China seems to be emerging as a potential competitor in petrochemicals to the Middle East, despite the unparalleled feedstock cost advantage. This can be mainly attributed to the low cost of local sourcing, especially labor cost.
A study comparing costs of petrochemical plant construction and operation in China versus the US, Japan, and Germany, revealed that China's main competitive advantage is low-cost labor. Labor cost is significantly lower than that in the developed countries- a chemical plant built in China can cost 30% less than the same plant to be build on the US Gulf Coast. Chinese labor is now skilled to build chemical plants with local construction and engineering labor, equipment, machinery, and materials. Interestingly, depending on location and ownership, plant construction cost can vary greatly in China, limiting the cost benefits of local sourcing.
Several world-scale integrated petrochemical complexes are planned and are likely to come on stream in the next few years in China. Once a plant is built and operational, the investment cost becomes sunk cost. A producer with much lower plant investment cost than its peers will have a lower ongoing cost of production and will be more competitive. Strong local demand, low-cost plant construction and low-cost financing appear to be the main drivers behind China's rapid capacity expansion. As China continues to enjoy the advantage of a ready market, will the major Chinese producers become serious players in the global petrochemical industry?
02-Mar-06 
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