Prospectus

China Chemicals and Plastics

Program: A Business Analysis

Introducing a New
Annual Program by:

Chem Systems
 Prospectus

China Chemicals and Plastics Program:

A Business Analysis
June 2004

Introducing a New
Annual Program by:

44 South Broadway, White Plains, New York 10601, USA

Tel: +1 914 609 0300 Fax: +1 914 609 0399

Copyright© by Nexant, Inc. 2004

Contents
Section Page

1 Introduction.............................................................................................................. 1
1.1 CHINA’S EXPLODING GROWTH............................................................. 1
1.2 IMPACT OF WTO ........................................................................................ 3
1.3 MIDDLE EAST –CHINA INTERDEPENDENCE ...................................... 5
1.4 PROSPECTS FOR THE FUTURE ............................................................... 5
2 Scope.......................................................................................................................... 7
2.1 PROGRAM STRUCTURE ........................................................................... 7
2.1.1 Fundamental Reports ......................................................................... 7
2.1.2 Industry Segment Reports.................................................................. 7
2.2 REPORT DETAILS....................................................................................... 8
2.3 MACROECONOMICS ................................................................................. 8
2.4 BUSINESS INFRASTRUCTURE ................................................................ 9
2.5 CHEMICALS ................................................................................................ 11
2.6 INDUSTRY PARTICIPANTS ...................................................................... 13
2.7 INDUSTRY SEGMENTS ............................................................................. 13
3 Methodology ............................................................................................................. 14
4 Price and Deliverables ............................................................................................. 15
5 Report Delivery ........................................................................................................ 16
5.1 TYPE AND TIMING .................................................................................... 16
5.2 DELIVERY.................................................................................................... 16
6 Qualifications............................................................................................................ 17
6.1 NEXANT’S CHEMSYSTEMS EXPERIENCE IN CHINA AND THE
PACIFIC RIM................................................................................................ 17
6.2 STAFF IN CHINA AND OTHER ASIAN COUNTRIES ............................ 17
6.3 SELECTED PROJECT EXPERIENCE IN CHINA ..................................... 18
7 Contact Information ................................................................................................ 24
8 Authorization Form ................................................................................................. 25

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Section 1 Introduction

1.1 CHINA’S EXPLODING GROWTH

China’s economic and industrial growth has been very strong at just over 15 percent annually
over the past 25 years, with per capita GDP growing at near this rate, i.e. from US$56 per capita
in 1980 to nearly US$1,100 per capita in 2003.

GDP
GDPAND
ANDPER
PERCAPITA
CAPITAGDP
GDPGROWTH
GROWTH GDP
GDPGROWTH,
GROWTH,1980-2003
1980-2003
IN
INTWO
TWODECADES
DECADES
1600 1200 16
GDP Per Capita GDP
1400
1000
1200 12
Total GDP, Billion US $

GDP growth (percent)

800

Per Capita GDP, $ US

1000

800 600 8

600
400
400 4
200
200

0 0 0
1980 1985 1990 1995 2000 2001 2002 2003 1980 1983 1986 1989 1992 1995 1998 2001

This has resulted in a 14 percent annual growth rate in retail consumer spending, which is one of
the major drivers behind China’s economic growth. Additionally, investment in China’s
infrastructure has been robust at a total of 4,100 billion RMB ($495 billion) in 2003, with foreign
direct investment (FDI) totaling $55 billion in 2003.

INVESTMENT
INVESTMENTIN
ININFRASTRUCTURE
INFRASTRUCTURE FOREIGN
FOREIGNDIRECT
DIRECTINVESTMENT
INVESTMENT

100,000 70
6000
60
5000 80,000
Numer of FDI projects

FDI value, US$ billion

50
Billion RMB

4000 60,000 40
3000 30
40,000
2000 20
1000 20,000
10
0 0 0
1991 1994 1997 2000 2003
1991 1993 1995 1997 1999 2001 2003 Number of Projects Actual Value

In spite of the investment, in many industries China’s domestic demand has outpaced production
capacity such that China has become the world’s largest importer. For example, China’s imports
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Section 1 Introduction

of petrochemical feedstocks and polymers have continued to grow rapidly, at about 30 percent
per year on average since 1990. This is in addition to commodity polymer domestic production
growing from about 3 million tons in 1990 to 25 million tons in 2003. Adding to the domestic
growth is that China, owing to plentiful and low cost labor and government incentive for export
orientated industries, is globally competitive and therefore has enjoyed significant exports of
fabricated products (molded polymers as packaging and consumer goods). In some polymer
industries, exports of these fabricated products represent 30 percent of the domestic resin
demand. As such, special economic zones are being developed throughout the country for
plastics production and fabrication, and other industries.

NET IMPORTS INTO CHINA

CHEMICALS
CHEMICALSINTERMEDIATES
INTERMEDIATES COMMODITY
COMMODITYPLASTICS
PLASTICS
12000
14000

10000 MEG SM PTA AN 12000 PE PP PVC ABS PS/EPS

BD VCM EDC
10000
8000

8000
Kt

6000
Kt

6000
4000
4000

2000
2000

0 0
1990 1995 2000 2003 1990 1995 2000 2003

This economic and chemical industry growth, coupled with the government’s desire to attract
foreign investment, has resulted in the planning and construction of many chemical plants,
including four mega petrochemical plants due to be on-stream between 2005 and 2008. A
summary of the more significant investments made by foreign chemical firms into China is as
follows:

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WESTERN
WESTERNSPECIALTY
SPECIALTYCHEMICAL
CHEMICAL COMMODITY
COMMODITYCHEMICAL
CHEMICALMEGA
MEGACOMPLEXES
COMPLEXES
COMPANIES
COMPANIES

Company Number of Total staff Total Company Location Ethylene Comment

Manufactur-
manufactur investment Capacity
Capacity (KMT)
(KMT)
ing plants BASF Yangzi Nanjing, 600 2005 startup
Jiangsu
Atofina 14 2,000 $300 million
CNOOC/Shell Huizhou, 800 2006 startup
Guangdong
Bayer 11 1,800 New $3.1 SeccoBP Caojing, 900 2006/7 start up
billion Shanghai
investment
by 2008 ExxonMobil/ Fuzhou, 1,000 Renegotiating
Aramoco/Fujian Fujian
Dupont
DuPont 22 3,000 $700 million Formosa Ningbo 1,000 Depending on
Taiwan
Government
GE (all SBUs) 36 9,000 $1.5 billion approval
AtoFina, SABIC, Various Open Different level
Rhodia 14 3,500 $ 300 million LG, Dow of interest

