By ELAINE KURTENBACH
The Associated Press
Tuesday, September 5, 2006; 4:57 AM

CAOJING, China -- Germany's Bayer expanded a massive new chemical plant Tuesday near Shanghai, part of a $1.8 billion integrated facility being built to keep up with soaring demand.

The complex to process various chemicals used in polyurethane and polycarbonates _ used in auto and furniture finishes, insulation and footwear _ is in an industrial park southwest of downtown Shanghai along Hangzhou Bay. It's expected to be fully completed by 2008.

Bayer (China) Ltd., a wholly owned subsidiary of the Leverkusen-based chemicals and pharmaceuticals company, says the three new production facilities that started operations on Tuesday are meant to assure the company a complete manufacturing base to meet demand in Asia, which is growing by more than 10 percent per year.

"In China, particularly, we are on the path of strong growth, supported by massive investments," Bayer AG Chief Executive Werner Wenning told reporters.

"It is our firm intention to continue to grow faster than the market and to further expand our presence in China," Wenning said.

Bayer is one of many companies that view China as indispensable for their businesses.

Last month, Germany's BASF AG, Texas-based Huntsman Corp., and three Chinese companies opened a $1 billion facility in the same Shanghai chemical park.

"The government is not putting many limits on investment in this industry, so it is enjoying strong opportunities and competition," says Kang Kai, an industry analyst at Guotai Jun'an Securities Co.

"China has a big potential market for chemical products and this will remain true for at least another five to 10 years," Kang said.

The $1.8 billion Shanghai complex, Bayer's biggest single investment ever, began initial production in 2003. With Tuesday's launch, it now includes an 80,000 tons per year isocyanate facility to process methylene diphenyl diisocyanate, better known as MDI, which is a key raw material for the polyurethane industry.

Bayer also inaugurated Tuesday a production unit for hexamethylene diisocyanate, or HDI, used in high-tech automotive and construction coatings, and a "world scale" facility to make Makrolon, a Bayer polycarbonate used to make CDs, DVDs and auto glazing, among other things.

China has welcomed such investments to help reduce its need for costly imports of raw materials and to bring its own antiquated industries up to 21st century standards.

With the economy growing at rates exceeding 10 percent a year, the need for key chemical inputs for various industries continues to soar. Shanghai, as an increasingly important hub for the auto, electronics and construction industries, has attracted billions of dollars in investments from many of the world's biggest chemicals companies.

To accommodate the capacity to meet expected demand, local officials say they are planning for the Shanghai Chemical Industry Park to eventually expand from its current 12 sq. miles to nearly 40 sq. miles.

Bayer reported that its sales in Greater China grew 24 percent in 2005 over the year before, to 1.26 billion euros, or $1.6 billion. Wenning said he expected growth on a similar scale for full-year 2006 and he expressed optimism that demand would continue to balance out rapidly expanding capacity for the chemicals industry.

"We estimate that demand here will grow at a rate of some 20 percent annually," Wenning said.

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