A long-awaited US$4 billion petrochemical complex will be built by the China National Offshore Oil Corp (CNOOC) and Shell Chemicals -- a member of the Royal Dutch/Shell group -- in Guangdong Province.

The government is pleased with the timing, as the country is preparing to enter the World Trade Organization (WTO).

Wei Liucheng, CNOOC president, and Evert Henkes, Shell Chemicals' CEO, signed a contract on Saturday for China's largest foreign-funded project in the presence of Li Peng, chairman of the Standing Committee of the National People's Congress.

The scheme will see the production of 2.3 million tons of high-grade petrochemical products every year. China imports 3-4 million tons of such petrochemical products each year to meet domestic demand which continues to rise. The joint venture, which should reduce the dependence on imports, is expected to go into operation in 2005.

Analysts said they have great potential for further co-operations the two companies need each other. CNOOC plans to be listed on major overseas stock markets while Shell is consolidating ties with various Chinese partners to expand business in China, the world's largest emerging market.

The joint venture, whose yearly sales are expected to be US$1.7 billion, will be built in the Daya Bay Economic and Technical Development Zone in Huizhou, about 80 kilometre from Hong Kong.

A cracker, a special machine which can divide and reshape chemicals, will produce 800,000 tons of ethylene a year. It may be the largest of its kind in China and will be the project's centrepiece. Furthermore, patented high-tech will be used to ensure the scheme produces competitive quality products.

CNOOC is one of China's most successful and reliable co-operators with foreign firms while Shell is a leading technically and financially strong oil giant. They are expected to run the joint venture well together in order to help upgrade the landscape of China's petrochemical sector.

The plant, which CNOOC and Shell executives promised would conform to environmental standards, is expected to boost the economy in Guangdong, especially in Huizhou, which is well known for its ambitious programmes for rapid economic growth and social development.

Henkes said he was confident the venture would be a success. Production costs would be low as most materials, equipment, services and employees will be sourced locally, he said.

The joint venture, Shell's largest investment in a single project, is expected to create at least 1,500 jobs. Shell, which has co-operated with CNOOC for two decades, has already invested US$1 billion in China, excluding investment in this venture.

Lu Ruihua, Guangdong governor, said provincial authorities will try to improve the investment environment for the project. He promised preferential policies including rent reductions, priority to be given in terms of power and water supply, and an elimination of red tape.

Major construction work is expected to kick off in early 2003.

China Petrochemicals Investment Ltd, in which CNOOC has a 90 per cent stake, has half of the shares in the joint venture and Shell Nanhai Ltd - a subsidiary of Royal Dutch/Shell group - the rest.

China's petrochemical industry is expected to be more competitive after WTO entry as it will not rely on protection from the government against foreign products as heavily as it used to, said Henkes.

Experts believe the project will spur the development of local processing, manufacture and service industries. It will also encourage foreign investment into the petrochemical industry in Guangdong.

The project was first conceived at the end of the 1980s. After marathon negotiations between Shell and CNOOC, the two partners signed a framework agreement in 1998.