Xi Jinping and Barack Obama seemed to make significant steps towards implementing new limits on carbon emissions at the recent APEC summit in Beijing.
The world’s two largest polluters have agreed to limit coal use and also massively reduce emissions in 2025. For the first time China had set a date for peak CO2 emissions and promised to raise the country’s zero-carbon energy to 20% of the national total.
When analysing the successes of the emissions agreement, many saw China’s Free Trade Area of the Asia-Pacific (FTAAP) as counter to the US Trans-Pacific Partnership (TPP). But the alliance, alongside a $40bn promise of a “New Silk Road”, should see China boost trade with other key regional players.
As exports continue to slow a surge in trade would certainly help. Interestingly, it is precisely its smaller, regional neighbors that are on track to soak up China’s falling exports.
According to McKinsey, 72% of foreign buyers said they planned to get fewer of their manufactured products from China and more from lower-cost Asian locations. Although China currently draws more than $300bn in direct investment a year, only 36% is going to factories, a sharp drop from 56% in 2009.
Meanwhile, countries like Thailand, Vietnam, Cambodia, Myanmar and Laos are growing rapidly. Between the five nations, collective economic output was $641bn, around the same size as China’s in 1994. Low wages are driving much of the growth; a typical Chinese factory worker earns $700 a month, compared to around $110 in Myanmar, $250 in Vietnam and $130 in Cambodia.
Higher wages and increasingly stringent emissions standards could be problematic for many of China’s factories, which were ordered to close down during the APEC summit to alleviate pollution.
Lubes companies are feeling the pinch, too. Production actually slid 11.2% year-on-year in September, usually a busy month, to 467,000 tons of lubricants products. The downturn was despite total lubes production showing a modest increase of 2.6% in the first nine months of 2014 to 4.4m tons.
At 6.4%, passenger car sales also grew at their slowest pace in 19 months during September, according to data from the China Association of Automobile Manufacturers. Weak sales have hurt domestic manufacturers as their share of the passenger vehicle market fell in the first three quarters to 37.6% from 40% in 2013.
As with everything, timing is key. If China can replace factory output with consumer spending quickly, the country will continue to grow despite falling production. And, if Singles Day online revenues of $9.3bn are anything to go by, this doesn’t seem too unlikely.
However, whether the market is dominated by foreign or domestic cars, OATS will have the data to help lubes companies make strategic decisions on how to market their products to tech-savvy Chinese consumers. This will be supplied via our innovative new earlFUSiON platform and includes our latest Product Manager application.
To find out more, or comment on anything you read in this Bulletin, simply contact Diana Shen. We look forward to hearing from you.
Sebastian Crawshaw
Chairman