Opportunities for China's Fine Chemical Industry amid RCEP
Click:0    DateTime:Jan.18,2023

By Shen Guiying and Ma Teng, China National Chemical Information Center

On January 1, 2022, the Regional Comprehensive Economic Partnership (RCEP) officially took effect, marking the formally launch of the free trade zone with the largest population, largest economic volume, economic and trade scale, and the most development potential in the world. The RCEP countries account for about 30% of the world's population and 30% of gross domestic product (GDP) and export scale. The launch of the RCEP agreement will further promote the integration of industrial chains and value chains in the region, inject strong impetus into regional economic integration, trade liberalization, and globalization, and bring development opportunities as well as new challenges to China's fine chemical industry.

Current situation of fine chemical industry in China

China has already become a major producer in traditional fine chemicals, such as pesticides, dyes, pigments, medicines, coatings, etc., and played a pivotal role in the global industrial chain and supply chain. However, China still needs to rely on imports for high-end products in some fields. China's self-sufficiency rate is relatively low in fine chemical products in new fields, and still needs to rely on imports to meet downstream production needs.

In recent years, the domestic supply and demand of pesticides have been basically stable. Considering the zero-growth and negative-growth of pesticide policy, export trade becomes a major way out for the development of the pesticide industry. According to data from the National Bureau of Statistics, China's pesticide export was positive in 2021. Although the export volume has declined, it still exceeds 2 million tons. In the meantime, due to the increase in export prices, the export value had a year-on-year increase.

As a major producer of dyes and pigments, China is an important participant in the global industrial chain and supply chain. According to the data from China Dyestuff Industry Association, the output of dyestuffs in China has remained at 800 000 t/a to 900 000 t/a, and the output of organic pigments has been at 200 000 t/a to 300 000 t/a in recent years. According to data from the China National Coatings Industry Association, the net export volume of China's inorganic pigment titanium dioxide and iron oxide in 2021 was 1.26 million tons in total.

China is a major exporter of pharmaceutical raw materials. According to the data of the China Chamber of Commerce for Import and Export of Medicines and Health Products, the export of chemical raw materials in China has continued to grow over the years, except for a slight decline of 1% to 2% in 2015 and 2016, increasing from US$15.98 billion in 2010 to US$35.7 billion in 2020. The export value of APIs in 2021 further increased to US$41.7 billion.

In 2021, the total output of China's coatings was about 38 million tons, and the export volume was basically the same as the import volume, about 210 000 tons. At present, the current situation of China's coatings industry is that the low-end production capacity is oversupplied, but the high-end production capacity is insufficient. From the perspective of the average price of import and export products, the average price of imported coatings in 2021 was about 2.3 times that of export products.

In 2018, China's import dependence of electronic chemicals was as high as 39%. In 2021, Shanghai and other places have established innovative research and development institutions for electronic chemicals to strengthen research and development, increase innovation, and strive to improve the self-sufficiency rate of electronic chemicals.

Opportunities and challenges faced by China's fine chemical industry

1. Help fine chemical companies to develop new markets

According to China Customs statistics, in 2021, China's imports and exports with the other 14 RCEP members reached RMB12.07 trillion, an increase of 18.1%, accounting for 30.9% of China's total foreign trade value. Among them, exports were RMB5.64 trillion, an increase of 16.8%. Imports were RMB6.43 trillion, an increase of 19.2%. ASEAN remained as China's largest trading partner. In 2021, China's import and export to ASEAN reached RMB5.67 trillion, a year-on-year increase of 19.7%. Japan was China's fourth largest trading partner, with a trade volume of RMB2.4 trillion in 2021, a year-on-year increase of 9.4%. South Korea was China's fifth largest trading partner, with a trade volume of RMB2.34 trillion in 2021, a year-on-year increase of 18.4%.

In 2021, the foreign trade of China's petroleum and chemical industry maintained a high speed growth, and the total import and export volume hit a record high. According to customs data, the total import and export volume of the whole industry was US$860.08 billion, accounting for 14.2% of the total import and export volume of China, a year-on-year increase of 38.7%. Among them, the total export value was US$295.55 billion, an increase of 41.8%. The total import value was US$564.54 billion, an increase of 37.1%. The trade deficit was US$268.99 billion, an increase of 32.3%.

The major import ASEAN countries for fine chemical products from China are Indonesia, Vietnam, Thailand, Malaysia, the Philippines and Singapore. The imported fine chemical products include pharmaceuticals (analgin, vitamins, penicillin, streptomycin, tetracycline, etc.), dyes ( disperse dyes, direct dyes, reactive dyes, etc.), pigments, coatings (acrylic resin paints, polyurethane paints, etc.), inks, fragrances, leather chemicals (synthetic tanning materials, inorganic tanning materials, enzyme preparations, etc.), surfactants, adhesives (polyamides, epoxy resins), enzyme preparations, information chemicals, forestry chemicals (pine oil, wood tar, rosin), textile printing and dyeing auxiliaries, paper chemicals, metal surface treatment agents, lubricating oil additives, rubber additives, catalysts, construction chemicals (superplasticizers), water-soluble polymers (polyacrylamide, polyvinyl alcohol), food and feed additives (methionine, lysine, choline, lecithin, sucralose, sodium glutamate, vitamins, feed grade calcium hydrogen phosphate, etc.), etc.

