Page 194 - 2017 White Paper
P. 194
7 White Paper on the Business Environment in China
shut down because they were unwilling to put up with permitted to bid in a second round later that year (Hook
negative margins”, while“Several independent refiners […] 2012).
said the real problem was a lack of feedstock”. The fact that
“independents largely refine fuel oil as feedstock because While energy-related chemicals saw a decline in
crude oil imports are tightly controlled by the state-run production and consumption as a result of the global
refiners” would seem to lend credence to their complaints economic slowdown, it appeared to be non-energy related
(Bai and Chen 2011c). chemicals that were hardest hit, and in the face of strong
historical growth and optimism about future progress—
Accordingly, it was reported that several independent it was noted in 2005 by the Royal Society of Chemistry’s
refiners were forced to“[sell] stakes to state refiners such as monthly journal that “demand for chemicals in China
PetroChina and China National Offshore Oil Corp (CNOOC) expected to double between 2002 and 2015” (Allen 2005).
in exchange for crude oil supplies” (Bai and Chen 2011c).
While the May 12, 2008 earthquake in Sichuan caused
This situation appears an entirely domestic one, and massive disruption in transportation links as well as
the field is likely to remain a mostly “locals-only” game manufacturing operations (although the concentration of
according to one foreign petro-executive: “Nationalization chemical manufacturers in affected areas was reportedly
is gaining pace in many sectors in China, I doubt China is not as high as in other regions) (Jia 2008), a larger concern
heading for a liberalized oil market any time soon”(Bai and for the sector turned out to be downstream users of
Chen 2011c). chemical products—while the brunt of the initial effects
of the global economic slowdown in China was borne
In reality, “CNOOC aims to more than double its annual primarily by exporters, many providers of raw materials
output to 2.6 million barrels per day by 2020 under a faced significant difficulties as production slowed and
strategy [Chairman Wang Yilin] dubs the company’s ‘New customers stopped ordering. Often singled out, for
Leap Forward” (Zhu and Powell 2013). example, were producers of polyester (Fang 2008).
Indeed, in December 2011, new restrictions were issued Exemplary of this difficulty was the case of Zhejiang
on foreign participation in refining, with the minimum Hualian Sunshine Petro-Chemical, which was deemed,
capacity for crude oil distillation being raised to 200,000 much as banks in the U.S. were, ‘too big to fail’.
barrels per day (up from 160,000 barrels per day), the Accounting for nearly half the fiscal revenue of its home
minimum threshold for investment in catalytic cracking municipality, the company was the recipient of a “virtually
capacity and hydrocracking capacity both being set to 1.5 unprecedented offer of government money to a non-state
million tonnes per year and that for continuous reforming firm” totaling some 1.5 billion yuan in order to resume
capacity being set to 1 million tonnes per year (Bai and operation (Fang 2008).
Chen 2011a).
Regardless of relative slowdown during 2008 and 2009
Interestingly, the one improvement for foreign things began to look up in 2010, with recovery noted in
enterprises in that round of market access adjustments downstream sectors (Wan 2010a). A KPMG survey showed
was the result of “the government [encouraging] similar downstream growth as a result of an increased
foreign investment in exploration and development of focus on domestic consumption (Fung 2011) .The report
unconventional oil resources including shale oil, oil sands went on to identify four key issues it expects to influence
and heavy oil, and unconventional gas resources including the chemical industry’s outlook in coming years:
shale gas and seabed gas hydrate through joint ventures
or cooperation deals with domestic companies” (Bai and Chinese government’s goal to shift the current
Chen 2011a). production model towards a more balanced and resilient
one, as set out in the 12th Five-Year Plan; Both new and
Nonetheless, in 2012 foreign enterprises were excluded old mega-trends which include increased internal demand
from the first shale gas tender that year, “despite a need in China, continuous urbanization, shifts in value chains
for overseas technology to help exploit massive reserves and environmental awareness; Enhanced economic and
of gas trapped within shale rock formations in the world’s financial volatility in global markets; and Market dynamics
top energy user” (Bai and Wills 2012). The Financial Times which can narrow the gap between local Chinese
later reported that foreign-funded joint ventures were manufacturers and multinational players (Fung 2011).