1.2 IMPACT OF WTO

Another major economic development was China’s entry into the World Trade Organization
(WTO) in 2001, which has furthered its economic development. Moreover, there have been
major business changes within China as a WTO member including:

! No requirement for foreign currency balance, local content, or technology license-in

investment upon entry of WTO
! Trading rights (Import/export license) will be open to all companies registered in China
within 3 years of WTO entry
! Tariff reduction scheduled for year 2008
! Removal of non-tariff trade barriers for imports before 2005
! Gradual opening of retail and wholesale distribution rights to foreign companies in 1 to 5
years of WTO entry

Subsequent to WTO entry, major chemical and plastics consuming industries such as automotive
have boomed for both domestic consumption and exports. For example, the export of
motorcycles reached 8 million in 2003, from virtually zero in 1999.

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PRODUCTION
PRODUCTIONOF OFPASSENGER
PASSENGERCARS
CARs
CARsWERE
WEREUP UP
55% IN THE FIRST TWO YEARS OF CHINA’S’S
55% IN THE FIRST TWO YEARS OF CHINA STRONG
STRONGGROWTH
GROWTHOF
OFMOTORCYCLE
MOTORCYCLEEXPORT
EXPORT
WTO
WTOENTRY
ENTRY
5 16

14 Production Export
4 Truck Bus Car
12

10
3

Million
Million

8
2 6

4
1
2

0 0
1991 1995 2000 2001 2002 2003 1997 1998 1999 2000 2001 2002 2003

With China’s tremendous consumption of chemicals and polymers, and being the world’s largest
importer, its impact on the global petrochemical and related industries is enormous and growing
larger. Changes in China’s purchasing and logistics patterns have global implications as can be
seen in the history of Asian polyethylene prices.

IMPACT OF CHINA ON GLOBAL POLYMER PRICES

Demand and Inv entory
Buildup (shortage)
China Stops Buy ing
1600
End of Supply China Closes
Gulf War
1400 Problems Ports
Prices, CIF Hong Kong, USD/MT

1200 Multiple Supply September 11

Problems
Asian Crises
1000
Fly -up
800

600
Surge Surge
SARS
400 Recession Phillips HDPE
Recession China
Ex plosion Asia Recession
Resumes
Recov ery
200 Purchases

0
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

LDPE LLDPE HDPE

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1.3 MIDDLE EAST –CHINA INTERDEPENDENCE

With a great deal of the global capacity build-up occurring and being planned for the Middle
East, and China the fastest growing consumer, the Middle East-China interdependence is
becoming stronger. As such, the strategic aspects with regard to companies’ growth and
business opportunities are becoming critically important

1.4 PROSPECTS FOR THE FUTURE

With the prospect of continued strong growth in construction, automotive, textiles, electrical and
electronics, appliances, toys, and footwear, etc., opportunities for private investment, including
chemicals, is one of the key forces in shaping the future Chinese chemical industry.

However, given this recent and prolonged period of strong economic prosperity in China, many
economists have concerns with the Chinese “economic bubble” bursting. These concerns are
due to many infrastructural issues, including:

! China is heavily dependent on imported oil

! The government has tried to hold annual GDP growth at 7 percent; but the recent reality
has been 8-10 percent
! The RMB Yuan is pegged to the U.S. dollar, not allowing for appreciation, in spite of
strong economic improvements
! The country has an impending power shortage
! The financial/banking system is very inefficient with many non-performing loans
! The antiquated physical infrastructure in the eastern provinces of China
! There are still the realities of political/country risks in doing business in a developing and
socialist country
These issues notwithstanding, the government is analyzing the situation carefully and is
implementing regulations to address these issues to ensure economic sustainability as opposed to
pure economic growth including; moratoria on the growth of energy intensive industries;
privatization of the power industry including the addition of power plants; privatization and
central regulation of the banking systems, including foreign participants; 20-year urbanization
plan (300 million people); and further policy changes to support FDI.

Overall, any single company’s perspective on the outlook for China is a balance of many factors,
particularly the ones aligned with the company’s philosophy of doing business. Nevertheless,
the direct and indirect impact of China as a country and as a global “influencer” cannot be
ignored in a company’s strategic plans. Understanding the business structure in China from
macroeconomic and government policies to consumer demand and industry competitiveness is
the key to doing business in China and/or to survive globally and in non-China regions.

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Section 1 Introduction

DOING BUSINESS IN CHINA

THREATS
&
WEAKNESSES
STRENGTHS
&
OPPORTUNITIES

ENTER/ STATUS CONTRACT/

EXPAND QUO EXIT

Nexant ChemSystems and Sinodata Consulting are proposing to launch the China Chemicals
and Plastics Program: A Business Analysis, having successfully published its in-depth China
Polyolefins study. This program is designed to provide a current awareness of and strategic
insights into general and topical economic, political and business issues that are important for
your company to do and/or compete with business in China. In addition, the impact of these
issues on the chemical and plastics businesses will be explained using our exhaustive “on-the-
ground” network of experienced consultants.

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Section 2 Scope

2.1 PROGRAM STRUCTURE

2.1.1 Fundamental Reports
In this first year of the annual China Chemical and Plastics Program (2004/2005), the scope
will be comprised of four “Fundamental” Reports (in order to develop the Program platform of
base information) for an annual price of US$8,888 (eight thousand eight hundred eighty-eight
U.S. dollars). The four Fundamental Reports are:
! MACROECONOMICS
! BUSINESS INFRASTRUCTURE
! CHEMICALS
! INDUSTRY PARTICIPANTS
These are described in more detail below.
In subsequent years, Nexant ChemSystems and Sinodata Consulting will offer quarterly reports
that will update and expand this fundamental information as it changes and is relevant to the
chemicals and plastics industries.
2.1.2 Industry Segment Reports
In addition to the “Fundamental” Reports, “Industry Segment” Reports will be available as an
additional subscription and at a price described in Section 4, below.
Representative “Industry Segment” Reports could be:

! An In-Depth Analysis of the Polyolefins Industry in China

! Asian Cost Competitiveness: The Rise of China
! Styrenics
! Vinyls
! China PET
! Technology Developments in China
! The Propylene Value Chain in China

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2.2 REPORT DETAILS

The China Chemicals and Plastics Program will include: a “top-down” broad business
assessment and a “bottom-up” more focused and detailed analysis of China, starting with
macroeconomics and ending with face-to-face interviews with key Chinese producers,
fabricators and end-users.

