New Chemical Materials Industry Makes Technology Breakthroughs
Year:2018 ISSUE:3&4
COLUMN:FINE & SPECIALTY
Click:334    DateTime:Feb.07,2018

New Chemical Materials Industry Makes Technology Breakthroughs

By Dong Peng, Li Yuanyuan, Xue Siyu

Developing new materials

The market prospect of China’s new chemical materials is bright, with the average market growth rate in recent years remaining at 10% and the growth of some important new materials even exceeding 20%. The consumption of new materials in sectors like engineering and daily necessities will continue to increase, and the market space is expected to expand even more. Some new chemical materials have become quite mature now. The supplies of some basic products are not adequate to the demand, and the supply shortage of some products even exceed 50%. At the meantime, high-performance membrane materials, special rubber, high-performance fluorine-silicon materials and high-end fiber materials have become four major products constraining the development of China's emerging industries of strategic importance and the industry restructuring and upgrading.
   According to the Report on the Development Trend of China's New Chemical Materials Industry from 2016 to 2022 and the Investment Direction during the 13th Five-year Plan Period (2016-2020), the self-sufficiency rate of high-end products of China's new chemical material industry is low. And according to the statistics of the Customs, China’s trade deficit of chemical materials totaled US$136.08 billion in 2016. It is estimated that during the 13th Five-year Plan Period, the output value of new chemical materials in China will exceed RMB340 billion, and the self-sufficiency rate will rise to 81%. By 2020, the self-sufficiency rate will exceed 90%. The technology is also developing at the same time, as bottlenecks like ion exchange resin, carbon fiber, ceramic separation membrane, halogenated butyl rubber and dynamic vulcanized rubber TPV have been broken through, and several sets of demonstration plants have been built. China now has thousands of kinds of new chemical products in more than a dozen categories, including fluorosilicon organic materials, synthetic rubber, engineering plastics, polyurethanes, high performance fibers, nanomaterials and inorganic functional materials.

The bottleneck of the new chemical materials industry

   In the field of new materials, there is still a big gap between China and the developed countries. The situation in China is that only very few products have independent intellectual property rights; the transformation and industrialization of scientific and technological achievements are lagging behind; the technical content and added value of products are low; the industry is less integrated; and the companies are in small size and lack of competitiveness.
   First, the enterprises are in three tiers, and the gap between each tier is very large. The first tier consists of a small number of foreign-invested (including Taiwan-funded) enterprises. It is characterized by its complete industrial base, large-scaled plants, high technical level and strong sales capability. These companies occupy the high and mid-end markets with high-quality basic products and modified products, and constantly develop new products. The companies in second tier are state-owned enterprise, including CHEMCHINA and some small and medium-sized Sinopec subsidiaries. They entered the market earlier and have thus accumulated certain industrial experience. They also have complete industrial base, scales plants, strong accumulation of technology and personnel reserves, and standard operation and management. However, the mechanism of these enterprises is rigid, some of their products are still low-end, and the profits obtained are not stable enough. The third tier is composed of a large number of small and medium-sized private-owned chemical companies. They usually have weak industrial base, small plants and low-leveled technology. However, they are flexible in management, sensitive to changes, and fast in entering the market. Some of them have scaled production of low-end products, while most of them are end market players. Some of such enterprises have showed great potential of rapid growth by forming joint ventures or strategic alliances with the first-tiered foreign-funded enterprises. And a small number of large and medium-sized private enterprises have begun to pay attention to the high-end markets of basic chemical products and modified products of new chemical materials and are engaged in large projects now.
   Second, Chinese enterprises are always in the disadvantaged position of the industry chain. Foreign competitors either gain high profits by monopolizing the Chinese market or restrict their exports to China. They also transfer low-end technologies and equipment to Chinese companies and shift the focus to high-end products while gaining profits from the transfer. China has taken active measures to deal with such matters, which has played a positive role in many industries such as organic silicon and bisphenol-A.
   Third, backward industrial organization leads to weak product matching capabilities. The scale of China's new chemical material enterprises is generally too small to form a product matching and marketing network within them, resulting in an interruption of the product chain. The backward industrial organization not only increases transaction costs and transportation costs, but also reduces the comprehensive utilization of products, making it difficult to achieve technology breakthroughs and technology transfer via the alliance of the enterprises.
   Fourth, high operating costs increase the burden on enterprises. The financing costs are increasing due to the environmental issues and falling profits. The rising logistics costs, electricity prices and steam prices in some chemical parks have put a lot of pressure on enterprises. Meanwhile, the safety and environmental protection costs are also going up.
   Fifth, the lack of innovation ability and technical resources makes the industrial restructuring and upgrading difficult. Although the government attaches great importance to the development of the new chemical material industry and organizes to tackle hard nut problems in technology, there are still bottlenecks not easy to be broken through, which becomes the biggest constraint on the development of the new chemical material industry. As the enterprises, usually small-sized, do not have strong research and development capabilities, especially in the high-end product sectors, they are thus heavily dependent on imported products. And most of the home-made products are in single variety and general grades. The market is short of domestic high-performance special grades. Such situation also leads to the issue of structural overcapacity and excess of low-end products.

