CChina is now the 6th largest economy in theworld, boasting a Gross Domestic Product (GDP)of $2.23 trillion in 2005. Measured on a pur-chasing power parity (PPP) basis, China wouldrank as the second-largest economy in the world,after the U.S. Likewise,China’s rising status is im-pressive in the context of its $264-billion chem-icals market. In 2005, China overtook Germany– with an output of $223 billion – to become theworld’s third-largest chemical producer, behindthe U.S. and Japan, says the American ChemistryCouncil (ACC). And while growth of China’schemical industry is slowing gradually, it remainsrobust in comparison with the rest of the world.Early 2006 assessments put China at an averagegrowth rate of over 16%, compared to less than6% for the entire Asia/Pacific region and lessthan 4% worldwide. ACC forecasts that annualoutput growth of China’s chemical industry willaverage 10.4% between 2006 and 2016, as thegrowth of the surrounding region and worldmarkets stay on course.

For foreign process-industry investors, such rap-id growth is even more enticing when China’scurrent appetite for petrochemicals is factoredin. China has been a major importer of petro-chemical products for many years, importing $70billion of chemicals in 2005, and having a $41-billion chemicals trade deficit, says ACC.And, inits 2006 China Report, SRI Consulting (SRIC) hasforecast that China will remain a major importerin the next decade or so, despite rapid capacityincreases to date. Even though petrochemicalsisdominatedbystate-ownedcompanies,foreigninvestment in the petroleum and chemical in-dustries in China has been substantial, withmore than 2,000 projects, SRIC says.Among theworld’s top 50 oil and petrochemical companies,40 have set up joint or wholly owned venturesin China. Unlike the case in other manufactur-ing industries, most such foreign investors in-tend to supply the local market.Recently, Chinese authorities have been tryingto re-attract investors who were scared off byannouncements that the nation will be more fo-cused on protecting domestic enterprises, espe-cially in evaluating foreign merger/acquisition

China’spetrochemical industry

China, the fastest growing econ-omy in the world, is witnessingmassive investments in newprojects and plant upgrades inalmost all segments of the chem-ical process industries, especial-

BASF-YPC Co. Ltd. is a 50–50 joint venture betweenBASF and SINOPEC with a total investment of$ 2.9 billion and was established at the end of 2000.Using state-of-the-art technology, the joint ven-ture operates a steamcracker (600,000 metric tonsethylene per year) and nine downstream plants onits 220-hectare site in Nanjing on the Yangtze River.

Pict

ure:

BASF

ly in the petrochemical sector asone of the basic industries. Es-pecially, growth in ethylene andcoal conversion technologieswill play important roles in fu-ture. Equipment, technologyand know-how for the processindustries will be highlighted atAchemAsia.

This article is based on an AchemAsia 2007 trend report.The complete article is available at www.achemasia.de.

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attempts. The bottom line is that in future projects, China will be more se-lective in overseas participation. While China still welcomes all forms offoreign investment, it will open up its arms wider to investors who haveadvanced technologies to offer, China’s official Xinhua news agency re-ported Chinese Vice Premier Wu Yi to have said recently.In the meantime,new locations continue to emerge as regional chemical cen-ters. One of them is the Shanghai Chemical Industry Park. As noted in a re-port by KPMG, leading foreign chemical companies such as DuPont, DowChemical, GE Plastics, Bayer and DSM have established chemical Researchand Development (R&D) centers in Shanghai. In September of 2006, for in-stance, the Bayer MaterialScience subgroup inaugurated its new productionfacilities at the park.The project rep-resents a total capital expenditurevolume of about US$1.8 billionthrough 2009, the firm’s biggest-ever project outside of Germany.

Joint ventures withdomestic giantsSimilarly, companies such as BASFand Shell are increasing their pres-ence by expanding their produc-tion capacity in joint ventures withdomestic giants. Meanwhile, somefirms are moving entire businessunits to China.At the end of 2006,for instance, Celanese announcedthat it will relocate its acetyls busi-ness to Shanghai as early as spring2007. Celanese derives about 20%of revenue and 30% of earningsfrom Asia and expects that to in-crease to 30% and 45-55%, re-spectively by 2010. China alone isexpected to generate between$600 million and $700 million inrevenue for the firm by 2010.In addition to the widespread ac-tivity in China’s east-coast indus-trial centers, opportunities willarise for multinational chemicalcompanies over the next 15 yearsas the Chinese government seeksto open up its underdeveloped in-land regions with large-scale in-frastructure and industrial pro-jects. China’s eastern coastal re-gions are home to only 40% of thecountry’s population, but accountfor 60% of GDP. The government’s11th five-year plan (2006-10) aimsfor better balance.