China Chemicals
and Plastics Analysis

!Growth & Investment

The Macroeconomics !Fiscal Policy
!WTO
Fundamental
!Privatization
Reports Business Infrastructure !Financial Infrastructure
(“doing” business !Energy/Power

In China
in !Supply Chain
Chemicals !Growth
“basics”) !Process Exports

Participants !Domestic
!Foreign
!Offshore
Industry Reports
(specific products
Industries !Polymers
!Chemical
and topics) !Specialties
You !Growth
!Opportunities
!Competitors
Client-specific
(private advisory work)

2.3 MACROECONOMICS
China is rapidly changing. China started “Opening and Reform” in 1978 and is in a transition
from a Planned Economy to a Market Economy. Much has been done which provided important
drivers for the economic growth in the past 25 years. However, the government is continuing its
economic, social, and structural reforms that are transforming the country and will have strong
implications on the chemical and polymer related business, not least of which is the
implementation of the policies associated with China’s entry into the WTO.

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Section 2 Scope

As such, Nexant ChemSystems’ first “Fundamentals” report will discuss the macroeconomic
issues for which an understanding is necessary in order to assess the outlook and opportunities
for the chemicals and polymer-related industries. Issues covered will be:

! Overall GDP growth targets, why they are being set at these levels and what fiscal
measures and policies are being and will be implemented to achieve and hold them.
China now has the second largest foreign exchange reserve in the world and uses it to
stimulate its economy when needed. This section will include data such as population,
GDP, foreign reserves, inflation, etc.
! We will describe current thinking on this and monetary policy relative to its likely impact
on the future valuation of the RMB Yuan. The impact of these policies on FDI,
especially after the 2008 Olympics and 2010 Shanghai Expo, will be examined. Overall,
the report will provide current awareness of the government’s position on social issues
especially those impacting consumption, such as: urbanization, family growth, education,
employment and distribution of wealth to the west. The Eleventh 5-year Plan is now
under development to be issued in 2005. Nexant ChemSystems will report on this as
available.
The impact of polices associated with WTO entry will be assessed including the impact on:

! The requirement for foreign currency balance, local content, technology license in order
to invest, etc.
! Trading rights (import/export license) for both local and foreign invested companies
! Tariff reduction schedule
! Import quota setting procedure, non tariff barriers for trade, etc.
! Opening of retail and wholesale distribution rights to foreign companies
! Intellectual property rights
! The opening of trade in certain end-use products will be evaluated by industry (e.g.,
automotive)
! The impact on existing government entities (e.g., gasoline imports breaking the
monopoly of Petrochina and Sinopec). This will have a direct impact on their businesses
in terms of possible capacity rationalization and increased demand for the country
overall.

2.4 BUSINESS INFRASTRUCTURE

One primary objective of this section will be related to the dynamics of companies “doing
business” in China, how it has changed, and what is expected in the near future.
The business infrastructure section will focus and report on current issues associated with the
sustainable development of industry such as:

! In the past 25 years, various actions have been taken to reform the State Owned
Enterprises (SOEs). However, reform of the SOEs since 1978 proved to be marginally
successful so far. More recently, the government broke the monopoly of “single giant”
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Section 2 Scope

SOEs in many industries by dividing them into several companies, and allowed many of
the key SOEs to get listed in overseas and local capital markets. Most of the SOEs
continue to have poor management and low efficiency, however, as they continue to lose
market shares to private companies and foreign invested companies. In early 2003, a
new organization, State-owned Assets Supervision and Administration Commission
(SASAC) was established. Its mission is to better manage the $850 billion SOE assets
owned by the central government. State owned assets owned by lower level governments
have become much better positioned already, mostly through privatization.
Privatization, e.g., the move away from SOEs to foster country competitiveness: while
the government supported more than 300,000 SOEs five years ago, many of these were
not economically viable. The government plans to phase out much of the support by
allowing privatization, i.e. allowing workers or outside investors to acquire the enterprise.
Those that cannot find adequate support are likely to close, resulting in increased
unemployment. Currently, the number of SOEs has been reduced to 150,000.
! Financial infrastructure issues relating to the strength and efficiency of the banking
systems will be reviewed regarding government policy and actions that are being
planned/implemented to improve the solvency of the state banks relative to non –
performing loans. This includes participation by offshore financial institutions. Note the
latter are moving forward with mega-project sponsorship without political-risk insurance.
Other financial incentives include such things as special economic zones, duty drawback
and VAT exemption for exported goods based on imported raw materials. Updated
maps, such as the following, will be included to indicate the different provinces, major
cities and ports of entry, as well as the different zones (Free Trade, Special Economic,
etc.).
ECONOMIC ZONES IN CHINA

Q IN H U A N G D A O
B E IJ IN G L IA O N IN G

T IA N J IN D A L IA N
HEBEI (X IN G A N G ) YANTAI

SHANDO NG
Q IN G D A O
L IA N Y U N -
G ANG J IA N G S U

P R O V IN C E
NANTO NG
N A N J IN G
S P E C IA L E C O N O M IC Z O N E C H A N G J IA N G D E L T A
SHANG H AI
C IT Y : C O A S T A L O P E N C IT Y N IN G B O (P U D O N G O P E N A R E A )
HANG ZHO U

C O A S T A L E C O N O M IC Z H E J IA N G
O PEN AREA
W ENZHO U

F U J IA N FUZHO U
SHENDE
X IA M E N
DANG G UAN

G UANG XI G UANG ZHO U

HW ANG PU SHANTO U
M IN G H A N D E L T A
BEHAI
G UANG DO NG
V IE T N A M
ZHUHAI SHENZHEN
FO NG CHENG
Z H A N J IA N G
Z H U J IA N G D E L T A

H A IN A N HO NG KO NG

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Section 2 Scope

! Energy and power is another major concern for sustainable growth. The report will
assess the government’s 5-Year plan for: power grid management, energy (power)
conservation, incremental generation (project size, location, type and funding authority)
and environmental impact. Many believe that the banking and power issues will be the
most significant “influencers” on the sustainable development of the Chinese economy.
! Other business infrastructural issues that will be addressed are transportation and the
logistics of moving industrial goods to key markets, as well as urbanization of the rural
(Western) regions of China. This is particularly important where feedstocks and energy
supplies are disjointed relative to the customer demand.

