• Roland Berger study: Chinese chemical market expected to grow 6 percent per year between 2020 and 2025
• Five-Year Plan targets the production of high-grade industrial goods
• Industrial gases will be the fastest growing segment through 2020, expanding by 9 percent per year
• Petrochemicals constitutes the biggest market in terms of volume and looks set to top EUR 203 billion by 2025
• Specialty chemicals and digitization open up new opportunities for international companies in the Chinese market

Munich, October 6, 2016

China has set itself new guidelines for the period through 2020 in its 13th Five-Year Plan. The country's desired transformation toward a more consumer and import oriented economy will also have an impact on the chemical industry. The chemical market in the People's Republic is expected to see annual growth of 6 percent a year between 2020 and 2025 assuming China realizes the envisaged reforms. By 2025, the Chinese market volume could total EUR 1.3 trillion as a result – one third of global revenues. These are the key findings of the latest Roland Berger study entitled "Keep the dragon flying".

"If China is consistent in implementing the reforms announced in its Five-Year Plan, the chemical industry will reap the benefits," said Frank Steffen, Partner at Roland Berger. "After all, the market in the world's most populous country is going to continue its rapid growth in the coming years, albeit not quite at the pace of the past decade. Some of the announced reforms affect local suppliers directly. On a global level, however, what will be much more significant is how the new rules will affect the industries supplied by chemical companies."

Central aspects of the Five-Year Plan affect the construction industry, for example. New standards in this area also entail consequences for numerous local and international chemical suppliers – including manufacturers and suppliers of high-grade plastics, paints and coatings, or specialty chemicals.

What China needs to do first, though, is master the challenges it faces. These include production overcapacities. "High levels of investment in past years have created substantial oversupply in the Chinese chemical industry. Production of a whole range of end products or intermediates such as nylon 6, caprolactam and chlorine is nowhere near capacity right now," explained Steffen.

Growth is highest in industrial gases – petrochemicals remains the sector with the highest revenues

Of all the industry segments, the Roland Berger experts envisage the greatest growth in industrial gases. The market will climb 9 percent a year from 2015 to reach EUR 85 billion by 2020. "In its Made in China 2025 strategy, China already set itself the goal of closing the gap to the leading industrialized nations. In order to achieve that, the engineering and electronics sectors will switch from mass-producing goods to manufacturing more cutting-edge technology. This will feed demand for industrial gases, especially ultra-pure gases," explained Frank Steffen. Also set to benefit strongly are the paints and coatings segment (8% per year), agrochemicals (7.5% per year) and flavors and fragrances (7.5% per year).

With an anticipated volume of EUR 203 billion by the year 2025, petrochemicals remains the highest-revenue sector in the industry. "Petrochemicals will continue to make up some 17 percent of the total market volume. China is particularly encouraging the production of standard and high-grade polymers and synthetic rubbers. These materials are mainly destined for use in the manufacturing of innovative and high-quality products," explained Roland Berger Partner Steffen.

The agricultural sector in the People's Republic of China is also set to benefit from new and efficient technologies. Fertilizers (a market worth EUR 167 billion in 2025) will keep its second spot among the highest-revenue segments in the chemical market. Here, the increase in revenues is less volume and more quality driven. Suppliers will, for example, be able to provide specially blended compounds to precisely match the specific soil conditions encountered and seeds being planted in a given scenario.

New market opportunities for foreign suppliers

Although the Roland Berger analysis indicates stable growth in China, the positive trend is slowing in comparison with the boom years between 2010 and 2015. This downturn could ramp up the competition and ratchet up the price pressure for companies in the chemical industry. If China succeeds in transforming its economy as per the Five-Year Plan, international corporations will find new opportunities opening up to them. "The demand is moving away from mass-produced goods toward specialty chemicals like pesticides, electronic chemicals and special polymers. New opportunities will arise here for international suppliers. One way for them to seize these opportunities will be to enter into alliances with Chinese firms that already have a strong position in the market," said Steffen.

Companies can also expect to do well with digital innovations. "China announced its Internet Plus action plan back in the spring of 2015. The associated focus on connected production and data driven business models is also of interest to the chemical industry," explained Frank Steffen. "The digital transformation will give companies an edge in productivity and efficiency – if they want to survive in the hotly contested Chinese market, suppliers will have to be open to the latest developments."