Throughout the globalization process of the world chemical industry chain, the chemical industry chain has experienced a gradual transfer from Western European capitalist countries to North America; Transferred to Eastern European countries represented by the Soviet Union during World War I and World War II; During the Cold War, the industrial chain gradually shifted to the east, including Japan, South Korea and some countries in Southeast Asia. After the end of the Cold War, the chemical industry chain entered a stage of rapid development, and China became the mainstream chemical producer in the development of the industry chain. Up to now, the development of chemical industry chain has formed a new pattern and new trend of bipolar development. In the process of promoting the globalization of chemical industry, western multinational chemical enterprises have played a leading role, mainly through two ways: foreign investment and construction of plants and merger and acquisition of integrated chemical industry chain globalization.
From the perspective of global chemical production value, the total value of the world chemical market in 2018 is 3,348 billion US dollars, and in 2019 it will be about 3,415 billion US dollars. China has become the largest producer of chemical industry. In 2019, China’s chemical industry output value reached 1.198 billion US dollars, accounting for about 36% of the global total. It is estimated that by 2030, China’s single country’s chemical industry output value will reach 50% of the global total.
In terms of growth in chemical production, China is also the world’s largest contributor to chemicals (excluding pharmaceuticals) (see chart 1). In other major countries and regions, the year-on-year change was particularly obvious in the United States, where the decline in production growth was mainly due to the weak domestic demand in the automobile industry, agriculture and construction. In addition, U.S. chemical exports to China have dropped sharply because of the trade conflict between the two countries. Chemical production in the EU has fallen for two consecutive years. Chemical production in South America also declined by 2.0% in 2019 due to the overall weak economic environment. In contrast, chemicals production in emerging Asia rose 4.0%, slightly higher than expected, thanks largely to continued growth in China.
The way of competition in the world chemical industry chain has gradually changed from technology competition to cost-technology competition in the 21st century. Resources and market have become the main direction of chemical industry chain globalization layout.
For countries and regions with energy advantages represented by North America, the Middle East and Russia, the abundant upstream resources create cost-centered competitiveness for them. The middle and lower reaches are becoming more competitive in consumer regions, including North America, Europe, and East Asia, including China. In the new round of competition, the pattern that once relied on technology threshold to obtain competitive advantage will change into the pattern of cost and technology competition in the next decade.
In terms of the proportion of R&D investment in multinational chemical companies, the proportion of direct R&D investment in major chemical sectors as a percentage of sales in the past five years is very low compared to that of large companies in other industries or technology-based enterprises. This is directly related to the industrial chain and the global expansion and industrial transfer of chemical enterprises. Transnational chemical enterprises are accustomed to the convenience of global production and have a strong interest in the research and development of downstream applications with high benefits and low risks. New modified materials and formula products emerge one after another. But basic research and development has slowed, and entirely new small molecule or polymer products are becoming harder to see. In the past two decades of globalization, all the top energy and chemical companies, including ExxonMobil, BASF and DuPont, basically did not launch new compounds and disruptive materials. Instead, they occupied the market in the globalization process and gained the maximum profits through low-cost competition and application development.
According to the World Development Report 2020: Global Value Chains, Trade for Development released by the World Bank in October 2019, more than 50% of current world trade involves global value chains (GVCs). The center of gravity is East Asia/Pacific, Europe/Central Asia and North America, which are interwoven with each other. The participation of East Asia/Pacific and Europe/Central Asia in GVCs is mainly within the region, followed by mutual participation between the two regions, and the dependence of the above two regions on North America is very low. However, North America has a low regional proportion of participating in GVCs and a high degree of dependence on East Asia/Pacific and Europe/important.
The other four regions, Middle East and North Africa, Latin America/Caribbean, South Asia and Sub-Saharan Africa, have a small proportion of the value chain within the region, while their dependence on East Asia/Pacific and Europe/Central Asia is quite high. The four regions above participate in GVCs. The largest partner is Europe/Central Asia, followed by East Asia/Pacific, while North America has a relatively small proportion.
In 1995, the three regions were centered on Japan, Germany and the United States, according to the WTO’s Global Trade Matrix study. In 2017, the East Asia/Pacific region was centered on China, while the Europe/East Asia region remained centered on Germany, but its importance was reduced. North America is still centered on the United States. But both Europe/East Asia and North America are highly dependent on China for trade. This shows that China’s position as a hub in the global value chain is quite strong.
