Expanding investment
$quot;If you want to be competitive worldwide you have to be in China!$quot; laughs Remi Charachon, managing director for Air Liquide China. $quot;Air Liquide has been developing quite rapidly in China these last few years, following an investment plan of €500m for the period 2004-2008. So far we have been in line with this plan, investing about €100m per year, these past 3 years.$quot;

Air Liquide has joined forces this year with many prominent Chinese manufacturers, including contracts with Jiangsu Shagang Group, to install 2 large air separation units, supplying 2,000 tonnes of gaseous oxygen each per day; and also with Quingdao Refining and Chemical Co, to supply nitrogen necessary for its new refinery in the Shandong Province.
Geographical expansion in China has also been important for Air Products Asia, as outlined by their president, Wilbur Mok, $quot;Right now we have established a strong position in North China, South China and East China, mainly along the coast where manufacturing is very strong - the Pearl River Delta, the Yangtze River Delta and the Bohai Bay area. We are also beginning to invest in the West, in Sichuan province with some new projects and we're looking at expanding geographically, in a strategic and disciplined way.$quot;

Mok goes on to explain the attraction of the Chinese market to international investors. He says, $quot;China is a big manufacturing base, pretty much for the world so that's why we believe the merchant markets supporting manufacturing is going to be a continuing growth opportunity for us. More and more electronics firms are moving into China - the Taiwanese companies, the Korean companies and even Intel has announced a fab in Dalian. Therefore we believe that the semi-conductor industry is going to be growing. Also the LCD, TFT LCD area, that's also going to be growing because that's where a lot of assembly is and a lot of the consumption is.$quot;

Air Products has recently signed a second long-term contract with Wison (Nanjing) Chemical Company Ltd to supply onsite gaseous oxygen and nitrogen to Wison's syngas plant located in the Nanjing Chemical Industrial Park (NCIP), Eastern China, as well as signing a long-term contract to supply gaseous oxygen to China's Jushi Group Co., Ltd., the largest fibreglass manufacturer in Asia. The company has also joined forces with CNOOC Oil Base Group Ltd., a wholly owned subsidiary of China National Offshore Oil Corporation (CNOOC), to build and operate an air separation unit (ASU) and liquefier in Putian, Fujian Province. This will produce liquid oxygen, nitrogen and argon by using cold energy from liquefied natural gas (LNG); the first application of LNG cold energy at an ASU plant in China.

The Chinese market provides another first, this time for Praxair Asia, who announced on January 23 that it had signed a contract with Jiangsu SOPO (Group) Co., Ltd, for the supply of industrial gases to SOPO's acetic acid plant.
Murray Covello, president of Praxair Asia, explains, $quot;This contract is important for us, in that it's our first successful supply to a gasification process. It's a very large plant, about 3,000 metric tons and it's really going to be what we call our flagship for the area as our largest single plant which we've built in Asia and in the world. It is also in a strong geographic position for liquid bi-products and positioned with a first-class customer in the Chinese market.$quot;

This announcement was made only 5 days after Praxair signed a contract to supply industrial gases to the new FAB 8 facility of the Semiconductor Manufacturing International Corp. (SMIC), based in Shanghai. SMIC is the largest producer of semiconductor chips wafers in China and one of the leading integrated circuit manufacturers worldwide.

Other global gas businesses expanding in China are Linde and Messer. Linde signed a contract with SINOPEC Qilu Company, a subsidiary of SINOPEC Corp., one of the largest refining-chemical integrated petrochemical companies in China, in December 2006. It will supply 4,000 metric tons of oxygen, nitrogen and argon per day to both SINOPEC Qilu and other companies in the Zibo area, Shandong Province. Messer has been expanding into the Yangtze Delta and East China areas, with the opening in April of Zhangjigang Messer, which put into operation the largest liquid ASU operation in China. It also opened a second ASU at their Foshan Deli Messer in August last year, expanding its production capabilities up to 360tpd and becoming one of the three major gas suppliers in the Guangdong Province.

