Skip to main content Skip to Footer


The future of China's chemicals industry

Speculation about China’s future growth raises important questions for the chemical industry.

China has been at the center of a great deal of discussion about global economic performance, and there has been significant speculation about China’s future growth. These issues raise a number of important questions for the chemical industry.

A key question is, will China be able to import and consume chemicals at past growth levels? The answer is, it depends on the overall world economy, according to our analysis. China’s recent lackluster performance has for the most part been due to poor world economic performance. China is a key input-output engine for consumer goods—when the world consumes less, that engine slows. As Figure 1 shows, China’s decline in trade is clearly related to world trade, as China is only responsible for about 12% (1Q 2015) of world trade. The economies of Europe, the U.S. and Japan have much to do with the slowdown.

Many observers pin their hopes for growth on Chinese personal consumption, but that is still not a very significant factor. Looking at the components of China’s GDP, it is clear that investment is still key, and net trade is also a significant driver.

Personal consumption as a GDP component has been growing at a slightly elevated pace of about 8.7 percent per year over the past five years, but its impact is still small. In general, it seems likely that future chemical demand growth will be linked primarily to manufactured exports—and thus, to the worldwide economy.

Another key question is whether the Chinese residential construction bust means long-term stagnation. But residential work is only part of the construction market, and its share of the total has actually declined from 54% in 2000 to an estimated 35% in 20151, as shown in Figure 2.

At the same time, the overall construction market has grown steadily, and significant industrial infrastructure spending is still needed. So the types of chemicals required for construction may change as that shift continues, but the prospect for overall demand remains positive.

The Chinese market is evolving in other ways as well. For a while, durable goods accounted for a growing share of manufacturing output. However, that growth peaked at 51% in the third quarter of 2011, and it has since dropped to 43% in the first quarter of 20152.

Basically, the slowing of the world economy is affecting China’s progress toward creating higher value goods. This will in turn affect the demand for specialty chemicals associated with those goods. Looking ahead, China’s growth in durable goods is likely to be less than rapid because of the high level of expertise in areas such as robotics and automation required to compete in the global durable goods arena.

A final question is, what should chemical companies do? Our analysis suggests that they recognize the significant impact of the world economy on China. But they should also remember that China still represents the largest growing commodity market in the world. With that in mind, they can continue to develop their commodity markets in China, while preparing for the return of a healthier world economy that should re-energize China growth.

1Based on Oxford Economics data.
2Based on durable and non-durable goods figures form Oxford Economics. Automotive vehicles were added to durable goods.