Sustainable, long-term growth expected for China | KPMG | GLOBAL

Sustainable, long-term growth expected for China chemicals

Sustainable, long-term growth expected for China ...

“Slow but steady wins the race” might not be the official motto of Chinese policy makers, but it reflects a prudent, sustainable long-term perspective that the county’s economic policies appear to support.


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In 2014, the major economic indices for China have showed moderate declines, a pattern that some analysts expect to continue through at least 2020.1 Nevertheless, GDP growth is expected to remain above 6.5 percent, well above that of developed countries.

National policies to support business

China is now in the fourth year of its 12th Five-Year Plan, which is focused on the promotion of sustainable growth, industrial upgrading, and domestic consumption. Four industries directly related to the chemical sector are benefiting from the Plan: new energy sources, new materials, automotive manufacturing and green, energy-saving products.

A number of government policies support:

  • Innovation in the financial services sector.
  • A unified and open market, a market-based pricing mechanism, and further decentralization.
  • Increased international trade and outbound investment.
  • The private economic sector, which is being given new room to grow with the reform of state owned enterprises (SOEs), the opening of monopoly industries, and the introduction of new tax deduction and exemption rules.
  • Domestic demand.

10 percent growth expected for chemicals

China’s chemical industry will likely continue a period of slower but solid growth, analysts say. The American Chemistry Council expects production in China to increase 8.5 percent in 2015 compared with 8.8 percent in 2014 and 8.5 percent in 2013.2 Both KPMG and the China Petroleum and Chemical Industry Federation (CPCIF) forecast production growth in the chemical sector of around 10 percent for 2014 and 2015.3

Increase in foreign direct investment

Foreign investors in the chemical industry have cited a number of obstacles to doing business in China, including increased costs, talent recruitment and retention, growing competition from Chinese companies, and licensing. In addition, multinational companies are encountering increased competition from “local champions” in the Chinese chemical industry.

That being said, China continues to provide significant opportunities for foreign multinational chemical companies. Total foreign direct investment (FDI) increased by 5.5 percent year-on-year in 1Q, 2014. The service sector saw a double-digit year-on-year growth, although the manufacturing sector continues to decline. Western and central China FDI growth significantly outpaced the eastern region.

Coal to olefins

One of the major developments for Chinese chemicals today involves coal-to-olefins (CTO) production. China faces a huge energy demand to support GDP growth and imports still represent more than half of China’s oil consumption. Accordingly, the Chinese government is supporting policies to exploit the country’s rich coal resources and develop a major CTO chemicals industry. More than 120 CTO chemical projects in China have already been announced.

Conclusion: factors for future growth

For 2014, the news is generally positive for the Chinese chemical industry. The sector is maintaining growth a few percentage point points above the country’s GDP growth rate. Industry scale continues to expand. Innovation is increasing, and the industry’s infrastructure is supporting higher levels of productivity, efficiency and cost-effectiveness. Downside risks include profitability declines, overcapacity in certain sub sectors, an insufficient supply of high-end products, and increased regulatory pressures to save energy and reduce carbon emissions.

If you have any questions, please contact:

Norbert Meyring

+86 (0)21 2212 2707


1Outlook 2014: Looking Forward, Chemical Week, April 2014


3CPCIR, KPMG research

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