The plan by multinational petrochemical giant Royal Dutch/Shell Group to build a mammoth ethylene plant in Huizhou will help transform Guangdong into one of the mainland's leading petrochemical production bases. The US$4.5 billion petrochemical complex is intended to produce an annual 800,000 tonnes of ethylene, a key raw material in plastics. It will be the mainland's largest Sino-foreign joint venture. The facility will almost double Guangdong's existing production and reduce its reliance on plastics imports, as demand in the province has long exceeded supply. Guangdong's petrochemical industry has been growing at the same pace as its economy, which has been the fastest of any province in the country. Industry watchers said Shell - having clinched the first Sino-foreign cracker project in February - now would move ahead of rivals also seeking expansion in the mainland. The cracker project is the largest to be built in China. The ethylene facility, expected to come on stream in 2003, will be built in a complex at Huizhou's Daya Bay Economic and Technical Development Zone. The site should provide a win-win situation for both Shell and its local partners. Huizhou mayor Li Hongzhong said the project, at Nanhai, would breathe new life into the city's development, propelling growth in petrochemical manufacture, infrastructure construction and the stagnant property sector. It was expected to create employment for about two million. Related infrastructure projects were under way, including port facilities, roads and the recently approved US$96 million, 51 kilometre Huizhou-Aotou railway. Mr Li said a number of foreign firms, such as Hong Kong's New World Infrastructure, had expressed interest in investments. Shell beat a handful of international players jostling for a position in China's burgeoning chemicals industry through the establishment of cracker projects. 'People are eager to get a place in the race for fear that they will lose out in the game,' an industry insider said. The company is the largest trader of oil products with China and also holds interests in oil exploration and production in the mainland. The Nanhai project, which represents Shell's largest single investment in China, received Beijing's approval only after more than eight years of negotiation. 'We aim to build a major, integrated, welcomed, long-term, profitable presence as China's leading international partner in the energy and petrochemicals business,' Shell Companies in North East Asia chairman Brian Anderson said. He said Shell's commitment was exemplified by real and contracted investment of about US$1 billion, which did not include its 50 per cent equity in the Nanhai project. 'We are confident of the longer-term prospects for Asia. We believe that the 21 century is still the century of Asia, and every international company that wants to be successful has to be successful in Asia,' Mr Anderson said. Shell Nanhai will hold 50 per cent of the project, China National Offshore Oil Corp will have 40 per cent, and Guangdong Investment & Development Co and China Merchants Holding Co will hold 5 per cent each. The approved plan does not include a proposed oil refinery of eight million tonnes a year, but Shell Nanhai managing director Tan Ek Kia said the project's competitiveness would not be undermined without it. 'Our studies show that the phased approach is economically robust. The refinery is still part of the overall complex, and will go ahead when economic conditions are favourable,' he said. Project partners are working on financing. Funding is to be partly by equity and partly by third-party loans. Mr Tan said about two-thirds of the capital would come from third parties and the rest from shareholders. About half of the US$4.5 billion expenditure would be in yuan. 'Nanhai will be the most advanced petrochemical project in which we have ever been involved, and a pace-setter for the industry,' Mr Tan said. The facility eventually would make about three million tonnes of products a year, generating up to US$2 billion in sales. 'The project will provide a nucleus in southern Guangdong for the development of secondary manufacturing and service industries - including foreign joint ventures - attracted by the availability of high-quality oil and intermediate chemicals and products,' Mr Tan said. A key principle was to maximise local content, which would further contribute to the local and national economies. At the same time, the project would draw on the fast-growing economies of Guangdong and its neighbours. About 89 per cent of its output was slated for the domestic market. The facility also should provide a valuable cornerstone for China's ambition to become a leading world petrochemicals manufacturer by increasing its capacity for cracking ethylene from 3.94 million tonnes to five million tonnes a year by 2000, and up to 10 million tonnes by 2010. The next project likely to gain approval from Beijing in this push is BASF and Yangzi Petrochemical's 60-40 joint venture to build an integrated petrochemical complex. The US$4 billion project will feature a 600,000 tonnes per year ethylene cracker, also to be completed by 2003. That should be followed by British Petroleum and Shanghai Petrochemical's 50-50 joint venture. The feasibility study for this complex - with annual production capacity of 650,000 tonnes of ethylene - was submitted to Beijing recently. Its approval is expected next year or early in 2000. This US$2.5 billion project is expected to begin production by 2004. Dow Chemical is expected to complete its feasibility study for a US$2.5 billion, 800,000 tonne ethylene joint venture in Tianjin during the second quarter of this year, with production expected to begin by 2005. Other proposals in the feasibility stage include Exxon and Saudi Aramco's joint venture in Fujian to build a 600,000 tonne ethylene plant, and a Philips US$2.4 billion, 600,000 tonne ethylene facility planned for Lanzhou, Gansu province. Industry watchers said that, with planned expansion of existing facilities, these projects should meet China's growing demand for some years. ICEA Securities research vice-president Angus Lau Kim-ming said that despite the regional petrochemical industry's current weakness, the market would recover gradually up to 2000. The next cyclical peak was expected between 2001 and 2003, about the time production from cracker plants such as the Nanhai project was scheduled to begin, he said. The prospects for China - a major importer in the region - were the best among Asian countries. Mr Lau said the Nanhai plant should have advantages over other mainland projects, due in part to its scale and design, which should translate into some of the lowest operating costs in the region. The facility's proximity to users in the fast-developing Guangdong region also would reduce transport costs, which would make prices even more competitive. 'The demand growth in China is so fast that there shouldn't be any problem absorbing the products [from the Nanhai plant],' Mr Lau said. China's demand for main plastics products has grown at a rate between 10 per cent and 12 per cent per annum over the past five to 10 years. This growth trend was expected to continue over the next five years, Mr Lau said. Another industry insider was also upbeat about the prospects for China's petrochemical industry. 'Guangdong province alone can absorb production of the large Nanhai project. China has a strong demand for plastics,' he said. 'Only the last one or two projects [on the drawing board] need to really weigh carefully demand and supply issues.'