China Market Insider China Specifies its Development Plan for the Chemical Industry
China has published new important guidelines for further development of its chemical industry. The ‘Guidelines of the 14th Five-Year Plan for the Petrochemical and Chemical Industry’, were presented in a live internet broadcast on July 30. In it, the main guidelines of the 14th Five-Year Plan are specified in detail. Here are some important insights.
Beijing/China – The new five-year plan covers the period 2021 to 2025. Although not all targets are always met, the industrial policy targets are of enormous importance to all market participants in China, which is why the document is now often referred to as ‘one of the most important plans on earth’ abroad.
The reduction of overcapacities is once again mentioned in first place. Although China's economic growth has also slowed down in the Chemical Process Industry (CPI) compared to the past, the growth trend is still positive and market observers agree that it will remain so for the next five years.
In 2019, the Chinese chemical and petrochemical industry grew by 4.8 per cent as compared to the previous year. Due to its absolute size i.e. 12.27 trillion yuan or around 1.75 trillion dollars, the sector in China is currently growing annually by about the size of the entire Spanish or Brazilian chemical industry.
However, the growth is still very uneven. “While demand continues to exceed supply for some chemicals, such as propylene and polypropylene, there is a serious overcapacity problem in certain areas,” quotes one of the architects of the guidelines, Fu Xiangsheng. The production of nitrogen fertiliser, sodium carbonate, caustic soda or potassium carbide, for example, is now to be strictly controlled and reduced if possible.
In addition to the reduction of overcapacities, the focus is on upgrading the CPI as in previous years. Here, the guidelines in the petrochemical sector explicitly mention not only the olefin and aromatics industry, but also the coal chemistry industry. "Decisions on new production capacities must be taken with caution," states the document, for example, with regard to the coal-to-olefins and coal-to-glycol value chains.
Overall, therefore, the direction that the chemical industry of the Middle Kingdom has already taken in the 13th Five-Year Plan will continue to be followed – away from quantity and towards more quality wherever possible. The central planners are following important consumption trends.
While China's overall industrial policy aims to reduce the dependence of GDP growth on investment and to strengthen consumption, consumers are increasingly demanding higher quality products. One example of this is the boom in e-commerce and the food courier industry, which is boosting demand for biodegradable polymers.
On the other hand, the government's industrial policy, which aims to transform China from the ‘workbench of the world’ into a global player in high technology, is resulting in new demands from the chemical industry. Examples of this are the state subsidies for electric cars or the Chinese semiconductor industry.
The guidelines for the Petrochemical and CPI logically predict this time as a particularly intensive promotion of ‘new materials’. "During the 14th Five-Year Plan, it is necessary to make a breakthrough with urgently needed new materials in key application areas," state the bureaucrats.
The trade war with the USA and, more recently, the relative uncertainty of global supply chains, which became painfully apparent in the Corona crisis, are also reflected in the guidelines. China's ‘self-sufficiency’ in important chemicals is mentioned several times as an objective, for example in the case of ‘special engineering plastics such as Peen, Pen, PCT, special nylon and bio-based nylon’. Here China is still ‘blank’, this is the wording that is literally used.
On the other hand, in the traditional chemical industry, a ‘leading position on the world market’ has already been achieved almost everywhere, with the exception of potash fertilisers, almost half of which still have to be imported into China, states the guidelines.
Accordingly, in the area of traditional chemistry, the document again emphasises the goal of more environmentally friendly production, for example the prevention of mercury pollution in the chlor-alkali industry. The pesticide industry must produce more ‘friendly and innovative fertilisers’, adds the document.
The fact that Beijing continues to take environmental protection very seriously, and is not giving up in spite of Corona, is shown by the demand for further standardisation of Chemical Industrial Parks and stricter regulations for hazardous chemicals.
Overall, the directive makes it clear that the fundamental transformation of the chemical and petrochemical industry, which has already begun, will continue rapidly between 2021 and 2025. Foreign companies in China will have to adapt their strategies to the above-mentioned trends if they want to achieve sustained success in the world's most important growth market, the chemical industry.