The Middle East’s largest public company isn’t worried about China’s growth slowdown
The Middle East’s largest public company is expanding its investments in China despite an expected slowdown in the country’s economic growth, its CEO said Monday.
Speaking to CNBC during the World Economic Forum in Davos, Switzerland, Yousef Al-Benyan, chief executive of Saudi Arabian petrochemicals manufacturer SABIC, dismissed growing concerns about the future of the world’s second-largest economy.
“If you are a long-term player I think this is normal in any economy, they have to go through sometimes a bumpy road. And that is, I think, what we experienced with China today,” Al-Benyan told CNBC’s Hadley Gamble, referencing the ongoing trade war between China and the U.S. That, he said, “has really influenced some of the growth we expect out of China, but from a SABIC perspective we look at China as long term,” he said.
Investors and analysts have raised concern over China’s growth outlook, which has been dampened by weakened domestic demand and the trade war with Washington that’s hit exports. A recent Reuters poll found that the country’s growth is expected to slow to 6.3 percent this year from an expected 6.6 percent in 2018, which would be the lowest in 29 years. That figure was 6.9 percent in 2017.
But SABIC, which is also the fourth-largest petrochemicals producer in the world, plans to keep investing in China.
“I think Asia is growing and China is really driving this growth,” Al-Benyan said. “That is why we have improved our presence in China specifically, we are trying to put even more investment in China because we think the growth is there.”
The CEO highlighted SABIC’s move from being an exporter to what he called being a “local player,” pointing to its partnership with Chinese state oil and gas firm Sinopec. SABIC in September of last year signed a memorandum of understanding with China’s Fuijan provincial government to build a petrochemicals complex, and is already a partner in a Sinopec-owned Chinese ethylene plant.
Indeed, Asia — led by China — is among the world’s top regions for petrochemicals capacity addition in the next several years. Of the 594 planned and announced plants in Asia between now and 2026, China has 257, with an estimated capital expenditure of $89.5 billion, according to industry intelligence provider GlobalData.
“I think from my view for 2019, it’s going to be a quite an interesting year for growth,” Al-Benyan said, acknowledging the economic challenges facing the country and its vulnerability to U.S.-imposed trade tariffs. “But at the same time if you have a very strong presence, very loyal customers, you know how you are going to trade those markets, I think you’ll be able to really do business.”
Al-Benyan isn’t the only CEO with a long-term China vision in mind. Mark Machin, president and chief executive of Canada’s Pension Plan Investment Board (CPPIB), sees the country’s potential to diversify his portfolio as outweighing any shorter-term economic setbacks.
“China is today the second-largest economy in the world, the second-largest equity market in the world, the third-largest bond market in world, and we have the ability to diversify into it,” he told CNBC. “So it’s more of a diversification call than a market call for the next few weeks or months … It’s much longer-term and it’s about diversification.”
The CPPIB, with $280 billion in assets under management as of last summer, plans to more than double its assets allocated to China by 2025 from a current 7.6 percent of its portfolio to up to 20 percent, it announced last August.
Machin admitted to the rising difficulties brought about by tensions between the U.S. and China that have spilled over to Canada. In December, Canadian authorities arrested Huawei Technologies Co. Chief Financial Officer Meng Wanzhou at the request of the U.S., as Washington pursues the executive’s extradition on charges of fraud and sanctions evasion. Since then, 13 Canadian nationals have been detained in China, authorities in Ottawa said at the start of January.
Canada is also weighing banning Huawei equipment from use in the rollout of Canada’s 5G next-generation wireless network on the basis of national security concerns. For Machin, these disputes — but in particular the U.S.-China trade spat — are not helpful.
“One of the things we’re seeing is not just the first-order impact of that tension but the second, third, fourth order and it’s rippling through the world and everything is slowing down now,” Machin lamented.
On Monday, the International Monetary Fund downgraded its global growth forecast to the slowest pace in three years, citing slowdowns in Europe but highlighting the trade war and uncertainty over Brexit. The IMF’s World Economic Outlook lowered growth estimates for 2019 by 0.2 percent to 3.5 percent, the second downward revision in three months.
“It’s not helpful to have these tensions going on and I hope they are quickly resolved and we go on with normal trade relations, normal investment relations,” Machin said.