Dow Chemical Plans Biz Expansion in China

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Last updated at: (Beijing Time) Sunday, August 17, 2003

Dow Chemical Plans Biz Expansion in China

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Dow Chemical, the world's second-largest chemical giant by revenue in 2002, is moving ahead with aggressive plans to expand its business from downstream to upstream chemical products in the China market.

The move is to make it a more competitive player with a full-range of product lines, as it is in other markets, so it can better compete with leading rivals in the rapidly growing China market.

At the top of the company's development agenda is a giant joint venture project in North China's Tianjin, a port city and business hub close to Beijing, China's capital.

With a total investment of US$3 billion, the giant project will make the company one of China's largest suppliers of ethene in the next five to 10 years.

The planned joint venture with Sinopec is to produce an annual 900,000 tons of ethene to supply mainly the fast-growing domestic market.

Dow Chemical is going to start a feasibility study as soon as the project gets the green-light, said Frankie Ko, president of Dow Chemical's greater China operations, which covers the Chinese mainland, Taiwan and Hong Kong.

Carried out in 1999, a pre-feasibility study has already been filed with the central government for approval. But to date, regulators have remained silent about the giant project.

And central government authorities have not been available for comment.

Because of the fear of oversupply, China's central government decided to put off giving the go-ahead to the giant project, which is a planned 50-50 joint venture between Dow Chemical and Sinopec, one of China's largest State-run chemical suppliers.

"China could become Dow Chemical's second most important and one of its largest market and investment destinations outside its home market by 2010," said Ko, in an interview with China Business Weekly last week.

Spurred by a rapid economic upswing, China's demand for chemical products has witnessed skyrocketing growth in past decades, and the growth is expected to be further accelerated with the relocation of more production bases to China by multinational firms thanks to the cheaper and abundant high-quality labour pool.

At present, sales on the Chinese mainland contribute over 40 per cent of Dow Chemical's total revenues in the Asia-Pacific market, which makes up more than 10 per cent of its global portfolio.

A leading science and technology company that provides chemicals, plastics and agricultural products and services to many consumer markets, Dow Chemical serves customers in more than 170 countries and a wide range of markets, with annual sales of US$28 billion.

Other major business plans include proposals to expand its production base in Zhangjiagang, a smaller port city in East China's Jiangsu Province, where it has two wholly-owned companies and one joint-venture firm.

With investment of over US$100 million, these three companies are now a part of Dow Chemical's major business presence in China, and the company is to further expand its product lines and capacity in the coming several years to meet the rapidly growing demand in the domestic market.

With a total investment of US$1 billion in the mainland market, Dow Chemical has today 10 manufacturing bases and plants in the market, mostly located in the eastern coastal areas.

These companies, including both joint ventures and wholly owned branches, had already begun generating profits for the chemical conglomerate several years ago, despite facing the massive business restructuring in global markets.

Ko, who was chosen for his current post late last year, said the company is to work out a detailed investment programme within several months to guide its investments in China in the coming years.

"We are also studying opportunities for mergers and acquisitions with local rivals, including State-owned companies," said Ko, but declined to elaborate.

The company acquired a controlling 51 per cent of the Essex Chemical Co, a Wuhan-based State-owned firm, in 2000, which has already generated returns for Dow Chemical.

Ko said the company is now seeking opportunities for more mergers and acquisitions in other markets in China, including West China, where the firm does not yet have much business.

Meanwhile, the company is planning to reshape its China business by moving the headquarters of its China business from Beijing to Shanghai, in a bid to further boost its presence in the East China market.

"A small group of our staff are now engaged in a detailed study of the projected move," confirmed Ko, adding that there will be no quick answers to the issues involved in the move, which is billed as one of the key proposals in Dow Chemical's China growth blueprint.

He said the firm's major target for the headquarters relocation is the reshaping of its strategies to keep them in line with the rapid development of the market.

Dow Chemical established Dow Chemical (China) Investment Ltd in 1998 as the investment holding company for all future Dow Chemical investments in China.

Currently, its China businesses are mostly focused in South China and East China - the two most powerful engines driving China's economic upswing.

And Dow Chemical's business growth is very rapid in East China, where many international companies have established a presence.

Dow Chemical's involvement with China goes back to the 1930s, when it supplied the country with its products through agents. Dow Chemical started direct sales to China in 1972. In 1979, Dow Chemical formally established its first office in Guangzhou. And Dow Chemical now maintains a total of five sales offices in its China operations - in Beijing, Shanghai, Guangzhou, Taipei and Hong Kong.

It contributed 400,000 yuan (US$48,193) to the Red Cross Society of China to purchase medicine and medical equipment for flood relief in Jiangsu Province along the Huaihe River last month.

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