Jul 5 2007
Within a few years, China will almost certainly become the world's largest consumer of petrochemicals. It is already the key export focus for producers in Asia Pacific and the Middle East, and what happens in China will have an increasing impact on global petrochemicals markets.
"In response to this burgeoning petrochemicals demand, China is implementing a significant expansion of domestic production capacity while also encouraging an increasing level of participation from international companies by liberalising business rules and opening up its markets," said Dai Yu, General Manager, Base Chemicals Asia Pacific/Middle East, Shell Eastern Petroleum (Pte) Ltd. "Together, these measures are creating a business climate and business conditions that are much more conducive to foreign investment."
Speaking on "Investing in China" at the 3rd Asia Aromatics & Derivatives Conference in Singapore, the Shell executive said that in addition to steadily reducing import duties on most chemicals products, China is now enabling foreign companies to establish wholly-owned trading and distribution companies, with low capital requirement. Restrictions on foreign investment in refinery and oil products, including retailing, have been reduced.
Dai Yu told the audience: "China has a large and growing pool of high-quality and highly-competitive local equipment suppliers for new projects. Driven by tax incentives, China is achieving a very significant rise in the quality of its manufacturing equipment, which is enabling domestic manufacturers to supplant imports. Today, China can build refineries and crackers with between 85% and 95% of equipment sourced domestically. In fact, China is becoming one of the major sources of global equipment supply and has a large pool of local engineering and construction companies able to implement projects to international standards at very competitive prices."
However there are still considerable challenges to be faced by foreign companies investing in China. China's domestic companies remain dominant producers and sellers in key markets in the chemicals sector and have developed very successfully in recent years. This combination of international investors and strong, local companies, some operating in joint ventures, means competition in China is fierce.
There are also significant shortages of the talents and business skills required to meet the needs of fast-growing business, especially people who understand both domestic and international business. Many international investors are also concerned about intellectual property protection.
A further challenge for international investors is whether they have appropriate knowledge of local markets, competitors, customers, the Chinese culture and ways of doing business, and the ability to build the credibility necessary to succeed in China.
"The Shell Group is expanding rapidly in mainland China," said Dai Yu. "In addition to petrochemicals, we are focusing on natural gas, renewable energy and new ways of using coal as well as providing consultancy services on energy efficiency and technological solutions. In our fuels, lubricants, bitumen and chemicals businesses, we offer the latest technological and environmental solutions to contribute to sustainable development. All Shell core businesses are represented in China.
"Our petrochemicals strategy for China is multifaceted," he added. "Shell companies can supply China from existing plants in Singapore and the Middle East, and even from North America and Europe. Shell companies have also invested heavily in China and our Nanhai joint venture petrochemicals complex supplies the Chinese market from within. Another important development is a business licence extension granted in 2006 enabling Shell China Ltd to import, export, buy and sell chemicals in local Chinese renminbi (RMB) currency."