Credit curbs implemented in China in late 2009 directed at property sector: fatal blow to petrochemical sector

19-Jul-10

June-quarter GDP grew 10.3% y-o-y, according to the National Statistics Board, a 1.6 percentage point decline from an 11.9% growth recorded in the first quarter. After showing robust growth in the first quarter, China’s economy has started to cool in the second quarter. The deceleration of growth is expected to continue into the second half of the year, and is likely to affect demand and production of petrochemicals in China, as per ICIS. Analysts expect the pace of growth to slowdown further as the year progresses, with third quarter anticipated to log a 9.8% growth and fourth-quarter growth expected at 9.4%. This can be largely attributed to the high base in 2009, when it prevented a slowdown in its economy by boosting lending. This has resulted in possible economic overheating that could fuel inflation, leading to implementation of credit curbs late last year directed at the property sector. This could be a huge setback for those petrochemicals that are mostly used in housing construction. Polyvinyl chloride (PVC), for example, has its main application in the construction sector. The government will continue to curb the property market to prevent housing bubbles and contain inflation after housing prices in some cities surged sharply last year. Lending requirements have become more stringent for homebuyers, including a higher downpayment for purchasing second homes. The government’s energy saving and emissions reduction scheme also had the effect of slowing down investment, industrial production and overall domestic consumption. Petrochemical production and investment for petrochemical projects will be affected.