Entering a more competitive world
All these factors provide favorable conditions for multinational companies, but the changes that are taking place in China also bring new challenges.
First, China’s chemical industry is entering a new stage of development. From the rash expansion in the early 21st century, the chemical industry has now entered a period of integrated and more selective growth, and the restrictions on foreign investment have also increased. As mentioned earlier, overcapacity is now a challenge in many product areas. Now, any international company that wants to invest will face a more selective assessment from the Chinese authorities. International companies that do not have access to raw materials or technology that China lacks may not be very popular.
Second, as the growth of the commodity market slows, more Chinese companies are expected to turn their business to specialized areas of the market. There are quite a number of successful Chinese players in the professional field, and this group is growing rapidly. For example, China’s flavor and fragrance market leader Bairun, Yantai Wanhua, isocyanate manufacturer, and vitamin producer NHU Zhejiang. Chinese companies have developed competitive processes for a range of products including xanthan gum and glyphosate, and low-cost technologies have helped them become undisputed market leaders in the vitamin C field. At the same time, many Chinese companies are good at reverse engineering products produced by international companies. Chinese enterprises will make concerted efforts to enter the high-end market and combine it with the advantages of local enterprises. Most importantly, compared with imported enterprises, Chinese enterprises have lower production costs and easier to establish relationships with key customers – both of which are trumps in a slower and more competitive environment.
Third, China’s environmental awareness is growing, and new investment in chemical facilities may be subject to increasingly fierce competition from local residents. After the protests, more and more planned chemical projects have been withdrawn or modified (the number doubled in the second half of 2012), and a “not in my backyard” mentality is becoming more and more common. Compounding the challenge is China’s rapid urbanization, which could force many chemical plants to move to make way for the expansion of residential areas. Increasing pressure in this area poses a further challenge to international players, who often do not have local networks to help them deal with such problems.