Following October's Third Plenary Session of the 18th CPC Central Committee, China pundits will have noticed a strong theme at the historically significant event: reform.
Amongst the changes pledged in the opaquely-worded “Decision” communiqué were: rural land reforms, financial reforms, fiscal reforms, market entry reforms and, perhaps most importantly for the lubricants industry, reforms to state-owned enterprises.
According to the document, published by Xinhua News Agency, the government reiterated the importance of state-ownership, but said it would also “encourage” the development of the non-public sector.
If the state “encourages” non-public companies financially, more resources would be diverted to nimble, reactive businesses that could help innovation in the monopolised energy sector. Financial reforms that allow private investors more freedom to set up funds would also ease the flow of capital to worthy projects.
Should China follow a global trend, these smaller producers could also see an increasing share of the lubricants market. A recent report from Kline shows majors’ market share ebbing as regional players and NOCs claim more ground.
Smaller companies are certainly not without ambition. Hengst, a local Chinese lubes producer, has recently gained SGS and TUV accreditation for a low-carbon synthetic lube, which has also passed Europe’s strict REACH regulations. The product, it claims, can increase fuel efficiency significantly and reduce emissions by as much as 30%, demonstrating the firms reactivity to consumer demands for efficiency and green credentials.
However, new fuel regulations might cause problems for smaller producers. The National Development and Reform Commission, China’s top economic planner, has brought forward the deadline for enforceable National IV standards for gasoline-powered cars to January 2014.
Ren Haoning, an energy analyst at CIConsulting, believes this will have the dual effect of boosting profits for state-owned companies, who have access to the financing needed to make the necessary changes, while pricing smaller domestic firms out of the market.
The dust has yet to settle from the Third Party Plenum, however, and the full extent of the reforms will most likely not be visible for some time yet. For smaller producers, like Hengst, innovation and reactivity will be essential to its competitiveness in a crowded market, but don’t expect Sinopec and CNPC to lose their grip just yet.
As always, to find out more about how OATS Global Solutions can help you stand out in the China market (and elsewhere) contact Diana Shen.
Sebastian Crawshaw
Chairman and Owner, OATS