removed from the real-estate market by the zero-COVID policies.

Because local government finances are strained, an audit study, reported by the South China Morning Post, said that special purpose bonds were being used by local authorities for spending other than on infrastructure. The bonds are only supposed to be spent on infrastructure.

If China cannot significantly raise infrastructure spending during the remainder of 2022, this narrows options for achieving economic recovery. Further challenges include the stop-start nature of relaxing zero-COVID restrictions and the effect on retail sales.

The above perhaps explains why iron ore prices have fallen by 20% over the last three weeks. It also explain why the outlook for China’s high-density polyethylene (HDPE) market seems to have worsened:

• Our previous best-case outcome for China’s HDPE demand growth in 2022 was 6%. My worst-case scenario was a 3% decline.
• Now, though, we worry that the best-case outcome for 2022 HDPE demand could be flat or zero growth. Our worst-case outcome is a 4% decline.

China’s net HDPE imports in 2022 could be as low as 4.8m tonnes compared with 6.4m tonnes in 2021 because of weak demand growth, new local capacities and high domestic operating rates.

Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.