October 20, 2003
Volume 81, Number 42
CENEAR 81 42 pp. 14-15
ISSN 0009-2347

PATRICIA L. SHORT,C&EN LONDON

With the Chinese chemical industry growing by 15% per year--and with that pace expected to continue for the next few years at least--it is no wonder that the European section of the London-based Society of Chemical Industry (SCI) decided to focus on China for its recent meeting in Barcelona.

What that growth means in terms of customer demand was brought home by Jan Oosterveld, a senior vice president at Royal Philips Electronics responsible for corporate strategy, regions, and countries. China, he pointed out, "is our second-largest country in sales, after the U.S." However, "in the next five years, China will be our number one country."

That kind of market growth for their customers is one reason why Western chemical companies are among the major foreign investors in China. They are also moving responsibility for the country to their top levels of management.

DSM, for example, this month appointed a corporate vice president for DSM China. Stefan Sommer, 46, will report directly to the company's deputy chairman, Jan Zuidam. Before the appointment, Sommer was president of Ticona, the engineering plastics division of Celanese. Meanwhile, at Celanese, George McGinn, 60, currently the Singapore-based vice president of commodity chemical sales, has been appointed to the newly created role of China region president, effective immediately. He will report to David N. Weidman, Celanese chief operating officer.

"Conventional wisdom suggests that China can't keep growing like this--it is unsustainable," argued Peter Schwartz, chairman of Global Business Network, a consulting group based in Emeryville, Calif. "But over the last decade, conventional wisdom has been wrong, and it will continue to be."

China's growth will be driven by three major factors, agreed Long Yongtu, secretary general of the Boao Forum for Asia, a nonprofit group that promotes dialogue and economic cooperation between Asia and the rest of the world. In his former post as vice minister of China's Ministry of Foreign Trade & Economic Cooperation, Long was the chief trade representative responsible for negotiating China's entry into the World Trade Organization.

Markets driven by demand, he agreed, will support economic growth. "If 1.3 billion people want to make money and get rich," he said, "that is a big incentive for economic growth. People in the big cities"--China already has 180 cities with populations of more than 1 million--"already have per capita income of more than $5,000. That is forecast to double by 2010, and by 2020 will have reached $25,000."

 

Hambrecht BASF PHOTO

THE TRANSFORMATION of a state-dominated economy to a mixed economy will continue, Long said, with the private sector expected to account for three-quarters of gross domestic product by 2010.

And economic globalization will also support the country. "In China, globalization is a very nice word--there are no protests over it. It means faster inflows of income, technology, and so on." The process has brought to China "the concept of win-win," he added. "This is a very new tradition and has changed attitudes toward foreign and transnational companies."

There are substantial challenges for the Chinese industry, noted Shi Xian Ping, vice president of the China National Petroleum & Chemical Planning Institute in Beijing. In commodity chemical sectors, such as ethylene and synthetic resins, the emphasis is on new, world-scale plants as well as the expansion and renovation of small, older plants.

But even in areas of fine and specialty chemicals, the industry is focusing on modern and more efficient pesticides, for example, to replace highly toxic products, he noted.

Specialty chemicals offer probably the strongest chance of profitable growth in China, suggested Jürg Witmer, chief executive officer of flavors and fragrances company Givaudan. "Western brands are becoming increasingly accessible, so we must be there to support them" with flavor and fragrance components, he said.

"We are highly profitable in China," he added. However, he said that "you must take a long-term view; you can't be sidetracked by short-term setbacks" when doing business in the country.

Indeed, for most of the industry, Chinese profits seem elusive, suggested Jürgen Hambrecht, chairman of BASF. Nonetheless, he said, any serious Western chemical producer must have a strong presence in China, such as the one BASF is building up with its projects in Nanjing and Caojing, near Shanghai.

CHINA IS ALREADY a big consumer of chemical products: In 2002, Hambrecht pointed out, the country's polymer consumption grew at twice the rate of the North American Free Trade Agreement region's and three times that of Europe's. But increasingly, it is also a lead producer of many products. "There is a drive in China toward internationalization," Hambrecht said. "We will see more competition in our home markets from China."

