The China National Petroleum Corp. (CNPC), China's largest oil and gas producer, which used to be the country's most profitable state-owned enterprise, lost its shine in 2008.

CNPC's overall profit saw a 21.1-percent decrease year on year, according to the company's 2008 financial report.

Of all industries, the petrochemical industry has suffered the most from the financial crisis, said Liu Zhuwei, Director of the Chinese Enterprises Research Center at Central University of Finance and Economics.

Plummeting demand and the fluctuating price of materials and products have both contributed to lower profits in China's petrochemical industry.

Since petrochemicals are a pillar industry of the national economy, the Chinese Government can hardly leave the industry to fend for itself. On May 18, the State Council issued a revitalization plan for the petrochemical industry following its stimulus efforts for a dozen other industries.

"This is a mid- to long-term plan, expanding from 2009 to 2010. The government will play a more important role in adjusting the petrochemical industry," Guo Haitao, Doctor of Economics at the China Energy Strategy Research Center at China University of Petroleum, Beijing, told China Industrial and Economic News.

The plan has set a target of processing 405 million tons of crude oil in 2011, up from 342 million tons last year.

As the pillar industry concerning the country's economic security, the petrochemical industry combines energy supply and the production of thousands of products together.

"Petrochemicals are closely connected to all aspects of the national economy. In this sense, the plan is of great significance," said Guo.

Efficiency first

Although it accounts for 5 percent of the country's total GDP, the petrochemical industry is facing structural problems including a low concentration rate, heavy reliance on imports for high-end technology and equipment, and lack of products with high added value as well as pollution.

Currently, the degree of self-sufficiency of ethylene products is only 50 percent, while the oversupply of low-end petrochemical products is worsening, particularly for calcium carbide, coke, sodium carbonate and tire rubber, according to Feng Shiliang, General Secretary of the China Petroleum and Chemical Industry Association.

Under the plan, China will increase its investment in upgrading technology and issue the Catalogue for the Technology Progress and Upgrading of the Petrochemical Industry. Projects listed in the catalogue include oil quality improvement, structural transformation of fertilizers and pesticide, development of high-end petrochemical products and the industrialization of butyl rubber and caprolactam.

The catalogue has been drafted and lists 40 projects in total, said Wang Xiaofeng, Director of the Development Department at the China Petroleum and Chemical Industry Association.

According to an industry insider, the listed projects will receive state loans at special interest rates.

The plan also encourages large petro-chemical enterprises to enhance their international competitiveness through strategic cooperation and phase out small, inefficient plants to boost efficiency and reduce pollution. Refineries with annual capacity of less than 1 million tons will be closed, and those with 1 million to 2 million tons will be asked to close or merge. Authorities are also tightening control over new projects to prevent overcapacity.

Closing down backward production facilities will help reduce energy consumption and emissions, said Guo.

Since big enterprises have technological advantages, they will have a more advantageous position in the market once the plan is implemented, Guo also said.

Going global

Now is a good time for overseas mergers and acquisitions, Jiang Jiemin, President of CNPC, said at the CNPC shareholders' meeting on May 12.

"Although the PPI index has been falling up until now, we believe that China's demand for energy, especially oil and gas resources, will remain robust," said Jiang.

Guo said that petrochemical enterprises should take advantage of the current sluggish international oil market by conducting overseas expansion and buying overseas resources at lower prices.

But overseas expansion cannot continue without sufficient financial backing.

The plan also includes detailed measures to help Chinese petrochemical enterprises go global.

To this end, the approval process will be simplified, and policies regarding credit, foreign exchange and taxation will be completed to support qualified enterprises that wish to conduct overseas resource exploration and development.

Measures to Revitalize the Petrochemical Industry

1. Complete the off-season fertilizer reserve mechanism.

2. Implement a national oil reserve policy.

3. Strengthen credit aid.

4. Complete the refined oil pricing mechanism.

5. Enhance investment in upgrading technology.

6. Support overseas resource exploration.

7. Enforce the fair taxation policy.

8. Push forward mergers and acquisitions.

9. Complete industrial development policies.

10. Perform anti-dumping and anti-smuggling work in accordance with the law.