Will China set up more petrochemical projects in collaboration with International Players?

China is suffering from the shortages of many petroleum and chemical products and has to depend on imports. For instance, China's PVC manufacturing capacity is about 2.5 million tons compared to their consumption of about 4.7 million tonnes in 2001. Its plastics consumption has crossed over 20-22 million tonnes and still continues to grow at about 7% every year. There will be a big gap between demand and supply. China's consumption of plastics will go up 51 % to 25mm tons by the end of 2005 and its production capacity of plastics will increase 74 % to 15 mm tons leaving a gap of 10 mm tons. By the end of 2006, China's import of HDPE, LDPE, LLDPE and PP will still account for 50 % of the total consumed. The booming market demand will offer a huge market for petrochemical industry in and outside China. For this, major petrochem manufacturers have streamed into China and started ethylene plants.

China is setting up major petrochemical projects, being promoted by Sinopec and CNOOC, the state owned petrochemical companies. These projects are in collaboration with multinationals such as BASF, BP & Shell.

		China Petroleum and Chemical Corp (Sinopec) signed a contract with BP Chemicals to build a petrochemicals complex, expected to develop the capacity to produce 900,000 tpa of ethylene, the largest of its kind in Asia when it comes on stream in 2005. Under the US$2.7 billion deal, BP Chemicals controls 50%, Sinopec 30%, subsidiary Shanghai Petrochemical Co takes the remaining 20%.
		The US$4 billion project between the China National Offshore Oil Corp and the Royal Dutch/Shell Group in Guangdong Province to output 800,000 tons of ethylene annually by 2005.
		Germany's BASF and Sinopec are constructing a US$2.65 billion integrated petrochemicals site to turn out 650,000 tons of ethylene annually by 2005. The 50-50 joint venture is to be the nation's third largest petrochemicals plant.

When these projects are completed, China is expected to have an annual capacity of producing 5.5 million tons of ethylene by the year 2005. China is expected to continue importing petrochemicals even after the mega projects are on stream. Imports also are expected to be more economical due to lower import tariff that China is expected to have due to its entrance to WTO from 2001.

There have been two other major petrochemical projects which were on the drawing board for quite some time. However discussions at the recent China Chemical Industry Conference indicate that these projects are not likely to go ahead, atleast in the near future. Infact, positive signals coming from the country indicate that future petrochemical projects involving manufacture of Ethylene, Propylene, etc. are likely to be exclusively owned by Chinese corporations such as CNOOC, Petrochina & Sinopec. They may buy the technologies and equipments from international sources. The existing partners of these corporations may be given some opportunity to participate in these new projects or in expansions. The Chinese government is expected to announce the 11th Five year plans (2006-2010) next year. China needs mega petrochemical projects to meet the massive deficit it has in petrochemical building blocks & derivatives.

However the indications are that the government may not seek new international majors.

Will this shift in the Chinese Government's approach lead to more capital investments by the international petrochemical majors in the neighbouring Asian region or in Middle East?

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