In May 2020, the British think tank Henry Jackson Society released a report titled “How the Five Eyes Alliance Can Get Off the Chinese Industrial Chain”, which also showed that Australia, New Zealand, the United States, Canada and the United Kingdom are highly dependent on the Chinese supply chain. This also fully demonstrates China’s pivotal position in the global supply chain and industrial chain, which is difficult to change in the short term.
In terms of the chemical industry, the total trade volume of the chemical products sector between China and the United States in 2019 was US $70.6 billion, down 12.6% from 2018. It accounts for 80.7% of the total trade volume between China and the US in the petroleum and chemical industries. China’s bulk chemical imports from the United States can be divided into two categories: bulk petrochemicals and fine chemicals. China’s demand for LPG is increasing year by year, but its imports from the United States have decreased significantly in the past two years. In 2019, the import value is only 1.2 million US dollars, accounting for 0.01% of the total. Propane international trade flows and prices will be dynamically rebalanced by the constant allocation of international markets. Most of the top 10 chemical products imported by China from the US by value are technology-intensive products. Among the top ten chemical products exported from China to the US, rubber products (including shoes and boots) and plastic products account for a large proportion, which are non-technology-intensive products. Therefore, China and the United States are typical of complementary trade, not competitive trade. This is also the result of the competitive division of labor in the process of chemical industry globalization in the past 30 years, so as to gain different competitive advantages in the chemical industry chain of China and the United States.
In general, the trade war between China and the United States will not have a big impact on the domestic supply of bulk petrochemical products; The price of imported fine chemicals may rise in the short term, but in the long term, it is conducive to promoting the upgrading of the domestic chemical industry.
In the face of the uncertainty brought by the escalating trade frictions between China and the US since 2018, some multinational companies have considered and started to move their manufacturing and supply chains outside China (the Asia-Pacific polycentric strategy) to avoid the relevant geopolitical policy uncertainties. The huge impact of the new epidemic on the global industrial chain is more likely to be a catalyst for the transfer of the industrial chain. However, this trend is not the mainstream according to the summary of various information at present.
At present and in the future, three types of industrial chain transfer will occur at the same time: industrial transfer caused by rising production costs; The industrial transfer caused by the improvement of the competitiveness of local enterprises; Industrial relocation to avoid policy risk or political uncertainty. Despite an aging population and the increase of labor cost makes China’s competitive advantage in some labor-intensive low-end industries declined, but China’s huge talent reserves and increasing r&d input is from the traditional “demographic dividend” to “engineer dividend”, and this advantage is other emerging economies rely on low-end Labour incomparable, is a great power to promote China’s industrial upgrading. Thus, only the third type of industrial transfer is likely to have an adverse impact on the Chinese economy.
China’s current bulk chemical exports to the United States will face the problem of partial industrial transfer in the future, which is conducive to China’s industrial upgrading. No matter how the Sino-US trade friction evolves, the industrial transfer of these products is a high probability event, and the trade war between China and the US will only accelerate the process of industrial transfer.
It is worth noting that these industries will not all move out of China, only labor-intensive parts of production such as the end production of footwear, as well as parts needed to meet demand in overseas markets. In the above areas, domestic enterprises face more challenges than opportunities, so they should seize the time to upgrade their industries and improve their competitiveness. Export-oriented enterprises can consider moving their factories to Southeast Asia.
The chemical industry is a very important pillar industry in the national economy, and many industries are dependent on the product support provided by the chemical industry, which involves almost all industrial products and consumer goods. From the perspective of the position of China’s manufacturing industry in the global industrial chain, the automotive industry and the electronics industry will face industrial transfer, which will have the most obvious impact on China’s chemical industry.
In recent years, state-owned enterprises represented by Sinopec, CNPC, CNOOC and Sinochem have accelerated their layout in the upstream petrochemical industry, while private enterprises represented by Zhejiang Petrochemical, Hengli Petrochemical and Shenghong Petrochemical have also quickly built the whole industrial chain with the help of the integration project of refining and chemical industry. It can be predicted that in the next five to ten years, China’s chemical market will present the era of private, state-owned and foreign investment, and the development, production and sales with Chinese customers as the core, as well as the establishment of the standard system will breed China’s leading enterprises. The private sector is expected to become more active around 2025, taking up 60 percent of the market share of China’s petrochemical industry.