194
shut down because they were unwilling to put up with permitted to bid in a second round later that year (Hook
negative margins”, while“Several independent refiners […] 2012).
said the real problem was a lack of feedstock”. The fact that
“independents largely refine fuel oil as feedstock because While energy-related chemicals saw a decline in
crude oil imports are tightly controlled by the state-run production and consumption as a result of the global
refiners” would seem to lend credence to their complaints economic slowdown, it appeared to be non-energy related
(Bai and Chen 2011c). chemicals that were hardest hit, and in the face of strong
historical growth and optimism about future progress—
Accordingly, it was reported that several independent it was noted in 2005 by the Royal Society of Chemistry’s
refiners were forced to“[sell] stakes to state refiners such as monthly journal that “demand for chemicals in China
PetroChina and China National Offshore Oil Corp (CNOOC) expected to double between 2002 and 2015” (Allen 2005).
in exchange for crude oil supplies” (Bai and Chen 2011c).
While the May 12, 2008 earthquake in Sichuan caused
This situation appears an entirely domestic one, and massive disruption in transportation links as well as
the field is likely to remain a mostly “locals-only” game manufacturing operations (although the concentration of
according to one foreign petro-executive: “Nationalization chemical manufacturers in affected areas was reportedly
is gaining pace in many sectors in China, I doubt China is not as high as in other regions) (Jia 2008), a larger concern
heading for a liberalized oil market any time soon”(Bai and for the sector turned out to be downstream users of
Chen 2011c). chemical products—while the brunt of the initial effects
of the global economic slowdown in China was borne
In reality, “CNOOC aims to more than double its annual primarily by exporters, many providers of raw materials
output to 2.6 million barrels per day by 2020 under a faced significant difficulties as production slowed and
strategy [Chairman Wang Yilin] dubs the company’s ‘New customers stopped ordering. Often singled out, for
Leap Forward” (Zhu and Powell 2013). example, were producers of polyester (Fang 2008).
Indeed, in December 2011, new restrictions were issued Exemplary of this difficulty was the case of Zhejiang
on foreign participation in refining, with the minimum Hualian Sunshine Petro-Chemical, which was deemed,
capacity for crude oil distillation being raised to 200,000 much as banks in the U.S. were, ‘too big to fail’.
barrels per day (up from 160,000 barrels per day), the Accounting for nearly half the fiscal revenue of its home
minimum threshold for investment in catalytic cracking municipality, the company was the recipient of a “virtually
capacity and hydrocracking capacity both being set to 1.5 unprecedented offer of government money to a non-state
million tonnes per year and that for continuous reforming firm” totaling some 1.5 billion yuan in order to resume
capacity being set to 1 million tonnes per year (Bai and operation (Fang 2008).
Chen 2011a).
Regardless of relative slowdown during 2008 and 2009
Interestingly, the one improvement for foreign things began to look up in 2010, with recovery noted in
enterprises in that round of market access adjustments downstream sectors (Wan 2010a). A KPMG survey showed
was the result of “the government [encouraging] similar downstream growth as a result of an increased
foreign investment in exploration and development of focus on domestic consumption (Fung 2011) .The report
unconventional oil resources including shale oil, oil sands went on to identify four key issues it expects to influence
and heavy oil, and unconventional gas resources including the chemical industry’s outlook in coming years:
shale gas and seabed gas hydrate through joint ventures
or cooperation deals with domestic companies” (Bai and Chinese government’s goal to shift the current
Chen 2011a). production model towards a more balanced and resilient
one, as set out in the 12th Five-Year Plan; Both new and
Nonetheless, in 2012 foreign enterprises were excluded old mega-trends which include increased internal demand
from the first shale gas tender that year, “despite a need in China, continuous urbanization, shifts in value chains
for overseas technology to help exploit massive reserves and environmental awareness; Enhanced economic and
of gas trapped within shale rock formations in the world’s financial volatility in global markets; and Market dynamics
top energy user” (Bai and Wills 2012). The Financial Times which can narrow the gap between local Chinese
later reported that foreign-funded joint ventures were manufacturers and multinational players (Fung 2011).
194
