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Chemical sector needs to climb up the value chain
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China’s economy is going through a transition from an investment-led, export-oriented growth model to a domestic consumption-led pattern with more emphasis on the services sector. Industrial restructuring is an important mandate. Outdated production methods will be phased out in 19 sectors, which could trigger a near-term growth reduction but lead to a major improvements in the country’s long-term prospects.
The chemical industry is an important pillar of the government’s sustainability targets, especially with greater use of new materials and advanced polymers that go into energy-saving products. China’s 12th Five-Year Plan envisages a consolidation of the quite fragmented sector, upgrading partly outdated production facilities and moving up the value chain by producing higher-value products. The actions and efforts to reach these goals are ongoing.
The China chemical industry is maturing and is entering into a new phase of slower but solid growth. In my opinion, it will grow by an estimated 9 percent to 11 percent during the period 2013 to 2015, a much more sustainable pace compared to the previous boom years. The growth forecast is based on a GDP growth rate of 7 percent, along with current urbanization trends, infrastructure plans, ambitious sustainability targets and a large middle class driving demand for consumer products, autos, information technologies and electronics.
Along with setting up mega-production bases and expanding product range, Chinese companies have begun to innovate and are swiftly incorporating technological changes into their production processes. In fact, it can be said that overseas investments have now reached a turning point, with a number of companies promoting their brands in the global market and assessing overseas acquisitions.
The large Chinese petrochemical companies that previously targeted big-ticket acquisitions are now considering mid-cap foreign assets to provide them with specific technology and international marketing networks.
Chinese companies have reached a certain stage of development and are now exposed to global competition. Chemical companies are expected to respond to this challenge. Driven by these forces, the industry is trying to restructure itself to become more competitive. This is evident from the emergence of the synthetic materials and specialty chemicals segments, and from the marginal retreat of basic chemicals.
The modern Chinese chemical industry is based on the two pillars of self-sufficiency and sustainability. This has thrown up a large number of local champions who represent formidable competition to global companies. While state-owned enterprises have scaled up their operations and ambitions abroad, private companies also have consolidated their operations and restructured their management systems to become more competitive and profitable.
Chinese companies have graduated from makers of bulk chemical raw materials to upgraded products. However, as the Chinese chemical industry grows bigger, it faces a number of increasingly complex challenges. From feedstock to human resources issues, every level poses its own difficulties.
Although China is trying to plan ahead by securing cheap feedstock supplies in the form of coal chemicals or gas-based cracker plants, this may require a massive technological overhaul and will need time and investment.
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