PEP Review 2006-1
This report extends SRIC’s work on PEP Cost Indices to include China,
a country that attracted significant amount of investment in its fast growing
chemical industry in recent years. As part of the study, we developed chemical
plant investment cost-escalation indices for the East Coast of China (analogous
to the U.S. Gulf Coast PEP Cost Index which we have been publishing since
1975), and also established time-series for relative cost parameters for
the
location.
Price escalation indices for cost components representative of chemical plant
construction on the East Coast of China were compiled from regularly published
statistical data. The weights and relative cost of plant components in 2004
were derived from PEP Report 204B (October 2005). The present study takes
into account the requirement for China to import a substantial portion of
equipment, machinery, materials and some foreign engineering and technical
services.
It has therefore taken into consideration the influence of exchange rates.
As a result, any possible appreciation of the Chinese currency against the
other major currencies in the future will be reflected in the future cost
indices and relative costs.
As noted in PEP Report 204B, even at a same location in China, plant investment
costs can differ significantly, depending on the ownership (state-own or
foreign own) and the extent of local sourcing. To this end, we have generated
two sets of PEP Cost Index for the East Coast of China: one for Maximal use
of Local contents (MaxL) and, Minimal use of Local contents (MinL). The overall
aim of the study is to provide insights on the trends of plant investment
cost in China, including the trends in relative cost (versus that of the
United States). The report should
be of interest to planning and evaluation groups.
By Kungang (Ken) Zheng
For more information contact:
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