Chinese Economy : Updates and Discussions

RISING SUN

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Dec 3, 2017
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China is set to eclipse America as world’s biggest oil refiner​

Earlier this month, Royal Dutch Shell Plc pulled the plug on its Convent refinery in Louisiana. Unlike many oil refineries shut in recent years, Convent was far from obsolete: it’s fairly big by U.S. standards and sophisticated enough to turn a wide range of crude oils into high-value fuels. Yet Shell, the world’s third-biggest oil major, wanted to radically reduce refining capacity and couldn’t find a buyer.

As Convent’s 700 workers found out they were out of a job, their counterparts on the other side of Pacific were firing up a new unit at Rongsheng Petrochemical’s giant Zhejiang complex in northeast China. It’s just one of at least four projects underway in the country, totaling 1.2 million barrels a day of crude-processing capacity, equivalent to the U.K.’s entire fleet.

The Covid crisis has hastened a seismic shift in the global refining industry as demand for plastics and fuels grows in China and the rest of Asia, where economies are quickly rebounding from the pandemic. In contrast, refineries in the U.S and Europe are grappling with a deeper economic crisis while the transition away from fossil fuels dims the long-term outlook for oil demand.

America has been top of the refining pack since the start of the oil age in the mid-nineteenth century, but China will dethrone the U.S. as early as next year, according to the International Energy Agency. In 1967, the year Convent opened, the U.S. had 35 times the refining capacity of China.

The rise of China’s refining industry, combined with several large new plants in India and the Middle East, is reverberating through the global energy system. Oil exporters are selling more crude to Asia and less to long-standing customers in North America and Europe. And as they add capacity, China’s refiners are becoming a growing force in international markets for gasoline, diesel and other fuels. That’s even putting pressure on older plants in other parts of Asia: Shell also announced this month that they will halve capacity at their Singapore refinery.

There are parallels with China’s growing dominance of the global steel industry in the early part of this century, when China built a clutch of massive, modern mills. Designed to meet burgeoning domestic demand, they also made China a force in the export market, squeezing higher-cost producers in Europe, North America and other parts of Asia and forcing the closure of older, inefficient plants.

“China is going to put another million barrels a day or more on the table in the next few years," Steve Sawyer, director of refining at industry consultant Facts Global Energy, or FGE, said in an interview. “China will overtake the U.S. probably in the next year or two."

Asia Rising
But while capacity will rise is China, India and the Middle East, oil demand may take years to fully recover from the damage inflicted by the coronavirus. That will push a few million barrels a day more of refining capacity out of business, on top of a record 1.7 million barrels a day of processing capacity already mothballed this year. More than half of these closures have been in the U.S., according to the IEA.

About two thirds of European refiners aren’t making enough money in fuel production to cover their costs, said Hedi Grati, head of Europe-CIS refining research at IHS Markit. Europe still needs to reduce its daily processing capacity by a further 1.7 million barrels in five years.“There is more to come," Sawyer said, anticipating the closure of another 2 million barrels a day of refining capacity through next year.

Chinese refining capacity has nearly tripled since the turn of the millennium as it tried to keep pace with the rapid growth of diesel and gasoline consumption. The country’s crude processing capacity is expected to climb to 1 billion tons a year, or 20 million barrels per day, by 2025 from 17.5 million barrels at the end of this year, according to China National Petroleum Corp.’s Economics & Technology Research Institute.

India is also boosting its processing capability by more than half to 8 million barrels a day by 2025, including a new 1.2 million barrels per day mega project. Middle Eastern producers are adding to the spree, building new units with at least two projects totaling more than a million barrels a day that are set to start operations next year.

Plastic Driven

One of the key drivers of new projects is growing demand for the petrochemicals used to make plastics. More than half of the refining capacity that comes on stream from 2019 to 2027 will be added in Asia and 70% to 80% of this will be plastics-focused, according to industry consultant Wood Mackenzie.

The popularity of integrated refineries in Asia is being driven by the region’s relatively fast economic growth rates and the fact that it’s still a net importer of feedstocks like naphtha, ethylene and propylene as well as liquefied petroleum gas, used to make various types of plastic. The U.S. is a major supplier of naphtha and LPG to Asia.