A historic opportunity from the market demand

   China imports a large amount of new high-end chemical materials each year, restricting the transformation and upgrading of traditional industries and the rapid development of emerging industries. In order to speed up the healthy development of China's chemical materials industry, the following measures should be taken:
   First, innovating research and development model to improve the technological level of enterprises: 1) focus on the industrialization of basic products of new chemical materials and achieve continuous and stable production of engineering plastics, specialty engineering plastics, high performance fibers and other important products; 2) emphasize on the high-end and serialized products and improve the R&D and industrialization of downstream product chains such as fluoride silicon materials, electronic chemicals, and high-performance membrane materials; 3) pay high attention to the technology and new products of new chemical materials (for instance, the inorganic ceramic membranes are becoming one of the important high-performance membrane materials); 4) integrate all resources to strengthen the industry-university-research cooperation and the research should, with enterprises as the main body, center on the market demand and be evaluated according to the market effect.
   Second, insisting on the opening up and encouraging enterprises to go international. On the one hand, we must allow foreign advanced enterprises to "come in" and encourage cooperation between Chinese companies and foreign enterprises. On the other hand, with the promotion of The Belt and Road, Chinese enterprises should be encouraged to "go out" to make full use of global resources, including mineral resources, technical resources, market resources and human resources.
   Third, optimizing the layout of production capacity and promoting the integrated development of the industry. It is necessary to develop large-scale international enterprise groups and establish chemical industry clusters around these large enterprises. The upstream and downstream of new chemical materials are strongly correlated, and the establishment of chemical industry clusters can greatly reduce the transportation costs and help enterprises to match their products and thus enhance their competitiveness. In addition, we will speed up the transformation of standards and strengthen the setting of application standards.
   Fourth, improving the macro-control and alleviating enterprises’ cost burden: 1) deepen the proactive fiscal policies and increase the tax reduction for enterprises under the situation of sluggish market demand and falling profits; appropriately promote the special return of some financial funds to push forward the construction of safety facilities; 2) raise the financing efficiency and stabilize or reduce the loan interest rates for the enterprises; 3) strengthen the cost accounting of water, electricity, transportation and other public resources to avoid unilateral price increase; 4) reinforce environmental protection and public infrastructure construction, vigorously develop third-party supporting industries, exert economies of scale and reduce the costs of enterprises.
   Fifth, setting up special technical projects to strengthen the support. New chemical materials are typical technology and capital-intensive industries. As China's overall technology resources are still relatively backward, and enterprises’ capital strength is also weak, the government should increase financial input and policies support, especially for following key sectors: the fluorine chemical industry, the research and development of fourth generation of refrigerant, the fluoropolymer materials in emerging industries like new energies; production of organosilicon monomer via direct oxidation of silica, and domestic engineering plastics. To support the leading enterprises is also a must.