Major domestic playersand growth areasAccording to a ranking prepared bySRIC (see table on page 16), thefastest riser is China NationalChemical Corp. (ChemChina),which is expanding rapidlythrough organic growth and ac-quisitions. ChemChina has gone

from strength to strength since its creation in 2004 through a merger be-tween two of China’s biggest state-owned chemical enterprises, China Na-tional BlueStar Corp., and China National Haohua Chemical Corp.The com-pany has also led the rest of the Chinese chemical industry in acquiringoverseas assets. ChemChina bought feed additives company Adisseo(Antony, France) from private equity firm CVC Capital Partners, and olefinsand polyethylene producer Qenos (Melbourne) from ExxonMobil Chemi-cal and Orica, earlier this year.According SRIC’s ranking, Sinopec and PetroChina are by far the biggestchemical companies in China. Both companies are moving ahead withmajor programs to expand olefins and derivatives capacity, and have an-

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nounced a combined $20-billion worth of in-vestments by 2010.

The biggest growth area is inethyleneThe biggest growth area is in ethylene. Analystsexpect the projects to more than double China’sethylene capacity, to about 15-million m.t./year.But China will still import about 15-millionm.t./year of ethylene and derivatives, and 8-mil-

lion m.t./year of propylene and derivatives, in2014, SRIC says.All the major Chinese producers of ethylene usesteam cracking technology licensed from West-ern engineering companies. The ABB-Lummusprocess is the most widely used technology inChina and is currently licensed in over half of theplants. Other technology licensors include Stone& Webster, Mitsubishi, Kellogg, and KTI.Meanwhile, cooperation between China’s ethyl-

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Rank2005 2004 Company Sales

(in billions of Rmb)1 1 Sinopec 823.77*2 2 PetroChina 672.03*3 3 Sinochem 189.98*4 4 China National Offshore Oil Corp. (CNOOC) 87.45*5 44 China National Chemical Corp. (ChemChina) 53.00*6 5 Shanghai Huayi Group 28.227 6 Tianjin Bohai Chemical Industry 21.378 7 Shandong Haihua Group 15.579 19 Yuntianhua Group Co. 10.39

10 8 Shandong Binhua Group 10.3011 9 GITI Tire Investment Co. 9.4212 10 Xianglu Petrochemical Xiamen Co. 7.6613 13 Hangzhou Zhongce Rubber Co. 7.2914 11 Shandong Chengshan Group 6.8315 35 Ningbo Daxie Liwan Petrochemicals Co. 6.7316 17 Shandong Lubei Enterprises Group 6.4517 46 Hubei Yihua Group 6.3618 21 Triangle Group Co. 5.7219 – Transfar Group Co. 5.7020 16 Jiangsu ChengXing Phosph-Chemicals 5.4821 14 Doublestar Group Corp. 5.4422 22 Juhua Group Corp. 5.3523 32 Shandong Lihuayi Group 5.2124 – Weifang Hongrun Petrochemical 5.1125 18 China Shenma Group 5.0426 28 Shandong Linglong Rubber Co. 5.0227 33 Dongming Petrochemical 5.0128 50 Cheng Shin Rubber Xiamen Ltd. 4.8229 12 Liaoning Huajin Chemical 4.7330 57 Shandong Huaxing Petrochemical 4.6331 24 Ningbo LG Yongxing Chemical 4.6032 25 Tianjin Dagu Chemical 4.1033 27 Zhejiang Longsheng Group Co. 4.0534 34 Yantai Wanhua Synthetic Leather Group 4.0035 29 BP Zhuhai Chemical 3.9436 39 Shandong Zhenghe Group 3.8937 79 Shandong Changyi Petrochemical 3.8538 – Shandong Jincheng Petrochemical 3.8339 26 Shandong Liaocheng Luxi Chemical 3.7440 23 Shanghai Baosteel Chemical 3.7041 37 Fengshen Tire Co. 3.6742 48 Shandong Kenli Petrochemical 3.5443 31 Red Sun Group Corp. 3.4844 45 Yabang Chemical Group 3.4545 47 Kingfa Technology Inc. 3.3746 65 Jiangsu Sopo Corp. 3.2547 36 Lutianhua Group 3.2448 60 Shandong Jingbo Petrochemical 3.2249 89 Shandong Xishui Rubber Group 3.2050 62 Shandong Shtar Science & Technology Group 3.18

* Includes non-chemical sales. Source: SRI Consulting (Beijing)

