Opportunities Brought by China's Stimulus and Adjustment Program for Petroleum and Chemical Industry   

-- An interview with Gu Zongqin, president of China National Petroleum and Chemical Planning Institute

During the global economic downturn, the Chinese government promulgated "the RMB4 trillion economic stimulus package" and "the stimulus programs for ten industries" subsequently, which has undoubtedly provided a strong support for China's economy to maintain growth, expand domestic demand and adjust structure, and also opened the prelude of the largest investment and construction scale in China's history. The Stimulus and Adjustment Program of Chinese Petroleum and Chemical Industry, which is most concerned by the industry, plays an important role in enhancing confidence amid the economic downturn.
     What impacts and affection will it bring to the industrial restructuring, layout of major projects, investing strategy and technological upgrading of the petroleum and chemical industry? How should petrochemical companies seize the opportunity to adjust their own development strategies? What opportunities and challenges is the petroleum and chemical industry currently facing? CNCIC reporter Li Haina held a special interview with Mr. Gu Zongqin, president of China National Petroleum and Chemical Planning Institute, to talk about the current situation and future prospects of this industry.

Q: In the past two years, China's petrochemical industry developed very rapidly and has gradually got to the peak of its development cycle. What impacts will this unpredicted financial crisis have on its development trend? Will its long-term upward development trend be thwarted?

Mr. Gu:  Since 2002, driven by the economic recovery of developed countries and the rapid economic growth of China, India, Russia and Brazil, the world's petrochemical industry has entered the boom stage of its cyclic development. In the period from 2005 to 2007, the world's petrochemical industry reached the peak of its economic profit rate. When the profit rate of the petrochemical industry grew significantly and its investment return rate was also significantly higher than other industries, a large amount of capital flew into the petrochemical industry. At present, the newly added capacity contributed by the on-stream of new construction petrochemical facilities has broken the original balance relationship between supply and demand. Since 2008, the growth of the world's petrochemical industry has gradually slowed down, and this industry has entered a period of low-profit and highly competitive situation. In this period, oversupply descended on most products, and the world's petrochemical industry has entered the downturn stage of its development cycle.
    China's petrochemical industry is also facing a very complex domestic and international situation --- global financial crisis, economic downturn, slowdown of domestic economic growth, increased stock of petrochemical products, free fall of prices, and operational difficulties in many petrochemical companies. However, through the integrated analysis of the overall domestic economic development, the consumption of petrochemical products in China is still in the stage of growing. The rigid demand for oil products, fertilizers and pesticides will remain for a long term. The high-end petrochemicals have a huge market potential. The petrochemical industry is in the crucial stage of shifting from being large to being strong. The industry still owns comprehensive advantages to develop, and will remain unchanged in its upward development trend.

First of all: China's economy will keep steady development. On the base of an increasingly matured market economy system, China, to a certain extent, avoid the risks from the international financial crisis, which have provided a good economic environment and market conditions for the development of the petrochemical industry. In the next few years, the overall relationship between supply and demand of China's petrochemical industry is expected to have no major changes. China still need to import crude oil, organic raw materials and polymers. Although the supply of inorganic salts, chemical fertilizers, pesticides, caustic soda, soda ash, coatings, dyestuffs and tires meets or exceeds the domestic demand, some of these products have a certain competitive advantage in the international market and can offset the oversupply through exports. It is estimated that by 2010, China's consumption of major petrochemical products will account for about 1/3 of the world's total.

Secondly: China's petrochemical industry approaches a mature scale, large enough to resist risks. China has the world's second largest petrochemical industry, next only to the United States. The output of China's major petrochemical products ranks top worldwide. Its outputs of nitrogenous and phosphate fertilizers, soda ash, caustic soda, sulfuric acid, calcium carbide, pesticides, dyestuffs , tires, methanol, synthetic fiber and polyvinyl chloride rank number one in the world, and its outputs of refining, ethylene and synthetic resins are the second largest in the world, respectively. China has many well-known domestically, world-class large petrochemical companies, such as China National Petroleum Corporation (CNPC), China Petrochemical Corporation (Sinopec Group), China National Offshore Oil Corporation (CNOOC), Sinochem Corporation, China National Chemical Corporation (ChemChina), and a large number of provincially-owned petrochemical enterprises such Yunnan Yuntianhua Group and Sichuan Chemical Group. In addition, there are more than 100 publicly listed chemical firms with good performance and a number of profitable private chemical enterprises in China. The sales and profits of these petrochemical companies account for more than half of the industrial total in the country. In the peak stage of the petrochemical development cycle, these enterprises have effectively adjusted their product portfolios, accumulated a large amount of wealth and further enhanced their international competitiveness. Through years of market competition, they have got valuable experience and are fully capable to withstand the current pressure and risks and go through the hard times.

In addition: the petrochemical industries in developed countries have passed the peak of their development. Even if there were no financial crisis, they would also shift production. The competitive advantage of multinationals has not been so remarkable as it was in the 1980s. Of course, they still lead China's companies in some production technologies and engineering experiences and have greater advantages in the production of high-end chemicals. But in the production of basic chemical raw materials, they are losing domination.
    China's enterprises have remarkable advantages in human resources, close to markets, raw materials supply, support from policy and finance and external conditions. The Chinese petrochemical industry is currently at a booming period and continues to enhance its competitiveness. So according to optimistic estimates, even amid the international financial crisis, China's petrochemical industry can still develop rapidly by relying on China's steady and healthy economic environment and adjusting its development strategy in time.

Q: The stimulus and adjustment program for the petroleum and chemical industry lays emphasis on the adjustment of industrial structure. In the restructuring, what petrochemicals will have a good development opportunity?

Mr. Gu:  From 2006 to 2008, China's petrochemical industry continued to optimize its industrial structure, and the proportion of the high-end products increased constantly. For example, the output of high-concentration fertili