2.5 CHEMICALS
This section will provide a mapping of the chemical industry in China with respect to its
historical development and platform for growth in the next 5-year plan.

! A supply-chain mapping for oil, gas, coal and minerals through petrochemicals,
inorganics, polymers and major end-uses will be provided for Chinese domestic
production for major commodity petrochemicals as well as the seven basic building block
chemicals, which comprise over 90 percent of chemical products (globally).

OLEFINS
OLEFINS AROMATICS
AROMATICS ALKANE
ALKANE

ETHYLENE, PROPYLENE, C4 OLEFFINS BENZENE, TOLUENE, XYENES METHANE

For the supply chain mapping, key changes related to Chinese growth and business
infrastructure will be described.
The report will outline key changes in capacities based on foreign investment
announcements as well as local and government policies. For example, China’s National
Development and Reform Commission (NDRC) announced in May 2004, that
petrochemical projects and plants in China which fall below specified capacities or which
employ technologies viewed as environmentally damaging, will be subject to a review
which could lead to them being scrapped. This is China’s effort to cool the country’s
economy, reduce lending risks and stop the repeated building of projects that do not meet
certain criteria. The focus of this review will be on projects and plants that use backward
technologies and machinery, where production is carried out at a low safety level and
causes heavy pollution. Refining and petrochemical projects on the review list include:
! Catalytic reforming units with capacities less than 500,000 tons/year;
! Continuous reforming units with capacities of less than 400,000 tons/year
! Hydrocrackers with capacities less than 800,000 tons/year
! Delayed coking units with capacities of less than 800,000 tons/year
! Crackers with capacities less than 600,000 tons/year

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Section 2 Scope

! Polyethylene (PE) units with capacities less than 200,000 tons/year

! Polypropylene (PP) units with capacities less than 70,000 tons/year
! Styrene units with capacities of less than 200,000 tons/year
! Polystyrene (PS) units with capacities less than 100,000 tons/year
! Ethylene dichloride (EDC)-based polyvinyl chloride (PVC) units with capacities less than
200,000 tons/year
! Acetylene-based PVC units with capacities less than 80,000 tons/year
! Chlor-alkali units with capacities less than 100,000 tons/year; chlorine
! Acrylonitrile (ACN) units with capacities less than 100,000 tons/year
! Acrylonitrile butadiene styrene (ABS) units with capacities less than 100,000 tons/year
! Single purified terephthalic acid (PTA) units with capacities less than 225,000 tons/year
! Ethylene oxide/monoethylene glycol (EO/MEG) units with capacities less than 200,000
tons/year
! Ethylene-based acetic acid units with capacities less than 200,000 tons/year
! Methanol-based acetic acid units with capacities less than 150,000 tons/year
! Caprolactam units with capacities less than 100,000 tons/year
! Polyethylene terephthalate (PET) units with capacities less than 100,000 tons/year

This new policy represents many opportunities for new investors.

! The current consumption and historical demand growth of the energy and mineral
(natural) resources for petrochemicals and chemicals, as well as the seven basic building
block chemicals, will be provided.
! Product exports are having a significant impact on the global dynamics of petrochemical
consumption. In other words, not only is there a demand for many chemical and
derivative products within China for domestic consumption, but also for the export of
process exports as consumer goods and packaging of these exported consumer goods.
This is driven by the low cost of manufacture/fabrication in China. In some commodity
polymers, product exports make up 30 percent of the polymer’s demand in China. The
level of product exports by major polymer will be assessed along with business
incentives, demand, and cost changes that are likely to change the magnitude of product
exports.

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Section 2 Scope

2.6 INDUSTRY PARTICIPANTS

There are three categories of participants related to doing business in China:

! Domestic
! Foreign investors
! Foreign companies doing business via imports into China or acting as an offshore traders
(exporter)
Nexant ChemSytems will provide profiles of the major chemical-related companies in each of
these categories. The list will include the top 50 percent of refiners through chemical/polymers
producers (exclusive of fabricators) along with the seven petrochemical building block chains.
The profiles will include, where available, product, location, ownership type and capacity.

2.7 INDUSTRY SEGMENTS

In-depth Industry Segment Reports on polymers, chemicals and/or specialty products will be
developed, and available as a part the China Program. The objective is to provide in-depth
commercial and economic analysis of the chemical/polymer segments in China. Currently
available is: An In-Depth Analysis of the Polyolefins Industry in China, with reports on
Analysis of the China Vinyls Industry and Analysis of the China Styrenics Industry under
development.

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Section 3 Methodology

The key feature of the China Program is that the information for this study will be developed
based on extensive fieldwork performed throughout the country. This will be performed by
Nexant’s ChemSystems long-time partner in China, Sinodata Consulting (Beijing) Co. Ltd., with
support from additional Nexant’s ChemSystems global staff. Sinodata Consulting, staffed by ten
Chinese nationals, has more than ten years experience in the chemical and polymers businesses
in China. Moreover, their work will be building off an already strong in-house database and will
be supplemented by contacts with foreign companies currently exporting to China. Nexant’s
ChemSystems global staff will perform the fieldwork outside of China. As such the information,
analysis and commentary will not be based primarily on published statistics, which can be and
are typically inaccurate. This fieldwork will provide the subscriber with the “inside” look and
commentary on issues relevant to doing business in China.

