Multinational oil companies have made direct investments in China of many, many millions of dollars in recent years. Have they met their objectives? Probably yes for building a presence there, said Steve Puckett of consultancy Tri-Zen International, in Singapore, but not for profitability.

Puckett provided an overview of the lubricants industry in China. Ten years ago, he said, China produced only about 1.8 million metric tons of blended lubes, more than 90 percent of which was from Sinopec and CNPC, the state-owned oil giants. Currently, Chinas lube blending capacity totals 5.9 million tons per year, he said, and about 17 percent of thatwas with foreign-funded blenders.

But overcapacity persists, Puckett said. Actual output is only about 3.5 million tons, and more than 80 percent of that is low and medium grade, made from low quality base oils, with poor oxygen stability and lacking in alphaolefins. Finished lube imports make up about 100,000 tons per year.

Lube additive production is increasing, and the quality of additives is improving, helped by joint ventures with companies like Lubrizol and Infineum, Puckett said. More than 30 additive producers now sell more than 100 types of additives.

Sinopec (with 32 percent of Chinas lube blending capacity) and CNPC (with 25 percent) produce mostly engine oils, hydraulic fluids and gear oils. Total loss system oils, low-grade machinery oils that are often bought and additivized by local blenders, account for about 30 percent of Chinas product mix. Sinopec and CNPC have successfully developed SH and SJ gasoline engine oils and CF-4 grade diesel engine oils, although SE and CD grades still prevail.

The trend is very much for improved quality, he said, and while low-grade capacity is in surplus for both base oils and local additives, there is a growing demand for higher specification product.

Michael Dunne, president of consultancy Automotive Resources Asia Ltd. in Beijing, predicted that vehicle sales (including cars, trucks and buses) in China will increase to 5.5 million units by 2007, underscoring the growth in the market for transportation lubes. China has become the fourth-largest vehicle market in the world, Dunne said. Two-thirds of the vehicles sold in China are commercial – trucks, buses – and that commercial market is fiercely competitive on price. But at the high end for passenger cars, there is great growth and profit.

U.S.- and European-branded cars dominate in China, Dunne said. They were there first, but manufactured in China. General Motors has four manufacturing plants, a major investment in China. VW is king of the market, with 40 percent of total sales. Honda is making huge profits in China. Its profits in China are its best in the world, Dunne said. In China, Honda makes [U.S.] $5,000 on each Accord, vs. about $900 in the U.S.

Road networks in China are improving, and roads may no longer be a detriment to vehicle growth. There will be more and more auto production in China in the coming years, both for domestic use and for export. Over the next five years, Dunne predicts that Japanese, Chinese and Korean car makers will gain huge market share in China. And whoever wins on volume will win the war, said Dunne.

What do the next 18 to 36 months look like for Asias economy? While uncertain and unnerving were his first answers, Standard Chartered Banks Steve Brice, based in Singapore,predicted that the next three years will find Asia increasingly self-sufficient. Key factors, he said, are growing diversification of the export base and increased reliance on domestic demand, particularly in China.

The U.S. remains important to Asias economy, Brice said. Exports to the U.S. are still a big part of some Asian countries GDP, including Singapores. But China is playing a bigger role, with more and more exports going to China from other Asian countries.

China is also sending more tourists to other Asian countries, a huge positive for the region. But China is a competitor to the rest of Asia as well as a market. It dominates trade patterns, especially as it moves up the value-added chain, making higher-value goods although it started from a low base.

Developing domestic demand iscrucialfor Asias national economies to succeed, said Brice. Korea and China are most self-sufficient; Singapore and Hong Kong are least. We expect China to continue to grow at 8 percent per year, although its banking sector is very weak. With the growing structural strength of Asias economies, and particularly Chinas, Brice predicts that Asia will surpass the West by the end of this century.