BASF invests $10 billion in China. What does this mean?

With its status as a “world factory”, China continues to attract foreign investment, not only because it has a complete industrial chain, but more importantly, the market is huge. At the same time, China is also expanding its foreign investment opening policy to “protect the foreign investment”. According to the latest report, BASF, the German chemical giant, invested heavily in the Chinese market, with a scale of 10 billion US dollars (about 70 billion yuan)!

The chemical industry is an important foundation for industrial production. At present, China is a well-deserved chemical power, accounting for 36% of global chemical production capacity. China’s most chemical production capacity has ranked first in the world. As the world’s second largest economy, the Chinese market is also very important to the global chemical industry. According to relevant international data, in 2017, the revenue of China’s chemical market reached 129.3 billion euros, ranking first in the world (40%).

In comparison, the United States with the second largest share only has 466 billion euros, and Germany with the third share has only 155 billion euros. China’s weight in the global chemical market is evident. Therefore, the German chemical giant BASF launched its investment project in China, the largest overseas investment project in its 154-year history.

According to the latest media reports, BASF has launched a $10 billion integrated production base project in Zhanjiang City, Guangdong Province, and has begun construction of the first batch of plants. It is reported that BASF is a chemical giant in the world’s top 500 companies, with global sales of nearly 63 billion euros in 2018.

The media pointed out that BASF is the latest foreign company to expand its business in China, reflecting that the company remains very optimistic about the growth potential of the Chinese market. “The investment in such a plant will inject confidence in the fundamentals of the long-term market.” said Martin Brudermüller, CEO of BASF. The company also forecasts that by 2030, China’s chemical market share will increase from 40% to 50%.

In addition, BASF’s plant in China will be independently operated and managed by the company. It is the first chemical plant wholly-owned by a foreign company in China, which is also an important reason for BASF to accelerate its expansion into the Chinese market.

It is worth noting that the relaxation of restrictions on foreign investment has also strengthened the confidence of many American companies in the Chinese market, such as Apple and Tesla. It is reported that the mobile phone maker, Apple, still puts most of its production in China and also attracts Chinese consumers through price reductions. Another US company, Tesla, ignores interference and is determined to invest 50 billion yuan to build manufacturing plants in China.

Facing the embarrassing situation that American companies are reluctant to return, the United States can only hope that the country’s “energy revolution” will encourage other American companies to increase investment in traditional industries. In the past, with the development of industry, the United States occupied the leading position in the world's petrochemical industry. However, the vigorous development of the financial industry and the acceleration of “de-industrialization” caused the decline of traditional American industries and a large number of industrial workers.

The opportunity for large-scale energy production in the United States has rekindled its hope of regaining its dominance in the petrochemical field. Earlier, the American Chemical Council announced that the national chemical industry investment based on oil and gas has reached 164 billion dollars, and there are 264 completed or upcoming projects, accounting for 40% of the total investment, and 55% of the projects are being planned. The US chemical industry believes that the lost market share and employment opportunities will be able to get back.

Overall, however, the investment situation in the United States is still not optimistic, and employment fundamentals may be difficult to change. Data show that in the first half of this year, foreign direct investment into the United States fell by more than 25% year-on-year. Moreover, some Chinese capitals are also accelerating their withdrawal. In the first half of this year, Chinese companies’ investment in the United States was only 2.5 billion dollars, a sharp decline from the previous tens of billions. In contrast, overseas investment attracted by China increased by 5% year-on-year, and China is gradually becoming a major investment hotspot in the world.