These new massive and integrated plants make life tougher for their smaller rivals, who lack their scale, flexibility to switch between fuels and ability to process dirtier, cheaper crudes.
The refineries being closed tend to be relatively small, not very sophisticated and typically built in the 1960s, according to Alan Gelder, vice president of refining and oil markets at Wood Mackenzie. He sees excess capacity of around 3 million barrels a day. “For them to survive, they will need to export more products as their regional demand falls, but unfortunately they’re not very competitive, which means they’re likely to close."

Demand Trap

Global oil consumption is on track to slump by an unprecedented 8.8 million barrels a day this year, averaging 91.3 million a day, according to the IEA, which expects less than two-thirds of this lost demand to recover next year.

Some refineries were set to shutter even before the pandemic hit, as a global crude distillation capacity of about 102 million barrels a day far outweighed the 84 million barrels of refined products demand in 2019, according to the IEA. The demand destruction due to Covid-19 pushed several refineries over the brink.
“What was expected to be a long, slow adjustment has become an abrupt shock," said Rob Smith, director at IHS Markit.

Adding to the pain of refiners in the U.S. are regulations pushing for biofuels. That encouraged some refiners to repurpose their plants for producing biofuels.

Even China may be getting ahead of itself. Capacity additions are outpacing its demand growth. An oil products oversupply in the country may reach 1.4 million barrels a day in 2025, according to CNPC. Even as new refineries are built, China’s demand growth may peak by 2025 and then slow as the country begins its long transition toward carbon neutrality.

“In an environment where the world has already got enough refining capacity, if you build more in one part of the world, you need to shut something down in another part of the world to maintain the balance," FGE’s Sawyer said. “That’s the sort of environment that we are currently in and are likely to be in for the next 4-5 years at least."
 
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RISING SUN

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Chinese debt defaults send investors into a tizzy​

Despite claims of an economic recovery, Chinese state-owned companies are defaulting on their debts. A string of missed debt repayments by major firms has shaken local as well as global markets. State firms defaulted on a record $6.1 billion worth of bonds between January and October, according to Fitch Ratings. That’s about as much as the last two years combined. The development has rattled China’s nearly $4 trillion corporate debt market, of which state-owned enterprises are estimated to account for more than half. At least 20 firms suspended plans for new debt issues totalling $2.4 billion, all citing recent market turmoil.

The mounting non-payment of debt payments is getting worse in recent weeks. A slew of major companies, including German automaker BMW’s Chinese partner Brilliance Auto Group, top smartphone chipmaker Tsinghua Unigroup, and Yongcheng Coal and Electricity declared bankruptcy or defaulted on their loans in November. This was enough to send shock waves through debt market. Bond prices nosedived sharply, interest rates soared and the turmoil even spilt over into the stock market, with shares of state-owned firms plummeting.

The defaults have angered global investors, who say their faith in the firms’ top-notch ratings, seemingly sound finances and implicit state backing has been violated. There is a panic among investors who believed that the close relationships between these companies and Chinese governments make them safe bets in times of trouble. But investors are a worried lot as the state is no longer willing to support these companies; investments have suddenly become much riskier propositions.

“The credibility of government guarantees has been the most important bulwark against financial crisis so far. Now we are seeing signs that this credibility is eroding,” according to Logan Wright, director of China markets research at Rhodium Group, CNN reported.

According to Reuters, the Huachen Automotive Group Holdings Co, the parent of German automaker BMW’s Chinese joint venture partner, defaulted late last month exemplifying opaque risks, underdeveloped pricing mechanisms and investor naivety in China’s corporate bond market. “If the company had told investors it was in great trouble, I wouldn’t have bought and held the bonds,” said Shanghai-based hedge fund manager Vincent Jin, who bought Huachen bonds early this year. Huachen boasted an AAA issuer rating when it launched its 1 billion yuan ($151.93 million) three-year, privately placed bond in October 2017. It comes from one of China’s poorer provinces, Liaoning, but as recently as April told bondholders it had adequate cash, lots of land and state backing. Creditors were therefore stunned when Huachen not only defaulted but was also dragged to court by a creditor for bankruptcy restructuring. Moreover, one month before its bond delinquency, Huachen transferred its prized 30 per cent stake in Hong Kong-listed Brilliance China Automotive Holdings Ltd to a subsidiary, leaving bondholders with no access to those assets.

