China's Massive Chemical Plant Relocations Lack Funding

China plans to complete a massive relocation of chemical plants away from cities by 2025, but financial constraints may hamper the project, which is estimated to cost Chinese yuan (CNY) 800bn ($121bn), industry sources said.

The country intends to speed up the site transfer of plants manufacturing dangerous chemicals out of densely-populated city areas to industrial parks, based on a document released early this month by China’s State Council.

For small- to middle-sized plants, the relocation must start in 2018 and be completed by the end of 2020, while bigger plants are ordered to begin the process in 2020 and finish by end-2025.

These plants can also be re-engineered to produce non-toxic products, or permanently close if relocation is not possible.

Local governments in China are being required to submit detailed work plans, including company lists and timeline for relocation before the end of this year.

Given the huge investment the project entails, the relocation of the plants has the ability to boost China’s economic growth in the coming years, according to government officials.

The project is expected to translate to CNY400bn worth of demand for mechanical equipment, as well as generate about CNY60-80bn in information technology-related demand, based on estimates from China’s Ministry of Industry and Information and Technology.

Lack of funding has been the primary problem that has been preventing the project from taking off in a significant way. Industry players are of the opinion that the Chinese government must foot the total bill, citing that in most cases, the plants listed for relocation have been operating at their sites for years before the cities expanded.

But China has a huge fiscal deficit, which stood at CNY2.83trn ($427bn) in 2016, according to data from the country’s Ministry of Finance. The preliminary budget deficit was about 3.8% of China's GDP, according to estimates by newswire agency Reuters.

Since 2014, provincial governments have been submitting to the central government a list of toxic chemical plants up for relocation and/or re-engineering, in line with China’s embrace of more environmental-friendly policies.

China has stopped approving of construction or expansions of chemical plants in cities, requiring that all new projects have to be located in industrial parks.

However, the average implementation rate for relocations has been less than 20%, primarily due to lack of funds, industry sources said.