In April this year, a delegation led by Zhanjiang City Mayor Jiang Jianjun visited the headquarters of BASF in Ludwigshafen, Germany. He was blown away by what he saw.
Its “Verbund” site is the largest industrial complex in the world and one of six similar facilities that BASF operates in the world. It is a giant network of factories making hundreds of chemicals, catalysts, coatings and other products. The company is the world’s largest chemical producer, with 115,000 employees and sales in 2017 of 64.5 billion euros (US$75 billion).
As Jiang walked through the complex, he thought to himself: “Why can Guangdong not have a facility like this? Our economy should not only rely on services and consumer products. What will be our role in the Greater Bay Area (GBA)?”
Such a concept was fine but there were many obstacles to realizing his goal. One was that Beijing, not Guangdong, approves projects of this size. Second was that China’s chemical industry is concentrated in the northeast, Sichuan and other areas close to the raw materials it needs. Three was that foreign firms may hold a maximum of 50 percent of such ventures; a Chinese partner, usually Sinochem or Sinopec, controls the other half.
Roll on three months to July 9, 2018 in Berlin. In the presence of Premier Li Keqiang and German Chancellor Angela Merkel, BASF chairman Martin Brudermuller signed a memorandum of understanding (MoU) with Guangdong Vice-Governor Lin Shaochun to build such a Verbund site in Zhanjiang in the far south of the province.
Total investment will be US$10 billion, making it the largest ever single foreign investment in China. It will be BASF’s third largest production site in the world, after those in Ludwigshafen and Antwerp in Belgium. It will start with a steam cracker with a planned capacity of one million metric tons of ethylene per year.
Even more extraordinary is the fact that BASF will be the sole owner and operator. Up to now, all such foreign ventures in this strategic sector have required a Chinese partner, usually a large state firm.
The benefits for BASF are evident, as it described in its announcement of the MoU: “Guangdong province is home to key customers from sectors like consumer goods and transportation. With more than 110 million residents, Guangdong is the most populous province in China. Its gross domestic product, currently growing at 7 percent annually, already exceeds that of Spain and will soon have reached that of South Korea. China – with a world market share of around 40 percent – is the world’s largest chemical market and dominates the growth of global chemical production.”
It expects the province to have annual GDP growth of 6 percent a year until 2035 and said that chemical products were generally undersupplied by local producers to its key industries of transportation, consumer goods, home and personal care products and electronics.
So how did the firm achieve this breakthrough? There are several factors. One is the widespread purge of the government which President Xi Jinping has undertaken since taking power in 2012. An estimated 100,000 officials, many at the central government level, has been dismissed and/or charged with corruption. This has disrupted and overturned interest groups which dominated major industries, opening the way for new thinking.
Another is the lobbying power of Guangdong, China’s richest province and the one with the most foreign investment. In March this year, Hu Chunhua, party secretary from December 2012 until October 2017, was promoted to the position of Vice-Premier. The province has successfully used the leverage given to it by the GBA, a national project in which Xi has vested his personal status.
A third is the excellent relations which Chancellor Merkel has maintained with successive Chinese leaders. Since taking office in May 2006, she has visited China annually, more than any other Western leader. Her last visit in May this year tellingly led her to Shenzhen. Germany is the largest European investor in China, most of it manufacturing plants that Beijing considers the most desirable form of investment. The deterioration of Sino-US relations since President Donald Trump took office has made these relations even more precious.
Fourth is the lobbying of BASF itself to convince Beijing that the Zhanjiang project will bring the products and technology it needs and that it is a reliable, long-term partner. It already has a Verbund site in Nanjing, established in 2000, a joint venture with Sinopec.
In mainland China, Hong Kong and Taiwan, BASF has seven joint ventures, 25 production sites, 24 sales offices, nearly 9,000 employees and 7.3 billion euros of sales in 2017.
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