There may be some cracks in China's armor, but they won't be enough to stop the Asian powerhouse from dominating world petrochemical markets in years to come.
By 2008, China will represent one-third of the world's polyester and styrenics chains, about a quarter of its vinyls chains and almost 20 percent of the global polyolefins chain, according to Dave Witte, an analyst with Chemical Market Associates Inc. of Houston. Witte has been based in the firm's Singapore office since 2000 and has seen the Asian market grow firsthand.
But there are some potential hurdles for the Chinese market to clear. As much as 70 percent of Chinese bank loans can be described as ``bad debt,'' according to Witte. For example, nonperforming loans are estimated to represent 500 percent of equity at the Agricultural Bank of China. That debt creates the possibility that China could face ``tremendous financial difficulty'' in the near future, Witte said.
China also could face social unrest from unemployment as it becomes more industrialized and less agricultural. Many government-owned businesses - such as oil firm Sinopec - also are tremendously overstaffed and inefficient, Witte said. Sinopec has 710,000 employees, while in comparison, global oil giant Royal Dutch Shell Group has only 91,000 - with almost 10 times the annual oil capacity of Sinopec.
China's advantages still remain formidable, however. Its low labor and polymer costs are augmented by low construction costs, Witte said.
In the PET resin market, it costs Western nations about $500 to add a ton of capacity, while a similar amount can be added in China for about $300.
The country's annual per-capita plastics usage also is low compared with U.S. rates, creating potential for growth. In PVC, the average Chinese resident uses about 11 pounds per year, compared with 42 pounds per person in the United States. The gap is greater in polyethylene, where the Chinese each consume 15 pounds per year on average, while Americans each use up 95 pounds.
``If the world is to continue to see strong growth, the buying power of [China's] population must be unleashed,'' Witte said.