Skip to main content

China’s chemical industry: here and now

Hydrocarbon Engineering,


China is undoubtedly the world’s largest market, and McKinsey, in a new report titled, ‘winning the profitable growth game in China’s chemical industry’, has said that it is going to become a driver of approximately 60% of the world’s chemical industry growth. But, the report has also pointed out the draw backs of getting involved in the region. China’s chemical sector, does indeed benefit from a low cost base, advanced levels in some engineering and technology sectors and a great volume of some natural resources. However, as McKinsey point out, low end infrastructure, a scarcity of oil and gas feedstocks and a deficit in local support has left some sectors and commodities struggling to survive. McKinsey believes that as the country grows and attracts more competition, it needs to work on a strategy to improve business skills and innovate in order to remain competitive and adapt to the new world market. However, it is not just domestic Chinese companies that will have to change, McKinsey believes that large multinational companies active in the country will also have to adapt to help meet in the middle and satisfy local demands.

Industry overview

Since 2000, China’s chemical sector has more than doubled and the share of privately owned companies in that mix, jumped from 1600 to over 12 000, and it was the state owned companies that fell in this time, be it only from 7000 6380, this does however illustrate how incredibly fragmented the Chinese chemical company is, according to McKinsey. There are approximately 30 big companies in this mix but they only account for 10% of the market’s revenue. The top companies are, surprisingly, due to their smaller number, all state owned and focus mainly on commodities.

Despite the market being fragmented in its makeup, McKinsey has pointed out that ‘upstream petrochemicals and midstream products are highly consolidated.’ When it comes to this aspect of the industry, it is predominantly owned by Sinopec and PetroChina who McKinsey report to account for a heavy portion of the majority of the upstream petrochemicals segment. Overall though, the Chinese chemical sector underperforms.


China is still a net importer of chemicals as it seeks to cover the gap between supply and demand in the domestic market. The country, is however, according to the report a net exporter of specialities.

McKinsey believes that China is to remain a net importer as the country is short on oil and gas feedstocks and because the domestic chemicals industry is lacking in certain technology and application development capabilities to produce a selection of chemical products demanded by the Chinese market.

Emerging companies

Despite there being some hurdles for the Chinese chemical market to jump, the sector has some major global players, of which Sinopec and ChemChina are two. However, McKinsey has said that some of China’s small and medium Chinese companies are becoming and in some instances, ‘have become the most vibrant and competitive players in the industry, with a number of top ranking positions.’

Multinational corporations

There are several prominent multinational corporations (MNCs) in China’s chemical sector according to the report, such as BASF. However, it is now becoming more of a challenge for them to enter the market as China becomes more competitive and sets up higher entry barriers. China, according to the report is now encouraging domestic innovation and anti monopoly laws are coming in to play which will impact outside mergers and acquisitions as well as investments. Also, McKinsey has pointed out that it is becoming more expensive to do business in China due to the Enterprise Income Tax (EIT) Law.

Foreign investors, McKinsey says, are of course welcome in China and there are still some encouraging programs such as tax breaks and incentives. However, the Chinese government, McKinsey says, ‘shows a clear preference for MNCs that show a commitment to China, and that offer unique value propositions in their investments.’ For China, according to the report, this can be interpreted as feedstock access and advanced technologies at the top of the pile, followed by domestic employment, education and other social contributions that show a dedication to China.

Written by Claira Lloyd, based on a report by McKinsey.

Read the article online at:


Embed article link: (copy the HTML code below):