China's economic slump poses wider supply risks

An underperforming Chinese economy could spell such high levels of over-capacity that it will tempt its bulk producers to dump output and distort other markets. We must stay alert

- Red flags have risen over the prospect of petrochemical over-production in China, potentially causing a global glut of polymer supply.

As many as 20 petrochem projects in the country are expected to be completed this year and its share of global capacity may reach nearly a quarter, up from 14% five years ago. These new facilities will produce inputs for an array of industries, such as plastics. Had China's economy been growing rapidly, much of the fresh supply would have been absorbed domestically. But the world's second-biggest economy has slumped, its downshift seems set to last and local demand will probably fail to meet boom-time projections. As this is a classic industrial sector, with profits hinged on economies of scale, producers will be tempted to dump their excess output cheaply overseas, impacting prices and thereby others. If Chinese polymers enter India below their cost of production, we would have a valid reason to erect anti-dumping barriers. As this could happen in other sectors as well, we must stay broadly alert.