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Mark O'Neill

A state fertiliser factory with an investment of three billion yuan (about HK$2.78 billion) has closed after just six months of production, with debts equivalent to more than its assets.

 The closure was reported in the Economic Information Daily yesterday.

 As China's leaders debate how to save the state sector, the fate of the Jiujiang Major Fertiliser Plant in southern Jiangxi province is a lesson in the failure of the planning system and how it has led to surplus capacity in many industrial sectors.

 The plant was one of five factories, each with an annual production capacity of 520,000 tonnes of urea, on which construction started during the Eighth Five-Year Plan, from 1991-1995, to increase domestic production of urea and reduce imports.

 It was a joint investment between a Jiangxi provincial firm and the giant China National Petrochemical Corp.

 Production began at the end of 1996 but the market was already saturated.

 Supply of fertiliser in China this year, including stocks and imports, will be 170 million tonnes, against demand of 140 million.

 Of this, output of urea will be 23 million tonnes, against 17 million in 1996.

 A major reason for the surplus is imports. Those of urea carry a low import tariff and cost 300 yuan a tonne less than domestic urea.

 In the first half of this year, China imported 9.01 million tonnes of fertiliser, including 2.61 million tonnes of urea, against nine million in the same 1996 period.

 So the Jiujiang factory ran into trouble as soon as it started production and could not find a market. It managed to sell just 8,000 tonnes.

 Compounding its problem was the fact it was grossly under-capitalised, with just 5 per cent of its assets as capital and the rest as debt, so that its debts are now worth more than its total assets.

 Two of the other five new urea plants have closed for the same reason. The newspaper said lessons could be drawn from the failure of the three plants and the resulting waste of resources.

 To promote use of domestic fertiliser, the state must control imports, it said.

 It must create a proper national market for fertiliser and end local protectionism to ensure plants such as Jiujiang were properly capitalised.



Surplus forces factory closure