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That fiscal cliff? Dow Chemical says China's a bigger worry

Andrew Liveris, Chairman and CEO of the Dow Chemical Company, participates in a group discussion on "Business by Design: Business with Integ
Andrew Liveris, Chairman and CEO of the Dow Chemical Company, participates in a group discussion on "Business by Design: Business with Integ

By Ernest Scheyder

NEW YORK (Reuters) - Many executives say they're anxious about the U.S. fiscal cliff negotiations, but Dow Chemical Co's chief executive says he's more bothered by the messy Chinese leadership transition, which he believes is wreaking greater harm on global markets.

"Markets have, in a holistic sense, really been suffering more from China's slowdown than any slowdown here in the United States," Andrew Liveris said during the company's investor day in New York on Monday.

China, Dow Chemical's second-largest market by sales, unveiled its new leaders in November after months of speculation about who would assume top roles, as well as controversy about widespread corruption among government officials and the cooling growth of the country's economy.

The leadership transition has been "very uncomfortable" for the Chinese and has "created a disruption to their supply chains and created a pause" in economic growth rates, Liveris said.

"We'd been used to double-digit growth rates in plastics now in China now for the better part of a decade, and now that's slowed to stopped in this last six months."

Dow has about 2,000 employees and more than seven manufacturing sites in China. The company doesn't break out specific sales numbers by country, but the Asia Pacific region posted sales of $10.55 billion in 2011, roughly a sixth of total revenue.

Dow Chemical has seen sales of packaging and other consumer products begin to improve in China in recent weeks, but for 2013 the company expects Chinese GDP growth of only 6 percent to 7 percent, "which is way lower than it normally is," Liveris said.

"We're not planning on any big bounce back (in China), because inventories are staying low," he said. "But there is the beginning of a return to buying power."

BELIEVES FISCAL CLIFF DEAL POSSIBLE

The United States has been a "bright spot" in the past four months because cheap natural gas from fracking helps Dow Chemical sell American-made plastics and other products to other countries, Liveris said.

U.S. companies, including Dow Chemical, have become conservative with cash out of concern U.S. politicians won't reach a deal on the so-called "fiscal cliff," a combination of government spending cuts and tax increases due to be implemented under existing law in early 2013 that could tip the U.S. economy back into recession.

U.S. politicians have been fighting over a deal, and that uncertainty creates a "haze, which needs to be dismissed as fast as possible," said Liveris, who sits on U.S. President Barack Obama's advanced manufacturing partnership committee.

"We are optimistic that we won't go off the cliff," he said. "We remain convinced that there will be a solution that will help appease markets."

ASSET SALES

Liveris has been trying to bolster sales amid the economic uncertainty and cut the company's $20.4 billion debt load.

Earlier this fall Liveris said he would close 20 plants and cut 5 percent of Dow Chemical's workforce to offset the slowing global economy. Liveris also slashed the company's research and development spending.

Liveris had warned at the time he might sell additional assets, and on Monday he confirmed that in the next 12 months he would also sell $1 billion of Dow Chemical assets that currently bring in roughly $1 billion in annual revenue.

Liveris declined to say which assets he will sell, but said it makes more sense for Dow Chemical to invest its money in growth projects, like its Enlist agricultural chemical, rather than slow-growth areas.

"Companies our size, we don't want to cut into muscle and bone," Liveris said. "But in this new world order if you take the view that we've taken that the world is slow and going through massive uncertainty, then you are being more conservative."

(Reporting By Ernest Scheyder; Editing by Bernard Orr)

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