In the build-up to the Global Financial Crisis, debt levels had built up dramatically in the US and many other European countries, said Ruchir Sharma, Morgan Stanley Investment ManagementвЂ™s chief global strategist in the Financial Times. вЂњDevelopers use borrowed money to acquire land, collect presale cash before projects even start and then borrow more to invest in further projects,вЂќ wrote Caixin. Therefore, even in a stronger demand environment, imports wouldnвЂ™t necessarily increase as China would resume its march towards much greater self-sufficiency in PP, high-density PE, styrene and other products.Д®ssential background: several definitions of sustainabilityД¬hina wants growth to be more sustainable by getting rid of the highly risky speculation that has got Evergrande and other property developers into trouble. There is another outcome to consider: China relaxes pressure on industry in general to reduce C02 emissions as it temporarily returns to its investment-led growth model for the sake of shoring-up economic growth.Д«ut this would mean fewer PP and other petrochemical turnarounds and new plants coming on-stream on schedule. This could get worse rather than better in the short-to medium-term. Demand has been weakening since February. Why? Because Beijing looks as if it is prepared to tolerate a continued deceleration in economic growth over the next 6-18 months as it builds a new growth model, which could, as I discussed on Monday, unlock much stronger demand in ChinaвЂ™s inland poorer provinces.Д«UT for the next 6-18 months, be prepared for a lot of potential downward pressure on markets.ДЇocusing just on PP, using the latest available China Customs net import data along with our estimates of local production, the chart below shows a continued decline in demand. So, even with a higher number of plant turnarounds in September and October and with perhaps some new PE and PP start-ups delayed, this does not necessarily mean a pick-up in imports during the remainder of this year and into 2022. We must get used to the idea that China is trying to build an entirely new economic growth model, one that is more sustainable in more than just one interpretation of the word.ДЄnd with this attempt comes huge risks for petrochemicals demand. The company could end up being converted into a state-owned enterprise with big investors forced to bear the bulk of losses, whereas small investors вЂ“ buyers of single plots of land or apartments вЂ“ are likely to be protected, I have been told. The strongest evidence of this crackdown is that Beijing might be willing to let Evergrande, the heavily local property developer, fall into debt default. Surface reasoning misses the point that the increased emphasis on hitting the C02 targets, set under the 14 th Five-Year-Plan (2021-2025), is connected to the central governmentвЂ™s crackdown on the real-estate sector. What might also on the surface cheer up the PE and PP exporters to China is the expectation that the start-up of new plants could be delayed during the rest of this year because of the same reason for the increased numbers of turnarounds: local authorities scrambling to hit CO2 emissions-reduction targets set by Beijing. This would be much higher than the 43,000 tonnes of total capacity lost during the same two months last year. THE LIKELIHOOD that 227,000 tonnes of ChinaвЂ™s polyethylene (PE) and polypropylene (PP) coal-based capacity is forecast to be lost to plant shutdowns in September and October this year looks at first glance to be good news for exporters to China.

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