As per a new report, there is overcapacity in several sectors of China’s chemicals industry, including PVC, ethylene derivates, polyester and coal-to-chemicals projects. Excess manufacturing capacity in China is increasing trade tensions with the rest of the world and holding back innovation and development of the country’s domestic industries according to the report by European Union Chamber of Commerce in China as reported in Plastics News. It said China is pursuing self-sufficiency in chemicals production, in spite of global oversupply in some industries, and said the problem is fuelled by local governments that want to promote their own chemical industries and by smaller firms operating “outside state supervision.” The report notes that the Middle East is leading in capacity expansion in some areas, such as ethylene, and will have low-cost feedstock advantages. That suggests that the decision of Chinese firms to expand could lead to a “tough challenge” for them, the EU report said. The European report said the Chinese government considers overcapacity to be a serious problem and has taken steps to curb it, but the EU group recommends that the country step up efforts to boost domestic consumption, promote a vibrant services sector and encourage market-driven consolidation.
The report says that overcapacity is a major factor holding back China’s sustainable development, leading to more environmental problems and lower profits, and less research and development spending for Chinese firms.
The study shows that the subtle and far reaching impact of overcapacity is affecting dozens of industries and damaging economic growth not only in China but worldwide. Domestically, excess capacity squeezes profit margins, hampers innovation and prevents the emergence of true local champions, while on the global stage its influence is clearly seen in the rise in trade tensions between China and its major trading partners.