Regarding market research methodology in China, Mr. David Jiang, President and founder of
Sinodata Consulting, will be pleased to answer any questions. He can be contacted directly at:

David S. Jiang
President
Sinodata Consulting (Beijing) Co. Ltd.
Asian Game Mansion, Building A, Suite 22D
No. 9 Xiao Ying Road
Chaoyang District, Beijing 100101
People's Republic of China

Phone: 86-10-6489-5027/3259, ext. 808

Fax: 86-10-6489-5136
Mobil: 86-1380-1000-335
E-mail: davidjiang@sinodataconsulting.com
or http://www.sinodataconsulting.com

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Section 4 Price and Deliverables

The “Fundamental” subscription to the China Chemicals and Plastics Program: A Business
Analysis, includes four reports/sections (as described previously):
! MACROECONOMICS
! BUSINESS INFRASTRUCTURE
! CHEMICALS
! INDUSTRY PARTICIPANTS

The annual cost will be US$8,888 (eight thousand eight hundred eighty-eight U.S. dollars). If
this seems like an unusual price, then you need to subscribe to this Program.
As part of the annual subscription, the subscriber will be entitled to a half-day private
consultation session with Sinodata Consulting in Beijing.
The fifth category of the Program is: INDUSTRY SEGMENT Reports
Subscription to the individual “Industry Segment” Reports will be separate from the
“Fundamental” Program, and priced according to the topic. As such, Nexant ChemSystems is
currently offering the following Reports:
! An In-Depth Analysis of the Polyolefins Industry in China: US$12,000 (twelve
thousand U.S. dollars), issued June 2003
! Asian Cost Competitiveness: The Rise of China: US$17,000 (seventeen thousand
U.S. dollars)
! An In-Depth Analysis of the Styrenics Industry in China: US$18,000 (eighteen
thousand U.S. dollars)
! An In-Depth Analysis of the Vinyls Industry in China: US$15,000 (fifteen thousand
U.S. dollars)
! Both Vinyls and Styrenics Reports: US$30,000 (thirty thousand U.S. dollars)
Subscribers to the Fundamental Report Program will receive a 20 percent discount on any
industry segment reports.
Companies will be invoiced upon subscribing for all reports. Subscription costs are net of all
local taxes. Extra hard copies are available at US$500 each.
Future Industry Segment Reports will be subject to the desire of the Program participants and
may include topics such as:
! China PET
! Technology Developments in China
! A Strategic Analysis of the growing Middle East-China Interdependence
! The Propylene Value Chain in China

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Section 5 Report Delivery

5.1 TYPE AND TIMING

For the first year of the China Chemicals and Plastics Program (2004/2005), the
“Fundamental” Reports (Macroeconomics, Business Infrastructure, Chemicals and Participants)
will be provided by year-end (e.g., December 2004). In subsequent years, quarterly reports (four
per annual subscription) will be issued with material updates to the “Fundamental” Reports.

5.2 DELIVERY
The reports will be available in hard copy format and available from www.nexant.com as a
password protected “PDF” download. Each subscriber will receive two hard copies (printed
books) of the report. Additional hard copies (printed books) will be available at US$500 per
copy.

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Section 6 Qualifications

6.1 NEXANT’S CHEMSYSTEMS EXPERIENCE IN CHINA AND THE PACIFIC RIM

The Asian petrochemical and polymer industry has experienced robust growth during the last
decade. China is presently poised for dramatic growth as well. Domestic and foreign
investment, market expansion, diversification, new technology and global trade have
significantly enhanced activities and revenue.

For nearly 40 years, Nexant ChemSystems has assisted clients in participating in the development
of the refining and petrochemical industries in the Pacific Rim countries and more recently in
China. Nexant ChemSystems offers expertise, experience and an international reputation to those
companies seeking to participate in the global chemical, process and energy industries. The
strengths of our international management consultancy expertise reside in a multi-faceted
approach that combines commercial, technological and strategic capabilities.

Strategic Planning - Nexant ChemSystems has guided its clients in addressing the challenges of
the Asian and Chinese business environment by evaluating and formulating strategic plans and
investment ventures into new areas.

Process Technology/Economic Evaluation - Nexant ChemSystems has evaluated refinery,

chemical and polymer plant technologies and operations in China and other countries in Asia.
These assignments have assisted companies to improve their domestic and international
competitive position, link economic competitiveness with product compatibility and market
needs, and enhance long-term project performance.

Market and Commercial Forecasting - Nexant ChemSystems' strong Pacific Rim and China
contacts and experience base has been applied in formulating parameters and methodologies
used to identify opportunities for clients to stimulate growth and enhance competitive position.
Studies on market size, growth, intermaterial competition and new product development have
been conducted for polymers, intermediates, specialty and fine chemicals, feedstocks,
petrochemicals and refinery products.

Financial - Nexant ChemSystems has completed a number of financial engagements in China

and the Pacific Rim for companies, governments and banks that involved a full range of
advisory, valuation and due diligence activities, including industry/business analysis, cash flow
and margin projections, and model development.

6.2 STAFF IN CHINA AND OTHER ASIAN COUNTRIES

Nexant ChemSystems was among the first consultancies to provide analysis on the petrochemical
and derivatives industries in China. During the 1980s, Nexant ChemSystems developed the
necessary relationships and contacts in China to provide value-added, quality consulting
activities. We presently assist domestic Chinese companies, global multinationals, and financial
institutions with a myriad of consulting assignments.

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Nexant ChemSystems has staff in China and other Asian countries (including Japan, Thailand,
Singapore, South Korea, etc.), as well as staff with Asian experience from our offices in New
York and London, as shown in the following map. This network of experienced professionals
provides our clients with a knowledge level unsurpassed in the industry.

London
London
Houston White
WhitePlains,
Plains,NY
NY
Houston
Bangkok
Bangkok

Tokyo

San Francisco
Washington Seoul

Beijing
Nexant, Inc.
Nexant UK, Limited
Nexant (Thailand) Ltd
Main Offices
Singapore
Project Offices
Representative Offices Buenos Aires Jakarta

