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Financial Times: China region feels weight of industrial revolution

By Tom Mitchell in Daya Bay
Published: May 30 2006 01:39 | Last updated: May 30 2006 01:39

South China’s first industrial revolution bypassed Donglian, a poor village on the picturesque shores of Daya Bay. The factory sprawl that raced through Guangdong province’s manufacturing heartland in the 1980s and 1990s never reached this corner of the Pearl River delta, 80km north-east of Hong Kong. Even as the 20th century gave way to the 21st, Donglian’s residents still used water buffalo to plough their rice paddies.
Then Guangdong’s second industrial revolution landed right on top of Donglian in the form of CNOOC and Shell Petrochemicals Company (CSPC) – Royal Dutch Shell’s $4.3bn (€3.4bn, £2.3bn) petrochemical joint venture with offshore oil producer CNOOC. Donglian’s ramshackle concrete and brick dwellings were razed, its wooded hills flattened and ancestral graves transplanted.

The village’s 5,000 residents, declining the offer of two nearby sites, decamped to a resettlement village on the outskirts of an inland township where they could trade in their rural residency permits for coveted urban ones.

Daya Bay is one of two epicentres – along with Nansha district in Guangzhou, the provincial capital – in an industrial transformation that is changing the face of the world’s workshop.

For 20 years the Pearl River delta’s economy was dominated by export-oriented consumer goods factories reliant on the outside world and other regions of China for supplies of plastics, steel and other raw materials. Yet in the space of five short years, the region has built a range of heavy industries to complement its light industrial base.

Next to CSPC, whose enormous jungle of pipes and reactors cover an area equal to about 500 football fields, a similar expanse of flattened land has been prepared for the construction of a $2.3bn oil refinery, which CNOOC expects to complete in 2008.

Shell’s 50 per cent stake in CSPC is easily its largest commitment in China, where it has invested $3.5bn. For the past 14 years, Shell has been in on-off talks with CNOOC about investing in the refinery as well.

When CNOOC’s refinery is completed, Jean-Louis Bilhou, CSPC’s manufacturing director, says Daya Bay’s petrochemical infrastructure will rival that of much more famous refining cities such as Houston and Singapore.

From its core cracker, China’s second largest with annual capacity of 800,000 tonnes of ethylene and 430,000 tonnes of propylene, each year Shell will produce as much as 2.3m tonnes of derivative chemicals necessary to manufacture everything from guitar strings to teddy bears.

According to Simon Lam, CSPC’s chief executive, this “cracker plus one” production strategy will target manufacturing customers in Guangdong, who are expected to take up more than half of CSPC’s output.

“That’s why the government was so excited [about this investment],” adds Lim Haw Kuang, Shell’s executive chairman for China. “We’ve built the base.”

Besides Shell, the Pearl River delta’s rapid ascent of the industrial value chain has been aided by other companies from the home of the world’s first industrial revolution – the UK – and also Asia’s reigning industrial giant, Japan.

Last Friday in Shenzhen, the special economic zone bordering Hong Kong to the north, an LNG terminal built by BP and CNOOC took its first gas delivery from Australia’s north-west shelf.

Elsewhere in the Pearl River delta, BP has built the world’s largest PTA (purified terephthalic acid) plant in the Zhuhai special economic zone – and also operates an oil and chemical products terminal at Nansha, a district in southern Guangzhou and the second plank in Guangdong’s heavy industrial development strategy.

After the runaway success of Honda’s Guangzhou car factory – the company has since built a second one for exports and single-handedly turned the city into a major automotive centre – Guangdong’s capital embarked on the wholesale expansion of its steel plants, shipyards, port infrastructure and other heavy industries by moving them from the city centre to Nansha.

For good measure Toyota has also decided to build a car plant there.

To facilitate these investments, Guangzhou has rammed a new eight-lane highway and massive power pylons through 70km of countryside to Nansha.

On one recent weekday afternoon Guangzhou’s new Nansha expressway was eerily devoid of traffic. Every evening CSPC’s plant lights up like Christmas on the still placid shores of Daya Bay.

Both stand as monuments to the region’s determination to will, almost overnight, a heavy industrial infrastructure into being.


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