The top 50 Chinese chemical companies ranked by 2005 sales

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ene producers and foreign technology licensorsis gaining momentum. In September 2006, forexample, on-specification, polymer-grade ethyl-ene was produced by the first grassroots unit toutilize an ethylene recovery technology that wasjointly developed by ABB Lummus Global andSinopec’s China Petroleum & Chemical Corp.TheSinopec Maoming Petrochemical Co. cracker islocated in Maoming, Guangdong and has anethylene capacity of 640,000 m.t./yr. The crack-er also uses ABB Lummus Global/Sinopec crack-ing heater technology.Sinopec recently held a ceremony to launch along-delayed ethylene project at Tianjin. TheRMB 26-billion project was originally to havebeen a joint venture with Dow Chemical, whichdropped out of the project in 2002. Sabic hasalso held talks on joining Sinopec in the Tianjinproject, which will include a 1-million m.t./yearethylene plant. Sabic, meanwhile, is negotiatingan ethylene joint venture with polyvinyl-chloride(PVC) doors and windows manufacturer ShideGroup (Dalian) at Dalian.Sinopec recently secured government approvalfor a refining and petrochemicals joint venturewith Kuwait Petroleum at Nansha that willinclude a 1-million m.t./year ethylene plant.Sinopec is also due to complete an ethyleneplant at Quangang in 2009 in a joint venturewith ExxonMobil and Saudi Aramco, as part ofa refining and petrochemical joint venture.Sinopec is planning wholly owned steam crack-ers at: Caojing, near Shanghai; Ningbo; andWuhan.Sinopec’s ethylene output increased 24.5% inthe first half of 2006, to 3.03 million m.t., due tothe start-up of new capacity including the BASFand BP (London) joint ventures. Sinopec andBASF recently announced a $500-million projectto increase ethylene capacity and broaden theproduct slate of their joint venture at Nanjing.PetroChina began construction earlier this yearof a wholly owned RMB 21-billion refining andpetrochemical complex at Chengdu that will in-clude an 800,000 m.t./year ethylene plant. Com-pletion is due by 2010. A similar-sized refiningand petrochemicals project at Fushun is underconstruction and a cracker is planned atLanzhou. PetroChina is also building a 1-millionm.t./yr ethylene and 500,000 m.t./yr propyleneplant at Dushanzi, which will use technologyfrom Linde.Shell’s joint venture is with China National Off-shore Oil Corp. (CNOOC). It began productionnear Huizhou last spring. Other projects reach-ing completion this year include a $1-billion iso-cyanates joint venture involving BASF andHuntsman (Salt Lake City, Utah), as well as Chi-nese partners including Shanghai Hua Yi Groupand Sinopec Shanghai Gao Qiao Petrochemical,at Caojing. An opening ceremony was held forthat plant in mid 2006. Around the same time,

Dow Chemical announced plans for a $200-mil-lion expansion of epoxy resins capacity atZhangjiagang.

Chemicals from coalHigh oil and gas prices have caused the Chinesegovernment and chemical industry to step upefforts to produce more chemicals from one ofChina’s cheapest and most abundant naturalresources – coal. China is the biggest producerand consumer of coal.At least 13 new coal gasi-fiers have been built using the Shell Coal Gasi-fication Process (SCGP), according to the headof gas technologies at Uhde, the firm that code-veloped the process with Shell. And accordingto the GasificationTechnologies Council’s onlinedatabase, 18 major coal-gasification projectshave started or will startup between 2005 and2007.The government is encouraging use of new tech-nologies, such as coal liquefaction to makemethanol and dimethyl ether (DME), for use asa clean fuel. Numerous small-scale methanoland DME projects have sprung up across coal-rich regions of China as a result. China produced5.4-million m.t. of methanol in 2005, of which3.5-million m.t. were derived from coal, accord-ing to a recent report by Xinhua news agency.Methanol plants with a combined capacity of al-most 9-million m.t./year are under constructionin China, and a further 10-million m.t./year ofcapacity is in the planning stages, Xinhua says.Fears of overcapacity and inefficiency caused thegovernment to step in during mid 2006, an-nouncing plans to regulate the coal-to-chemi-cals sector. The National Development and Re-form Commission (NDRC; Beijing), China’s topeconomic planning agency, announced that itwould no longer approve coal liquefaction pro-jects with capacity for less than 1-million m.t./year of methanol or DME, or 600,000-m.t./yearof olefins. Coal liquefaction technology “is stillin the experimental phase,”and“the market hasnot been fully developed,” NDRC says.Since then,CNOOC and Choren Industries GmbH(Freiberg, Germany) launched a new joint ven-ture – Choren-CNOOC Beijing Gasification En-gineering Technology Co. Ltd. – to market tech-nologies for gasifying solid feedstock such ascoal and biomass.Meanwhile, Sinopec announced plans in 2006for a RMB 21-billion, coal-to-chemicals projectat Erdos in China’s autonomous region of InnerMongolia.The project will have capacity for 4.3-million m.t./year of methanol, and 3-millionm.t./year of DME. Meanwhile, Dow and coalcompany Shenhua Group (Beijing) are jointlystudying an olefins project near Yulin based onmethanol produced from coal. More traditionalcoal-based technology is behind the rapid de-velopment of China’s acetylene-based PVC in-dustry. ■

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