PEP Review 2006-1
PEP Cost Index—China East Coast
Published: March 2006
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.