Global

Details

  • Industry: Chemicals & Performance Technologies
  • Type: Business and industry issue
  • Date: 11/29/2013

China’s chemical industry: the emergence of local champions 

China’s chemical industry
The Chinese economy has entered a unique stage of development. It is slowing, but in a controlled and more sustainable manner. This is the 'new normal', a period where China’s growth rate will be modest and a more mature economy will rebalance itself away from its investment-led model to focus on consumption and services. A key development in this current environment is the emergence of low profile but powerful chemical players known as 'local champions'. Both state-owned and private, these companies have large economies of scale, extensive portfolios through innovation, and a keen eye for overseas expansion.

The 12th Five-Year Plan: self-sufficiency and sustainability

China’s 12th Five -Year Plan (2011-2015) remains a sound reference point to predict the future of the domestic chemical industry. The Plan has demarcated seven strategic emerging industries, and four of these are directly related to the chemical sector: new energy sources, new materials, automotive manufacturing and green, energy-saving products. In addition, the 12th 5-Year Plan seeks to increase China’s self-sufficiency in chemicals and establish an environment that promotes sustainability.


Increased competitiveness

The competitiveness of Chinese companies has increased over the years, linked as it is with government policy and the transformation of the economy itself. Policy-makers have been trying to shift from an investment-driven model to a model based on raising domestic consumption and rebalancing the trade deficit through increased imports from advanced economies. At the same time, the information technology (IT) sector is growing exponentially, and the middle class population is now more environmentally conscious.


In terms of revenue, companies producing new synthetic materials are the most profitable, accounting for more than one fifth of sales revenue of the Top-500 companies. This segment is followed by basic chemicals, specialty chemicals and tire-makers. Significantly, the space for fertilizer companies has decreased, dropping from the front-runner to fifth position in the revenue scale.


Change in industry structure


Comparison of sales revenue


Unique characteristics of Chinese chemical companies

Historical data and development trends of top Chinese enterprises reveal certain unique characteristics that make chemical enterprises strong survivors and trend setters.


Scale of operations and strong product portfolio

Major Chinese companies have been able to establish vast scales of operations, conquering domestic markets and making inroads into global distribution channels as well. Some of these companies are scaling up and extending their industrial value chains, even while they support product quality.


Innovation through R&D

Another important characteristic of Chinese companies is their ability to innovate, spend on research and incorporate technological changes into their production processes. Enterprises are spending considerable resources and capital to manufacture new chemical materials used in information technology, aviation, aerospace, energy, automotive and green construction.


Quality and branding

Powerful Chinese enterprises have gradually changed their prioritization from product management to brand management and are in the process of internationalizing their business and improving quality.


Summary

In alignment with the 12th Five-Year Plan, the modern Chinese chemical industry is focused on the two pillars of self sufficiency and sustainability. This has encouraged the development of a large number of 'local champions' that represent formidable competition to global companies. While state-owned enterprises have scaled up their operations and ambitions abroad, private companies have also consolidated their operations, becoming more competitive and profitable and restructuring their management systems. The data of the last 10 years indicate that Chinese companies have graduated from makers of bulk chemical raw materials to upgraded products and are now keen to conquer overseas markets.


However, as the Chinese chemical industry grows bigger, it faces a number of increasingly complex challenges. From feedstock, overcapacity in petrochemicals and environmental sustainability to human resource issues, every level poses its own difficulties. There is still a long way to go, but the whole world should be aware that this is an era of rapid and far-reaching transformation for China’s chemical industry.

 

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