Such rapid expansion, although exciting, is also challenging, as Wilbur Mok explains, $quot;First and foremost China is like the last Frontier! It is a high growth opportunity so everyone is trying to get into the market and establish a position. That obviously causes a lot of intense competition, not only in the gas industry but across all industries in China, which is something we have to deal with. Competition is good, it gets us better, but with competition comes cycles in capacity build-up and pricing, which is part of the nature of this business. The competition is probably more intense than any other market we've been involved in. Another challenge is that with high growth, not only in the gas or chemical industries, but in all industries, getting the right talent, training and retaining them is an ongoing issue.$quot;

$quot;Also, rules tend to change quickly in China and so we have to constantly deal with the changing environment. Those are the key areas that we have to deal with,$quot; he added.
Remi Charachon would seem to agree as he comments, $quot;I think the challenges are linked to the fast growth. The first one is not specific to China but it is due to a worldwide economy growing faster and you see some delays in terms of equipment manufacturing. Another one of course is recruiting and human resources, more globally. They are the two main ones, another challenge is that China is also facing a changing environment: you have laws; regulations; you have interest rates; a lot of things are changing today in China and so we have to keep on anticipating and adapting to this changing environment.$quot;

So how are big businesses trying to overcome these problems? Mok continues, $quot;On the competition side we have to be very disciplined on our investment projects and not jump into things because they give us a position, just a flag in the ground so to speak. So we have to go after good deals that will get us the right return and provide us strategic positions. Localising our global technology, engineering and manufacturing in China is one very good example of such strategic investments. In terms of talent we believe, people will work for money and therefore you have to pay them well, but also they want to work in a very positive environment, and we have been working to create that very positive, winning environment in the company, in the organisation in China.$quot;

Another solution is to resist the temptation to over-stretch the company, as outlined by Covello as he says, $quot;We've chosen to stick to our core strength and are not looking to pursue the sale of equipment (SOE), and we think we've been successful at companies like SOPO which historically were SOE customers, and now look to a company like Praxair to supply gas from a Praxair oil facility into one of their key processors.$quot;

Future growth
With so much expansion already taking place, what are the forecasts for the China market?
Covello shares his thoughts and comments, $quot;Certainly we see an interest stimulated by the Chinese government for the economy to shift west and north, away from the coastal regions and areas like Shanghai, Nanjing and Guangzhou, which are really the powerhouses of the Chinese economy. We're keeping our eyes on a number of projects, whether gasification, chemical manufacturing or other sectors that are being stimulated to move west or north.$quot;

Is such a rapid expansion sustainable? Covello thinks that the desire for customers to become more sophisticated will help prolong the boom.
$quot;The other thing we see in the steel industry but also in petrochemicals is consolidation or investment in world class facilities, and to be world class these days in many industries demands a large scale and therefore large oxygen plants. You'll see perhaps a number of sale companies shrink over time in China, but certainly the size of their facilities and oxygen plants will steadily increase. We are seeing a strong trend across China and India in demands for large plants in the 2,000 metric ton size range and above.$quot; Covello said.

Global concerns over environmental issues may also attract more investment in the markets in China, Covello expresses as he continues, $quot;We see emerging trends in waste water applications for China, as they really want to present the best picture to the outside world, there's lots of press about pollution. It goes hand in hand with our interest in bringing technology as well as molecules of gas, which I think is a differentiation between us and the smaller Chinese companies who are perhaps just selling units of gas rather than adding any other value.$quot;

So in what areas do the companies see themselves investing in the future? As Mok explains, the potential key areas for future investment are refining and electronics. He comments, $quot;We have a very strong position globally in the refining and electronics area and China is just on the verge of really blossoming in those key markets. So we're in a pretty good position to capture that growth in refining, petrochemicals and electronics, including semiconductor and LCD.$quot;

Charachon is equally optimistic, $quot;Our objective is to keep pursuing a fast growth, investing even more than in the past. We have today a strong team that we keep strengthening. We even have a new head office in Shanghai, where we have just regrouped all our teams in Shanghai. To be successful in China you have to be attractive and our new head office is part of it!$quot;

It seems that the boom time in China is set to continue for some time yet. Despite the problems inherent in such a fast moving market it seems that major companies are invigorated rather than put off by the challenges.
As summed up by Covello, $quot;It's an exciting environment, I've been there about two years and there's a very different lay of the land compared to North America. I think Praxair is well positioned for both technology and the capability to take advantage of the growth that's available there. I'm pretty excited about it!$quot;