11.12.2001
A naptha cracker for China?

• Deputy head of the Mainland Affairs Council (MAC, one of the government departments responsible for formulating trade and investment policy with China) has recommended that upstream petrochemicals be removed from the present list of industries prevented from investing in China. Although a final announcement is not expected until Nov. 20, we believe it is further evidence that the government is embarking on a more liberalized cross-strait trade and investment framework. As one of Asia’s largest integrated petrochemical producers with a large exposure to China, upstream refining in China would better enable the Formosa Group to: 1) Compete with Middle-Eastern and Sino-Western JVs; 2) Service downstream producers that have shifted production to China; and 3) Integrate downstream and upstream production. We believe positive changes to cross-strait trade and investment (particularly in light of WTO entry) will drive investor interest in this counter, which is trading at near historical low valuations. Opinion: Trading Buy