6.3 SELECTED PROJECT EXPERIENCE IN CHINA

! An In-Depth Analysis of the Polyolefins Industry In China -- This multiclient study
(published in 2Q 2003) is designed to help companies selling polyolefins into China, or
those that wish to enter the market, to better understand and appreciate the market
dynamics of the country and better position themselves for the future. Based on the
amount of new global capacity planned, particularly in the Middle East, the future will be
much more competitive. As a result, many companies currently selling to China will lose
market share unless they can adapt to the future situation.
The study includes:
− Country Overview
− Demand Analysis
− Supply Analysis
− Purchasing and Distribution (the supply chain)
− Supply, Demand and Trade Projections
− Domestic Pricing History
− Competitive Analysis of countries exporting to China
! Lenders’ Market Consultant: The lenders to CNOOC Shell Petrochemicals Co. Ltd.
(CSPCL), one of the current Chinese/Western olefins complexes, retained Nexant as the
Lenders’ Market Consultant. This assignment gave us a good understanding of the
fundamentals of major partnership projects in China. This assignment included feedstock
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assessment, projections of market demand, forecasts of raw material and product prices,
discussion of logistics and intermaterial competition, and preparation of a financial
model.
! China Market Analysis: Nexant assisted the Asian business unit of a major U.S.
chemical company interested in re-entering the polyolefin packaging market in China to
determine the current industry structure, product selection and decision process, growth
drivers, and market channels. Since the focus was packaging, the study also addressed:
resin producers (globally and domestic China); state entities; independent brokers and
distributors (China versus Hong Kong versus others); and fabricators.
! New Petrochemical Complexes: In addition to the work for CSPCL’s Lenders, Nexant
worked on two of the other new foreign joint venture petrochemical complexes. The
specific tasks varied by complex. The following items were performed for one or more
of these assignments:
− Detailed market analysis, including an analysis of single site/metallocene and
other second generation polyolefins
− Project feasibility analysis
− Financial modeling
− Price forecasts
− Market structure
− Impact of WTO
− Market entry strategy
− Competitive benchmarking on a delivered cost basis.
! Mixed Xylenes and para-Xylene Purchasing Strategy Review: A major Asian PTA
producer was considering its future para-xylene purchasing strategy and requested
Nexant to carry out a review of Asian mixed xylenes price setting mechanisms and the
current and maximum availability of mixed xylenes from selected Asian refineries.
Additionally, Nexant benchmarked the cash costs of production of para-xylene of
selected Asian, including Chinese, producers.
! Provincial Analysis of Polyolefins Demand: The demand for polyolefins for each
province in China was developed with forecasts made based on key market drivers (e.g.
current and future washing machine production, amount of polypropylene used per
washing machine by application, key manufacturers, specifications/market structure).
Other items included in the study were the resin selection process, distribution channels,
data sources and their validity, listing of major fabricators (key contact, address and
phone/fax number, polymers used, products made, volume used, number of employees).
This was commissioned by a foreign company interested in determining an investment
strategy in polyolefins.
! Polypropylene Durables Markets In Asia: Nexant analyzed the demand for
polypropylene in consumer and industrial durable goods in Asia. The countries included
in the analysis were Australia/New Zealand, China/Hong Kong, India, Indonesia,
Malaysia, Philippines, South Korea, Taiwan and Thailand. Products/markets included
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appliance, automotive, compounding, and other. An analysis of the producers of these

products with respect to ownership, resin supply/specification, and market share was also
provided. China was a main focus due to the volume of polypropylene imported and the
increasing demand for consumer durable goods.
! Asian Benchmarking Analysis: A study was commissioned by a major Chinese
petrochemical producer to benchmark a number of important parameters for polyethylene
and polypropylene producers and major importers in the China market. This included
cost of production, subdivided into monomer cost, raw material utilization, utilities
consumption, manpower, plus overhead costs, and number of people in selected job
functions such as sales, shipping costs, etc. This work facilitated our client’s evaluation
of their own competitive position and the steps necessary to improve their competitive
position.
! Oxo Alcohols Feasibility Study: A North American EPC contractor was considering a
joint venture project with a Chinese oxo alcohol producer that would involve substantial
modernization and expansion of the Chinese production units. Nexant was retained to
carry out a feasibility study that reviewed and discussed propylene costs; market demand
and supply for the oxo range; raw material and product price forecasts; analysis of cash
cost competitiveness; and market entry strategies.
! Business Strategy: A major U.S. chemical producer engaged Nexant to assist them
develop a strategy to substantially expand the company's business in South-East Asia,
including China and India. Nexant’s study, while carried out in close cooperation with
the clients’ strategy development team, provided an outside viewpoint relative to
expansion in Asia. Nexant sought to match the client's capabilities with opportunities to
participate in Asia. The issues discussed included: country preferences; site integration;
financial attractiveness; value added products; flexibility of strategy.
! Salt Market Analysis: This study of the current and potential market for imported salt in
South-East Asia was conducted for a major Pacific Basin supplier and trader of industrial
or chemical grade salt. The focus was demand to 2010 for salt for use in domestic caustic
soda and chlorine and synthetic soda ash in China, Indonesia, Malaysia, Philippines,
Singapore, Thailand and Vietnam (generally high cost areas for these products), and the
cost competitiveness of Southeast Asian caustic and soda ash relative to imported EDC,
VCM and natural soda ash. Analysis of shipping costs was also provided.
! Technical Evaluation: For a Hong Kong client, Nexant carried out a technical review of
an EPS plant that included an assessment of technology and a review of technical
feasibility.
! Polycarbonate Market Analysis: For the Japanese division of an international chemical
company interested in determining the size and structure of the market and developing a
positioning strategy, Nexant evaluated the markets (by major applications) for
polycarbonate resins in selected Asian countries, including China, and forecast demand.
Applications included: automotive, electrical, electronic and appliance. The positioning

