China Economic Outlook and Market for Olefins
Year:2007 ISSUE:28
COLUMN:SPECIAL REPORT
Click:318    DateTime:Oct.08,2007
China Economic Outlook and Market for Olefins    
Yu Jing  
China International Chemical Consulting Corporation (CICCC)
Zhong Weike, CNCIC


Overview of Economy
From 1978 to 2006, China's annual GDP growth averaged 9.67%, much higher than the 3.3% of the world GDP during the same period. The primary data disclosed that China's GDP increased by 10.7% in 2006, and it is 11.5% for the latest.
     In the first quarter 2007, China's GDP grew 11.1%. The growth averaged 13.2 % in manufacturing, mining and construction sectors, and 9.9% in transport, posts and telecommunications, catering, tourism, banking and insurance sectors. China's consumer price index (CPI), a major inflation index, grew by 2.7% in the first quarter, 1.5 percentage points higher than the same period of 2006. The investment in fixed-assets amounted to RMB1.75 trillion (US$227.6 billion), an increase of 23.7%, comparing 27.7% in the same period of 2006. China actually used US$15.9 billion of FDI in the first three months, up 11.6%. By the end of March 2007, the total foreign currencies reserves stood at US$1.2 trillion, an increase of US$135.7 billion from the end of 2006.
     All data showed here explained that China is still the spotlight of global economy. Anyhow, ten-year rapid development has brought China with some unavoidable problems, such as energy deficit, pollution, foam in stock and housing, high appreciation pressure of RMB with respect to the USD, etc. Chinese government has recognized these problems and started to change the old, rapid, wasted economic mode into new one.  

Data from the National Bureau of Statistics (NBS)

China has been changing its growth model:
  * Over one third of imported goods from Asia are for local consumption;
  * To consumption-led from export- and investment-led economy;
  * Service sector grows up, now accounting for over 49% of GDP;
  * Accelerating urbanization with the number of farmers decreased obviously;
  * Private income lifted steadily;
  * Growing middle-class family

Economy situation faced by China:
  * Continuous appreciation of RMB with respect of USD;
  * Slower oversea demand and frequent frictions in foreign trade;
  * Some manufacturing sectors are suffering price drop due to surplus local capacity;
  * Lower prices squeeze margins;
  * The 11th Five-Year Program (2006-2010) - the top priority intends to boost local consumption;
  * Scrapped agriculture taxes, lifted personal tax;
  * More fiscal spending on rural infrastructure;
  * The growth of investment will not slow down sharply - only reshuffling of investment from coastal rich areas to poor areas (west region);
  * Automobile production was 7.28 million units in 2006, ranking the third in the world;
  * The automobile manufacturing industry far outpaced the whole economy with production and sales of cars both growing by 25%;
  * Automobile industry will continue fast growth in the coming years;
  * China's automobile production will reach around 10 million in 2010;
  * Driven by brisk housing industry and automobile manufacturing sector, China's GDP growth will remain above 7% - 8% for the next decade.

Targets in the short-term future for Chinese government
  * Promote energy conservation and reduce pollution, control speculation in property and keep a moderate investment growth;
  * Achieve an economy less dependent on exports, investment and heavy industry, but more on personal consumption and services industry;
  * Promote local consumption as well as expenditures related to hosting the 2008 Olympics;
  * A gradual tightening in monetary policy and the use of administrative tools to moderate investment growth.
  Overview of China's Petrochemical Industry

Rapid growth of petrochemical production
The petrochemical industry is a most important part of the national economy in China. China is one of the largest petroleum and chemical industry countries worldwide, respecting of production and consumption. In 2006 the total sales revenue of Chinese petrochemical industry was approximately RMB4 200 billion, an increase of 27% from 2005. Total profit was around RMB438 billion, an increase of 18.2% compared with 2006. China's petrochemical production can't meet the tremendous local demand yet because the imports of petrochemical products far surpassed the exports.

  Refineries

China processed 306.51 million tons of crude oil in 2006 and had a refining capacity of 350 million t/a as of the end of 2006, ranking the second largest worldwide. The local crude oil output was 183.7 million tons while China imported 145.2 million tons, and exported 6.3 million tons. The apparent domestic consumption was 322.6 million tons.


  Ethylene  

There are 20 major ethylene producers (22 crackers) in China by the end of 2006, with a total capacity of 10.56 million t/a, ranking the second in the world. In 2006, the production of ethylene reached around 9.4 million tons. (The production of CNOOC-Shell was not included in the data supplied by China Petroleum and Chemical Industry Association that is 8.765 million tons CCR2007 No.3), with an annual growth rate average of 13.0% during 1995-2006. The output reached 5.27 million tons in the first half of 2007, and is estimated to reach 10.5 million tons in the whole year.
  
China's Ethylene Producers in 2006
Shanghai SECCO      977.9
Sinopec Shanghai    960.2
Sinopec Qilu        838.8
Sinopec Beijing Yanhua    820.0
Sinopec Yangzi      755.0
PetroChina Jilin    751.8
BASF-YPC            646.7
CNOOC-Shell         646.2
Sinopec Maoming     522.1
PetroChina Daqing    516.7
PetroChina Dushanzi    247.2
PetroChina Lanzhou    240.1
Sinopec Tianjin     231.7
Sinopec Zhongyuan    214.5
Sinopec Guangzhou    195.9  
Liaoning Huajin     180.6
PetroChina Fushun    179.6
Sinopec Beijing Dongfang    168.2
Loyal Group Ningbo Plant    167.4
PetroChina Liaoyang    132.4
Source: CICCC
    
  The 800 thousand t/a ethylene cracker of CNOOC Shell Petrochemicals Company Ltd. came on commercially operation in early 2006, and its operation rate achieved 80%. Sinopec Maoming Petrochemical Company completed its expansion to 1 million t/a capacity in July 2006. These two units will operate in full nameplate capacity in 2007. There are three new units and six expansion projects under construction now. CNPC is expanding the existing 220 thousand t/a ethylene unit in Dushanzi Petrochemical Company to 1.2 million t/a, the 200 thousand t/a in its Fushun branch to 1 million t/a and the 120 thousand t/a unit in Liaoyang branch to 200 thousand t/a. Several projects are yet to be approved or in the preparing stages after approval, for instance, Sinopec Group's  800 thousand t/a project in Hubei province, CNPC Dalian Petrochemical's 1.3 million t/a project, Dalian Shide's 1 million t/a project, ChemChina's 1 million t/a jo