Concerns about a possible economic overheating could moderate petrochemical demand growth

The Chinese government’s lack of enthusiasm to achieve an aggressive GDP growth has brought down optimism for petrochemicals demand in 2010. For 2010, the government had set a very conservative GDP growth target of 8% for China, down from an actual 8.7% growth in 2009. As per ICIS, concerns about a possible economic overheating in China could moderate petrochemicals demand growth in 2010. China is the biggest importer and consumer of petrochemicals in Asia. The Chinese government plans to aim to limit the increase in consumer prices to an average of 3% through curbing excessive lending. New loans for 2010 have been recommended to be kept at CNY7,500 bln (US$1089 bln) against a record CNY9590 bln registered in 2009. Lending cuts are expected to lead to lower infrastructure investments and could affect overall consumption of commodities and chemicals. As the global economic recovery remains at a fragile state, China was unlikely to withdraw its fiscal stimulus measures too soon. The People’s Bank of China (PBoC) may not hike interest rates until June, after keeping them steady since December 2008. Inflationary pressures in China may also be contained if the government would allow the yuan to moderately appreciate. A stronger yuan would boost China’s purchasing power, but this would also make its exports more expensive.
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