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strategy was developed via market structure analysis (relationships with OEMs, role of
compounders, suppliers market shares, role of distributors, etc.) and producer profiles.
! Producers/Pricing Analysis: A French producer concerned about the Asian polystyrene
market retained Nexant to assess pricing forces in the region by: establishing regional
trend line and cyclical pricing frames of reference for styrene and polystyrene, including
the price spread; developing current competitive cost economics; and defining and
assessing market positioning and pricing strategies. For this study, Nexant evaluated 16
companies in 7 Pacific Rim countries, including China, plus the U.S., assessing: degree
of integration from olefins, aromatics and styrene; developing costs of production;
identifying target markets, and associated costs. Company analyses also included:
market share and country share orientation; positioning strategy, use of pricing to
acquire/maintain market share.
! Opportunity Analysis: A major U.S. chemical producer interested in developing and
producing hydrocarbons in Asia engaged Nexant to ascertain the market opportunities in
selected regions in China for the conversion of available methane to petrochemical or
related products. We provided the following: a general overview of the Chinese energy
market and the role of natural gas in energy, industrial and chemical applications;
infrastructure overview in the target regions/locations; focused assessment of natural gas
opportunities for chemicals and for energy/industrial applications in the selected regions.
! Plant Site Selection: Nexant, with considerable assistance from its China staff,
identified, evaluated and ranked potential locations for the construction of a major
chemical plant by an international chemicals producer wishing to establish production in
China. The results provided a detailed screening of over 50 potential sites, culminating in
recommendations for the highest ranked sites.
! TPE Strategy: With the objective of assessing a strategy for styrene block copolymer
(SBC) elastomers in China, Nexant evaluated the various markets for SBCs, customers,
distribution structures, and partner choices in China. The analysis included detailed
discussions with key China suppliers and analyzed the impact Taiwan has on the China
shoe market.
! Citric Acid Business Analysis: A South African company interested in understanding
citric acid production in China retained Nexant for an overview of production economics.
Variable and fixed costs for current producers with leader/laggard differentiation and
market/distribution cost information were provided.
! Pricing Analysis: An Asian client involved in a project feasibility assessment requested
annual price forecasts through 2015 for crude oils, refined products (LPG, mogas, diesel,
jet fuel, petroleum coke, paraffinic naphtha) and aromatics (benzene, toluene, mixed
xylenes, para-xylene) in South China and several other locations.
! Opportunity Analysis: Nexant was engaged by one of the largest international chemical
producers for assistance in scoping chlor-alkali and derivatives opportunities in Asia as a
key input to a long-term chlor-alkali growth plan. The work, performed jointly with a
special client team, included the analysis of historical market dynamics and pricing in
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chlor-alkali and derivatives and the assessment of alternative growth options related to
future supply/demand, pricing and profitability. The 1985-2010 market analysis of
chlorine, caustic, soda ash, EDC, VCM and PVC for China, South Korea, Taiwan,
Thailand, Indonesia, India and other Asian countries covered market structure and
relative pricing, tariff issues, cost of production in Asia, capacity changes, and regional
differences/summaries. The project team also performed an opportunity analysis that
identified opportunities for investment in Asia to work with other companies, and
investment in chlor-alkali outside Asia.
! EPDM and Elastomers: As part of our assessment of new polyolefin elastomers, Nexant
analyzed the future structure of the EPDM and associated thermoplastic elastomer
markets in China. A key part of the analysis was the investigation of the automobile
industry and the influence of local Chinese producers compared to foreign OEM
transplants.
! Specialty Film Markets: Nexant, in response to a request from a U.S. diversified
chemical producer, conducted a market analysis of specialty film products in China. The
products covered included: biaxially oriented PP, oriented PET, cast nylon, biaxially
oriented nylon and coextruded nylon-based structures. Nexant provided the following
information on a “best efforts” basis: manufacturers/capacity; production; major end
uses; consumption by end use, especially in food packaging; converters; distribution
patterns and trade.
! Plastic Resin Distribution Network: In an effort to understand dramatic changes in the
supply and distribution of polyolefins in China, Nexant analyzed the role of Sinochem,
other state agents, independent brokers and distributors and their relationship to plastic
fabricators and compounders. The impact of import duties, licensing arrangements,
freight/transfer costs and currency restrictions were also assessed.
! Oxo Alcohols/Acrylates: A Japanese bank requested assistance in the evaluation of the
butanol, 2-ethylhexanol and acrylic acid/ester business in Asia (Japan, South Korea,
Taiwan, China, Hong Kong, Indonesia, Malaysia, Philippines, Thailand and India).
Nexant provided the following information: current consumption with trend assessment
to forecast the market to 2010; current producers with capacities and expansion plans;
price forecasts for the products and the raw materials; economics for the production of
oxo-alcohols and acrylic acid/ester in Singapore.
! Partner Assessment: Our client, a leading participant in a petrochemical complex joint
venture with a global major petrochemical company that will be responsible for most
chemical exports (30 percent of the joint venture's production), was interested in an
evaluation of the exclusive exporting rights agreement. Nexant assessed the global
company's ability to market and distribute chemicals from the joint venture on an export
basis primarily in the Asian region.
! Petrochemical Joint Venture Development: Nexant assisted an Asian client to define
and formulate a negotiating position for a proposed $2 billion petrochemical joint venture
with Sinopec. The study included a market analysis, feedstock sourcing, capital cost

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estimation and project profitability and risk assessment for a complex producing a broad
range of olefin and aromatic derivatives.
! PET and Polyester Fiber Project -- For a client and its lead bank, Nexant prepared a
technical and market review for purposes of project financing. This included a review of
the technology, design, engineering, procurement and implementation plans for the
project. The market review provided a forecast for PET and its major raw material, PTA,
focusing on the Asian region.
! SBS Market Analysis: Nexant investigated the markets for SBS in China for a
South African company planning to build a plant in China with Chinese technology.
Although the aim was to provide SBS products to the under supplied local markets, the
client needed to repatriate revenue/profits to pay off the project. For this project, the
local markets in China, as well as other parts of Asia, were analyzed and forecast:
production, end users, markets and market structure, competitive supply, competitive
environment and pricing.
! Technology Acquisition: Our role was to identify sources of manufacturing technology
for the Jiangsu province in targeted chemicals. Nexant arranged for and assisted in face-
to-face discussions with potential companies for technology acquisitions and licensing,
joint venture, direct sale or combinations thereof.
! PVC and Project Feasibility: Nexant worked with Chinese government and trade
representatives and potential investors on a variety of developmental studies, including
several feasibility studies for PVC joint ventures in China - several for the Ministry of
Foreign Economic Relations and Trade (MOFERT).
! Project Development: Conducted a pre-feasibility study for a client with Shenzhen
Petrochemical Industry Corporation.
! Investment/Technology Review: Based on a request from a Middle East bank, Nexant
evaluated and reviewed project feasibility and technology bid documentation and
procedures for a plastics fabrication facility in the Guangdong province of Southern
China.
! Acquisition Feasibility: Conducted a feasibility study for the acquisition of a major
liquids terminal in northern China for a U.S. chemicals bulk storage company. The study
provided detailed information on the facility, site, and business prospects.
! Project Feasibility Study: Nexant conducted a feasibility study and training for two
World Bank funded fertilizer projects in the Hubei Province. In separate projects we also
worked with several Chinese provincial Chinese Industry Design Institutes on project
feasibility study and conducted a pre-feasibility study with Shenzhen Petrochemical
Industry Corporation.

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Section 7 Contact Information

Please visit www.nexant.com to authorize engagement of the study online or return the following
authorization form to either of the Nexant offices listed below.

