China Direct

McKinsey's China Chemicals Industry Study now available

 

CBI member, McKinsey & Company has published an updated study on the development of China’s chemicals industry.

The report hooks onto the fact that despite China’s chemicals industry having been the world’s largest by measure of revenue since 2011, its colossal size is not indicative of stability and new market dynamics are beginning to emerge.

The report highlights how China’s chemical market has contributed half of the growth of the world chemical market over the past two decades, but faces new pressures related to China’s economic slowdown and US-China trade tensions.

The report continues to outline the reasons why investors and companies should remain optimistic however, highlighting the fact that even if China’s growth rate was to slow to 5% per year, China would still be adding the equivalent of the annual sales of Brazil’s or Spain’s chemicals industries.

Broadening the scope to assess what is driving China’s massive growth within the chemicals industry, McKinsey’s report isolates a transition within China towards companies seeking to meet consumer demand rather than follow industrial policy.

According to McKinsey, within China’s domestic chemicals market, the area of the market with the most potential for growth is higher-end personal-care products, such as fragrances. Another area within China’s chemicals market that McKinsey has identified with potential for substantial growth is supplying chemicals for the manufacture of finished goods prioritised by the Made in China: 2025 programme.

Examples of this include, coatings and new materials for high-speed trains and advanced composites for use by China’s expanding aerospace industry.

Finally, the report identifies opportunities for foreign investors in China’s chemicals market and provides an overview of the types of financing foreign entrants can expect to be able to access when looking to enter the market.

Please follow the link to find the full report here.

BASF agrees terms for $10bn Guangdong Province investment

 

Regular readers of China Direct will remember that in September, BASF featured on the site having announced plans to invest $10 billion in a new chemical production site in Guangdong Province. Fast forward to the beginning of 2019, and BASF have announced that a framework agreement has been signed between the German chemical giant and Guangdong Provincial Government.

BASF’s new chemical complex will be built in Zhanjiang city, amid wider initiatives to develop the city as one of Guangdong’s key economic and production hubs.

The agreement between BASF and Guangdong Provincial Government is in the form of an MoU and outlines the planning details for the $10bn project. According to a statement issued after the signing of the MoU, it is the intention of both parties to work to promote the “Idea of advanced technology and smart technologies to maximise resource and energy efficiency to reduce the impact on the environment. [BASF’s new plant] is set to contribute to the industrial transformation of Guangdong.”

Specifically, the site will cover 9 square kilometres and have an annual production capacity of 1 million tonnes of ethylene, which is widely used in plastic manufacturing.

Martin Brudermuller, chairman of the board of executive directors of BASF said, “Chemical output in China is expected to grow 50% of the global total by 2030, and Guangdong stands as an important growing market for innovative chemical products. Our new site will support customers in multiple industries. We aim to help our customers to grow sustainably with our portfolio of products, solutions and services, and at the same time establish new concepts to improve the sustainability of our own operations.”

Guangdong Province is actively courting foreign investors. New rules on foreign direct investment introduced in September 2018 now allow foreign investors to establish solely foreign-owned enterprises in a number of industries: aviation, design, new energy vehicles, ship manufacturing & maintenance, drones, gas-station construction and railway technologies. Subsequently, FDI in Guangdong has grown by 3.1% y/y (2017-2018) to 88.93 billion RMB.

Investment from the UK into Guangdong Province grew at a rate of 93.8% over the first half of 2018.

The Guangdong site will add to BASF’s on-going international Verbund Project. Globally, BASF currently operates six Verbund sites: two in Europe, two in North America, one in Malaysia and one in China. The Nanjing Verbund Project is managed through a 50:50 joint venture with Sinopec.

To read more about BASF’s investment in Guangdong, please follow the link.

Dow partners with Alibaba to expand e-commerce presence

CBI member, Dow Chemicals has announced a partnership with 1688.com, the online purchasing and wholesale platform of the Alibaba Group, to provide customers in China with a new and convenient online channel for purchasing Dow products.

The initial batch of products available on the new online store include 14 of Dow’s most popular products, covering various markets such as: polyurethanes industrial solutions, food, personal care, coatings, automotive lubricants, building & home decoration, agrichemicals and textiles & leather. Dow Chemicals also facilitates professional online support.

According to Yoke Loon Lim, president of Dow Chemicals – Greater China, “The partnership is a milestone aligned to Dow’s digitalisation strategy, as well as an important move to further enhance the customer experience and explore new business opportunities.”

Transitioning to e-commerce is benefitting foreign companies across a wide range of sectors, whether it be selling into the China market or providing practical technical support and solutions to digitalisation strategies and developing the customer experience.

Many CBI members have reported such success. Starting with practical support in digitalisation and developing customer experience, Accenture announced that it would partner with Malong Technologies to develop ‘auto-tagging technologies’, allowing machines to see and present products online in the same way a customer would view the product in-store. Building on this, and moving to the retail-side of e-commerce, British fashion house, Burberry launched its latest collection on Chinese social media-based e-commerce platforms and watched it sell out within 4 hours. Other CBI members to make the switch to partner and incorporate e-commerce in their sales strategy include, Akzo Nobel, the Association of Certified Chartered Accountants and Royal Mail. However, what is most startling about this collection of companies is that all of the above examples took place in November alone.

This can be summed up perfectly by Dow Chemicals president Lim, “China is a world leader in e-commerce platforms and the Internet of Things technologies enabling them. This, combined with Chinese customers’ preference for smooth and safe online shopping, creates an ideal environment for Dow Chemicals to expand our online presence and diversify our sales and service channels.”

The power of e-commerce cannot be understated in China. The country’s domestic e-Commerce sales account for 42% worldwide and the market is worth $599m. Furthermore, around 40% of China’s domestic trading B2B takes place on Alibaba’s 1688.com website; another example of the strength of e-commerce within the wider China retail space.

Please read more here.