Chinese companies have been piling on debt for at least a decade, ever since the government responded to the 2008 crisis by going on a borrowing binge. That kept China’s economy moving but at a cost. The corporate debt-to-GDP ratio surged to a record 160 per cent at the end of 2017, from 101 per cent 10 years earlier. The present dispensation under Xi Jinping tried to rein it in, issuing directives on how money was to be loaned and managed. A particular goal has been to curb China’s $10 trillion ecosystems of shadow banking. So-called local government financing vehicles, which were established to fund infrastructure projects, have already defaulted on many trust loans which were part of that shadow system.

China watchers say allowing too many defaults could jeopardise the financial stability and near-term recovery. Analysts at Goldman Sachs recently pointed out that widespread failures in the sector could spill over into the banking system, causing banks to cut back on lending more broadly, or increase interest rates, the latter of which is already starting to happen. But, analysts have also noted that rescuing some state-owned firms from collapse is probably a dead end, given how financially cumbersome the sector can be.
 

vstol Jockey

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Dec 1, 2017
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For some reason the CCP seems intent on screwing Jack's Ma.

ps - somehow the above phrase translates poorly in English from Hindi with the translation unable to capture the earthy essence of Hindi.
Long back CCP realised that with CCP control of businesses they will not be able to expand and sell their stuff all over the world, so they created private enterprises within China. The aim from the very first day was to enrich the CCP thru these private companies and than do a take over by infiltrating their agents in these companies. Now what they have is huge wealth as they have started the process to take over these Chinses multinational private companies with global foot print. In a way now CCP owns every factory and enterprise all across the globe which was once owned by these companies.
 

jetray

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Mar 15, 2018
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Chinese economy is growing exponentially

If dollar loses value and yuan gains it will be even more faster. Only reason chinese are not allowing it to appreciate is due to exports. Now they are turning to increasing internal consumption of goods to continue further growth. It might well be a game changer. Now US will have a challenger to it , china supported by russia. I bet there will be some military events to derail the economic growth.
 

Hydra

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May 19, 2020
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Mumbai
If dollar loses value and yuan gains it will be even more faster. Only reason chinese are not allowing it to appreciate is due to exports. Now they are turning to increasing internal consumption of goods to continue further growth. It might well be a game changer. Now US will have a challenger to it , china supported by russia. I bet there will be some military events to derail the economic growth.
Definitely going to be headache for us. Hope things will not turned like a USA-CUBA type economic situation here.
 

randomradio

Senior Member
Nov 30, 2017
11,308
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India
Long back CCP realised that with CCP control of businesses they will not be able to expand and sell their stuff all over the world, so they created private enterprises within China. The aim from the very first day was to enrich the CCP thru these private companies and than do a take over by infiltrating their agents in these companies. Now what they have is huge wealth as they have started the process to take over these Chinses multinational private companies with global foot print. In a way now CCP owns every factory and enterprise all across the globe which was once owned by these companies.

It's interesting if you think about it. China realises that its SoEs can't be the face of China, because international consumers and govts do not trust such companies. So China allowed the setting up of private companies like Huawei and Ant which communicated directly with consumers and became the face of China, and they all felt tame compared to the SoEs. And the CCP worked behind the scenes to control these companies, so it is in effect "capitalism with Chinese characteristics".

Nationalising all these private companies after all just needs a stroke of a pen.

This particular Mr. Alibaba cannot defeat the 40 thieves he is dealing with. And hiding in a cave is definitely not going to do the trick this time, I feel his career is pretty much over, so no more TV shows for him.
 
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_Anonymous_

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Dec 4, 2017
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IMG-20210114-WA0012.jpg
 
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