Mr. Don F. Bari Mr. Esteban Sagel

Nexant, Inc. Nexant, Inc.
44 South Broadway 909 Fannin Street, Suite 1275
White Plains, NY 10601 Houston, TX 77010
USA USA
Phone: 1-914-609-0301 Phone: 1-713-982-5556
Fax: 1-914-609-0399 Fax: 1-713-739-0741
e-mail: dbari@nexant.com e-mail: esagel@nexant.com

Mr. Roger Green

Mr. John W. King Nexant Limited
Nexant (Thailand) Limited Griffin House
15th Floor, Lake Rajada Office Complex 1st Floor South
193/59 Rachadapisek Road 161 Hammersmith Road
Klongtoey, Bangkok 10110 London, W6 8BS
Thailand United Kingdom
Phone: + 66-2-661-8510-3 Phone: + 44-20-7950-1569
Fax: + 66-2-264-0420 Fax: + 44-20-7950-1550
e-mail: jwking@nexant.com e-mail: rgreen@nexant.com

Mr. Sang Chul Lee

Mr. Iwao Ohtsuki Nexant, Inc. - Korea
Nexant, Inc. – Japan 106-601 Grangvil Apt
Level 7 Wakamatsu Building, 3-3-6 18 Wolgae-dong, Nowon-gu
Nihonbashi Hon-cho, Chuo-ku Seoul 139-053
Tokyo 103-0023 Korea
Japan Phone: + 82-2-971-3598
Phone: + 81-3-6202-7664 Fax: + 82-2-971-3598
Fax: + 81-3-6202-7690 e-mail: sclee@nexant.com
e-mail: iohtsuki@nexant.com
Mr. Federico J. Dumas
Nexant, Inc.
Mr. David S. Jiang Tucuman 326 – Block 3, 4th Floor – Suite 26
Sinodata Consulting (Beijing) Co. Ltd. (1049) Buenos Aires
Asian Game Mansion, Bldg A, Suite 22D Argentina
No. 9 Xiao Ying Road Phone: + 54-11-4312-8271
Chaoyang District, Beijing 100101 Fax: + 54-11-4311-4608
People's Republic of China e-mail: fejdumas@datamarkets.com.ar
Phone: 86-10-6489-5027/3289, ext. 808
Fax: 86-10-6489-5136
Mobil: 86-1380-1000-335
e-mail: www.djiang@nexant.com

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Section 8
Also available online at www.nexant.com
1. The undersigned (hereafter "Client") hereby agrees to
purchase from Nexant, Inc./ ChemSystems (“Nexant”),
Nexant’s study, China Chemicals and Plastics
Program: A Business Analysis, the Annual
Fundamental Report for the 2004/2005 year, in
accordance with the following terms and conditions:
Nexant will provide to Client the following
information and services for each study purchased:
(a) Two (2) bound copies of the report
(b) Access to electronic downloads of the report via a
password-protected area from www.nexant.com
(c) A half-day meeting with Sinodata Consulting in
Beijing
(d) Additional meeting/presentation of the final study
results can be made. The presentation can be
made at the subscriber’s office or at our office in
Beijing. Professional fees at Nexant’s standard
rates plus travel and living expenses at cost will
be invoiced to the client.
(e) Program subscribers would be entitled to a 20
percent discount on the list price of the Industry
Specific Reports.
2. While the information supplied by Nexant to Client
will represent an original effort by Nexant, based on
its own research, it is understood that portions of the
report will involve the collection of information
available from third parties, both published and
unpublished. Nexant does not believe that such
information will contain any confidential technical
information of third parties but cannot provide any
assurance regarding any third party may, from time to
time, possibility claim a confidential obligation to
such information.
3. The information disclosed in this report will be
retained by Client for the sole and confidential use of
Client and its 51 percent or greater owned affiliates in
their own research and commercial activities,
including loaning the reports on a confidential basis to
third parties for temporary and specific use for the sole
benefit of Client.
China Chemicals and Plastics Program: A Strategic Analysis
Q204_77440.006.01
Prospectus 2004
Authorization Form
4. Client further agrees that it will use reasonable efforts
to keep the information in the reports for its sole use;
however, this restriction shall not apply to information
which is or becomes generally available to the public
in a printed publication, which is already in the
possession of Client, or which is received by Client in
good faith from a third party without an obligation of
confidentiality.
5. Client shall not republish any of the report except
within its own organization or that of its 51 percent or
greater owned affiliates. Client further agrees to
refrain from any general publication of the reports,
either directly or through its affiliates, so as to
constitute passage of title into the public domain or
otherwise jeopardize common law or statutory
copyright in said report.
6. Client will be billed and shall pay Nexant the total
amount of US$8,888 (eight thousand eight hundred
eighty-eight U.S. dollars). Subscription to the
Industry Reports will be made under separate
authorization forms. Amounts are due upon receipt of
invoice and payable within thirty (30) days. Late
payments shall accrue interest at the rate of 1.5% per
month. Fees quoted do not include any applicable
sales tax, or use or value added tax, all of which are
for the account of Client.
7. The obligations of paragraphs 3 and 4 shall terminate
five (5) years from receipt of reports.
8. Unless specified otherwise, there are no warranties of
any kind for reports and consulting services provided
under this Agreement. Nexant’s total liability under
this Agreement is limited to the total amount paid by
Client to Nexant for the reports.
9. This Agreement will be governed by the laws of the
State of New York.
25
Section 8 Authorization Form

AUTHORIZATION FORM

Agreed To and Accepted by: Agreed To and Accepted by:

NEXANT, INC.
Signature: ________________________________________ Company _______________________
Name: _________________________________________ Signature: _______________________
Title: ________________________________________ Name: __________________________
Company: ________________________________________ Title: ___________________________
Address: ________________________________________ Date: ___________________________
________________________________________
________________________________________
Date: ________________________________________
Telephone: _______________________________________
Fax: ________________________________________
e-mail: _______________________________________

If purchase order is required, please provide the purchase order number below:

Purchase Order Number: _________________________

Forms can be faxed or mailed to any of the addresses listed

in Section 7, Contact Information, on page 24, or sent to the address below.

NEXANT, INC./CHEMSYSTEMS
44 SOUTH BROADWAY, 5th Floor
WHITE PLAINS, NY 10601-4425 U.S.A.
FAX: 1-914-609-0399

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