Plant shuts after only 3 months

PUBLISHED : Wednesday, 08 July, 1998, 12:00am
UPDATED : Wednesday, 08 July, 1998, 12:00am

In one of the most dramatic examples of wasteful investment and lack of planning, an eight billion yuan (about HK$7.44 billion) Guangzhou ethylene plant has closed after only three months of operation.

Guangzhou Ethylene began production in August last year, funded 90 per cent by the city government and 10 per cent by China National Petrochemical Corp, the Economic Information Daily reported yesterday.

But it stopped operating in November due to financial difficulties and it is not known when, or if, production will resume.

The newspaper gave three main reasons for its closure.

One was that its capacity of 150,000 tonnes was too small, with a plant of its kind needing output of at least 300,000 tonnes a year to be economically viable.

The second was that its debt to equity ratio was 90 per cent, with debts of 700 million yuan owed in taxes on imported equipment, money owed to the builder of the plant and suppliers of raw materials.

The third was a miscalculation of the market for ethylene.

In the 1980s, with the rapid expansion of demand from textiles, electronics and other factories in the Pearl River delta, the price of ethylene rose to 10,000 yuan a tonne.

It has since fallen to 5,000 yuan a tonne because supply has caught up with demand.

It was originally hoped investors would see a return in less than nine years.