One oft-cited problem--possible reluctance of investors to bring valuable intellectual property to China--is in fact not a big issue, according to several of the speakers. For example, Schwartz noted that his company makes equity investments in the life sciences, and "we have several investments in China. We were willing to take the risk regarding intellectual property because we could see moves toward protection, especially in areas such as life sciences."

Philips' Oosterveld put it most strongly: "We see a sincere willingness to obey WTO rules" on intellectual property protection, he said. "Of course, it will take time to build up a legal system. But we have not hesitated to invest in R&D." China is so important to Philips' future, he added, "we must do R&D there. We have 13 product development centers there, and in 2000, we built a corporate basic R&D center in China. We are going to expand it."

As a country whose economy Schwartz expects to equal that of the U.S. in 20 years, China has got to be at the top of any Western chemical executive's agenda.

CONTINUING SAGA

Chemicals Policy Grips Industry

China was the official topic of the recent meeting of the European section of the Society of Chemical Industry (SCI) in Barcelona. But the issue that kept arising over coffee and cocktails was the European Union's draft chemicals policy.

Throughout the European chemical industry, there is a feeling that the development of the plan--called REACH, for Registration, Evaluation & Authorization of Chemicals--is coming to a crucial point. And from what's in the latest draft, leaked by environmental groups in late September, the process is beginning to shape up as something the industry can accept--with some further modifications. The draft is scheduled to be published at the end of this month.

Some SCI delegates rushed back to Brussels for a press conference held by the European Chemical Industry Council (CEFIC) to discuss the policy.

One of the key points to emerge at that event was that "what we see in REACH now is a framework we would like to work with," according to Mathieu Vrijsen, chairman of CEFIC's product stewardship council and head of DuPont's European operations. The original proposal has been modified enough that the industry can support its scope, he said, but several critical issues need revision to make it workable.

European industry representatives all expressed dismay at the recent aggressive criticism of the leaked draft by the American Chemistry Council. The ACC statement, they agreed, was not helpful. As one delegate put it, "This is a negotiation. It is important that no one lose face." Hence CEFIC's efforts to present constructive modifications to a program it does in fact want--whether environmental groups believe it or not.

Key to CEFIC's proposals is the creation of a strong central agency to run the REACH program. Just as the U.S. chemical industry in the late 1960s and early 1970s campaigned for federal programs to override a plethora of often conflicting state regulations, so Europe's industry wants a single, coherent pan-European regulatory program.

At present, there are 15 member countries in the EU, each with different standards and processes; that number is scheduled to rise to 25 within the next decade. As the draft now stands, the central agency would only be a kind of coordinating secretariat, with decision-making resting with the EU member countries.

As Alain Perroy, CEFIC director general, pointed out, "The decision to develop a European-wide regulatory program arose in the first place to replace the processes in every country--a system that was no longer working."

Eggert Voscherau, president of CEFIC and vice chairman of BASF, was encouraged by the recent letter sent by European political leaders to the EC urging that the economic impact of the chemicals policy be subjected to independent assessment (C&EN, Oct. 13, page 19).

And he took similar encouragement from the 14-to-1 vote in late September by economic/competitiveness ministers in the EU rejecting the REACH proposals without an economic impact assessment. Only Sweden--home country of the EC environment commissioner, Margot Wallström, who drafted the original REACH plans--supported the proposals without qualification.

Voscherau estimated that a thorough economic impact assessment, conducted by an independent agency or company, could be completed in two to three months. "We are looking at a process that goes on to at least 2006," he pointed out. "A new European Parliament, a new commission [through elections in spring 2004], and the addition of 10 more countries will add more time delay than a good assessment now would add."

Such an assessment, CEFIC executives believe, would go a long way to making sense of the numbers floating around. It is not clear, for example, if the proposal covers as many as 30,000 chemicals or far fewer. It is not clear whether there would be savings in health costs of more than $60 billion over 20 years, as Wallström predicts. And there is no confidence about estimates of direct costs of anywhere from $3.5 billion to $7 billion or indirect costs of as much as $25 billion.

"We are getting very close together," Vrijsen said. "Why release the draft right now, when we could all work together to get it even closer? The time limitation factor should not be what kills the workability of a program we all want and that achieves the goals we all want to achieve."

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