Beijing’s leadership transition is now complete. Xi Jinping firmly holds Hu Jintao’s three top roles in the party and military and Li Keqiang has taken Wen Jiabao’s place as the new Premier.
In a bold series of speeches, the newly appointed Li emphasised the need for economic reform, stressing the need to take the state’s “hand” out of the market, advising China “shouldn’t pursue growth at the expense of the environment.”
The environment is indeed a hot-button issue, especially after smog engulfed the nation’s capital for much of January. In a characteristically swift fashion, Beijing passed legislation that required all fuel sold in China to be at China IV standard by the end of the year. In uncharacteristically swift fashion, the nation’s major oil companies, CNPC and Sinopec, have already responded by earmarking $7.2 billion for refinery upgrades to produce cleaner fuel this year.
As state-owned companies, some of the cost will be subsidised by the government. However, Sinopec and CNPC are expected to announce a 12.6% and 6% drop in profits in 2012, respectively. With the latest upgrades, net income is unlikely to increase this year either.
At present, it is unclear just how much Li’s initiatives will take the state’s “hand” out of the national oil companies. No doubt allowing them greater pricing flexibility, as the National Development and Reform Commission is considering, would allow them to adjust to changing global oil prices faster. However, tying Chinese fuel prices to the global economy could weaken the government’s control over inflation and this is not the first time promises have been made to change the mechanism.
Environmental policies are also spreading beyond just the automotive and fuel industries. In a groundbreaking move, the Ministry of Finance has announced it will begin to levy taxes on carbon dioxide emissions, instead of pollutant discharge fees. No such policies are in place in the US or the EU (except Ireland and Norway).
Surprisingly, Chinese CO2 Automotive emissions controls for new vehicles are already tighter than the US and are certainly challenging Europe.
As the centre of automotive sales and production move South and East, we can expect the changes in lubricants specifications will cease to be dominated by API and ACEA, especially if the US is running behind China on emissions control.
What is clear, is that Chinese industry will have to adapt quickly to the latest specifications. Chinese carmakers are already increasing spending on research and product development to accommodate the new legislation.
These are bold moves for the new leadership. However, if pollution worsens, they may feel pressured into even more environmental initiatives. This could include bringing the deadline for implementing the China V standard forward before 2017. In such a case, understanding the required lubricants specifications would become increasingly complex.
Fortunately, this is the cornerstone of our business. As recently mentioned OATS has rebuilt our publishing systems to be able to offer B2C recommendation websites in Chinese, with the local Chinese equipment and matched the right products.
To find out more about how we can help create a B2C site to help market your lubricants more effectively in China - or to comment on anything you have read in this Bulletin - simply contact Diana at DShen@oats.co.uk. We look forward to hearing from you.
Sebastian Crawshaw
Chairman, OATS