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Chinese chemical demand lures European firms
by Staff Writers
Changshu, China (AFP) Oct 16, 2011

China has become one of the most important markets for European chemical companies, soaking up nearly half of their total planned investments as they look to tap its huge domestic demand.

But the world's second-largest economy is also a fierce competitor on the global stage, according to the head of French firm Arkema, who travelled to China this week to inaugurate two new factories in Changshu, near Shanghai.

"This country is an opportunity due to its market growth but also a threat with the emergence of new competitors," said chief executive Thierry Le Henaff.

"But the positives outweigh the negatives."

The group -- which makes products such as chlorine and acrylic -- already has five sites in China and has decided to devote a quarter its investment to the country.

It will open its first research and development (R&D) centre in the Asian nation next year.

The move reflects a wider strategy adopted by most Western chemical groups in the world's number-one market in the chemical sector. Last year alone, China recorded $794 billion-worth of chemical sales both at home and abroad.

China produces a wide range of chemicals for its vast manufacturing, auto, construction and agricultural sectors, including plastics, dyes, lacquers, detergents and fertilisers.

Blistering economic growth and a shortage of raw materials in the country has seen its chemical imports outstrip exports as domestic demand soars.

In 2009 China's chemical imports reached $69.4 billion compared with $54.03 billion in exports, according to official figures.

But China is not necessarily an obvious choice for investments from foreign chemical makers, analysts say.

"China is not an area in the world where there are big cost benefits to make chemicals," said Serge Lhoste from Paris-based consultants Roland Berger.

Chemistry does not require a lot of manpower -- which is one of China's main selling points -- and the Asian country does not offer particularly attractive access to raw materials in terms of quantity and price.

But Lhoste said that China has one, huge advantage -- a "colossal" domestic market, fuelled by an all-encompassing need for infrastructure.

The possibility of a slowdown in economic growth -- which stood at 9.5 percent in the second quarter of the year -- is unlikely to dampen enthusiasm as Chinese growth will still be higher than Europe or North America.

There was a time when chemical companies only exported their goods to China, but they now want a firm presence in the country.

Germany's BASF, the world number-one, is devoting half of its total planned investments to China until 2014 -- or more than one billion euros ($1.4 billion).

Bayer has relocated part of its plastics department to China, and Switzerland's Clariant already has some 20 sites in the country.

Belgium's Solvay, meanwhile, decided to buy Rhodia earlier this year partly because of the French chemical-maker's 30-year-long presence in China.

It plans to build a plant for special polymers -- material used in industries such as oil and gas -- near the Arkema factories in Changshu.

China does have its own, homegrown chemical giant -- Sinochem -- but it is still not as technically competent as other countries.

"What makes the difference in chemistry is R&D (research and development) on products or on procedures. China now has a powerful chemicals industry, but doesn't have the technical capabilities that big global groups may have," said Lhoste.

Analysts say foreign firms enter China with their know-how on wide display and risk leaving some of their industrial secrets behind.

"This allows local competitors to avoid investing huge sums in R&D and to directly access innovative technologies," said Marc Livinec, an analyst at consultants Euler Hermes.

He said this could be a deterrent for some firms, but for most "the commercial opportunities are too strong."


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