Bayer kicks off China expansion
( 2001-08-09 15:25 ) (7 )

Germany's Bayer AG said on Thursday it has kicked off a massive China expansion plan with a joint venture deal with Chlor Alkali to build a US$450 million polycarbonate plant in Shanghai.

Bayer said the joint venture, Bayer Polymers Shanghai, marked the first step in the German chemical giant's US$3.1 billion investment plan to set up an integrated chemical complex in Shanghai.

''This integrated chemical site, with its interlinked companies and a total investment of US$3.1 billion, represents the most significant single investment in the history of Bayer,'' Udo Oels, Bayer's board representative for China, said in a statement.

Bayer would provide 90 per cent of the capital and control that percentage of the joint venture, while Shanghai Chlor Alkali would hold a 10 per cent stake, company officials said.

The Shanghai-based firm's B shares, available to foreigners, shot up 7.39 per cent to US$0.654 by 10.36am on the news of the deal, while its A shares for domestic investors climbed more than five per cent.

The US$340 million first phase of the plant should be completed by 2003 and have a capacity of 50,000 tonnes per year of polycarbonate, a versatile plastic resistant to heat and impact and used in everything from compact disks to automobiles.

The second phase, taking total investment to US$450 million, would boost capacity to 100,000 tonnes and was slated for completion in 2005, executives at the companies said.

Analysts and company officials said the plant would benefit a wide range of industries in China, which now imports virtually all its polycarbonates.

''This is an important joint venture because China relies on imports for polycarbonate, a new chemical material used to make computer disks,'' said Gu Baocheng, an industry analyst at China Southern Securities.

Chlor Alkali spokesman Xu Peiwen said Chinese demand for polycarbonate was about 120,000 tonnes in 2000 and was expected to rise more than 10 per cent each year until 2005.

''The project has very good prospects in China because currently domestic customers rely almost entirely on imports,'' Mr Xu said.

But analysts said returns from the venture for Chlor Alkali, which mainly produces polyvinyl chloride and caustic soda, would be limited.

''Bayer will gain the most, not only because it accounts for an overwhelming 90 per cent of the venture, but also because the deal will help its strategic expansion into China's vast chemical market, in the context of improving prospects for China joining the WTO,'' Mr Gu said.

China is expected to join the World Trade Organisation by early 2002 at the latest.

''As Chlor Alkali only accounts for 10 per cent, the joint venture's contribution to the company's earnings will be limited,'' Mr Gu said.

With sales of US$690 million in 2000, China has been Bayer's second largest market in Asia since 1998.

The joint venture initially would have a registered capital of US$136 million, a spokesman for the Shanghai-listed Chinese company said.