Despite the current slowdown in China's economic growth and the many challenges faced by the Chinese chemical industry, it will still be the leader in global chemical industry growth. IHS Markit recently stated that although the growth rate has slowed down, China still accounts for more than half of the world's chemical demand growth and is the fastest-growing market, still favored by multinational companies. Meanwhile, over half of global chemical exports will still be directed towards China. 

Absolute demand expansion

Paul Pang, Vice President of Chemicals Business at IHS Markit, stated that the Chinese economy experienced a significant slowdown from 2015 to 2016. However, due to the implementation of fiscal and monetary stimulus measures by the Chinese government, it is expected that the actual GDP growth rate in China will reach 6.8% in 2017, slightly higher than the 6.7% in 2016. The growth mode of China's economy and chemical market will undergo a substantial transformation, shifting from capital and supply driven during supply shortages to demand driven.  

At the same time, the Chinese government has launched two major growth plans, namely, the "the Belt and Road" initiative to realize China's connectivity and cooperation with Central Asia and Europe, aiming at comprehensively improving the "Made in China 2025" strategy of the national manufacturing industry. IHS Markit predicts that the "new normal" of the Chinese economy may continue beyond 2020, and the growth of the chemical industry will shift from quantity growth to quality growth. The growth rate of demand for major basic chemicals in China has decreased from 9% in 2013 to 6% in 2016, consistent with the slowdown in economic growth. In the next four years, the average annual growth rate of China's demand for major chemicals will remain at 5% to 7%, lower than historical growth levels. But China is currently the world's largest consumer and producer of basic chemicals, and even if the growth rate slows down, the actual growth rate will continue to expand due to the already large demand scale.

Pang stated that in the future, China's self-sufficiency rate in chemicals will continue to increase, and the proportion of imported chemicals will decrease, but the absolute import volume will continue to grow.  

Continued investment by multinational corporations

IHS Markit stated that in the past 20 years, multinational companies have been optimistic about the development of China's chemical industry and will continue to strengthen their business expansion in China in the future.

The large-scale expansion of the petrochemical complex jointly owned by Shell and CNOOC in Huizhou, China is nearing completion. Through this expansion, the annual ethylene production capacity of China National Offshore Oil Corporation (CSPC) will increase to approximately 2 million tons. CSPC will also use Shell process technology to build China's largest epoxy propane styrene plant, with plans to start production in 2018. Graham van't Hoff, Executive Vice President of Shell's Global Chemicals Business, said, "This project is both a continued commitment to the Chinese market and highlights our confidence in the strong growth potential of the Chinese chemicals market

AkzoNobel announced in July that it plans to double the production capacity of its organic peroxide plant in Ningbo over the next two years to meet market demand and achieve growth. The company is also building an organic peroxide plant in Tianjin, expected to start production by the end of 2018. Lin Liangqi, President of AkzoNobel China Business, said, "A series of investments in organic peroxides will further expand our market and consolidate our position as the world's number one in this field." In recent years, AkzoNobel has invested in building multiple coating production bases in China.  

The investment direction has changed

The investment in China's chemical industry is also undergoing significant changes. After five years of rapid expansion, investment in unconventional raw material chemicals has begun to decline since 2015. Pang stated that oil and gas investment and unconventional raw material chemical investment will further contract in the next two years. However, low crude oil and naphtha prices make investing in petrochemical projects more profitable, which in turn drives a surge in petrochemical projects. This trend is expected to continue beyond 2020, when new petrochemical projects are expected to reach a historic high and investment will peak.

Pang pointed out that after years of development, China's chemical industry has become more self-sufficient. According to IHS Markit statistics, China's dependence on foreign technology in the chemical industry is now very low, as China has established strong technological development capabilities and has a large pool of highly skilled and relatively low-cost employee resources. China can now manufacture most of the equipment in the chemical industry, with only a small portion needing to be imported. Combining domestic technology, Chinese chemical enterprises have a stronger investment cost advantage, and in some cases can even compensate for the disadvantage in raw material costs. Therefore, multinational corporations may face greater competitive pressure in China than ever before.

Reprinted from China Chemical News