The fine chemical products that China imports from Japan include medicines (antibiotics, cements for teeth or bones, etc.), dyes, pigments, coatings (solvent-free coatings, acrylic coatings, epoxy resin coatings, polyester coatings, fluororesin coatings, formulations driers, etc.), electronic chemicals (encapsulation materials, photoresist dry film), information chemicals, adhesives, printing inks, ink jet inks, surfactants, disinfectants, textile printing and dyeing auxiliaries, paper chemicals, leather chemicals, metal processing aids, lubricating oil additives, rubber additives, plastic additives, catalysts, polymer synthesis additives, construction chemicals, food additives and feed additives, etc.

The fine chemical products that China imports from South Korea include pharmaceuticals (antibiotics, etc.), dyes (reactive dyes, fluorescent whitening agents, etc.), pigments, coatings (solvent-free coatings, acrylic coatings, prepared drier, etc.), electronic chemicals (packaging materials, photoresist dry film), printing ink, leather chemicals, surfactants, adhesives, information chemicals, textile printing and dyeing auxiliaries, paper chemicals, leather chemicals, metal processing auxiliaries, lubricating oil additives, rubber additives, plastic additives, catalysts, polymer synthesis additives, construction chemicals and food additives, etc.

2. Beneficial for companies to reduce operating costs

(1) Purchase low-tariff raw materials and reduce raw material costs

China is the most important driving force for the growth of Indonesia's palm oil export, and has already been Indonesia's largest palm oil export destination. Thailand's industry is export-oriented, and its main exports include rubber products, polyethylene, propylene raw materials, integrated circuits, chemical products, and refined oil. In 2020, Thailand exported 6.94 million tons of cassava, with an export value of 82.313 billion baht (about US$2.45 billion). The big exporting amount of Malaysia's products include petroleum products, palm oil and its products, chemicals and chemical products, and rubber products. In 2020, chemical products accounted for 15.8% of Singapore's main non-oil exports; Cambodia also has rubber exported.

(2) Global invest and make full use of local superior resources

The RCEP agreement has created a more stable and transparent investment environment for Chinese manufacturing enterprises, and will further accelerate the pace of Chinese enterprises "Go global" in ASEAN, Japan, South Korea and other regional members. The RCEP agreement has further reduced investment barriers in the region and accelerated the integration of resources. Chinese fine chemical companies can actively expand their presence in ASEAN countries.

In textile industry, Vietnam has issued the Development Plan of Textile Industry until 2020 and Looking forward to 2030. Larger Chinese investment projects in Vietnam include Sepzone-Ling Trung Export Processing Zone, Longjiang Industrial Park, Shenzhen-Haiphong Economic and Trade Cooperation Park, Texhong Hai Ha Industrial Park, Sailun (Vietnam) Co., Ltd., Bros Eastern Co., Ltd., Texhong Textile Group Limited, Shenzhou International Holdings Limited, etc.

The Malaysian government encourages foreign investment in the manufacturing sector. At present, foreign investment has become an important factor in promoting Malaysia's economic development. In 2020, foreign investment in Malaysia's manufacturing sector was mainly concentrated in industries such as electronic appliances, petroleum products, basic metal products, papermaking, and machinery and equipment.

The two pillars of Cambodian industry are the garment industry and the construction industry. Cambodia makes full use of preferential policies such as the Generalized System of Preferences (GSP) granted by 28 countries and regions including the United States, the European Union, Japan, etc. and actively attracts foreign capital to invest in the garment and footwear industries through its low labor costs. The Sihanoukville Special Economic Zone invested in Cambodia led by Jiangsu HOdo Group is one of the first overseas economic and trade cooperation zones of the Ministry of Commerce of China.

International multinational companies investing in Brunei include Zhejiang Hengyi Group Co., Ltd., Shell Group, France's Total, Japan's Mitsubishi Gas, and Japan's Indochu Corporation. In recent years, China's direct investment in Brunei has been increasing, mainly including Zhejiang Hengyi Group, Guangxi Beibu Gulf International Port Group, etc. In Thailand, Zhongce Rubber (Thailand) Co., Ltd. settled in the Thai-Chinese Rayong Industrial Park.

3. Facing the market competition of imported products and the risk of trade friction of exported products

China's fine chemical industry will face more intense competition from RCEP member countries, and member countries such as ASEAN, Japan, and South Korea will also directly enjoy the benefits of accumulation rules in the RCEP agreement, including tariff concessions and origin. Japan and South Korea have leading advantages in high-tech and capital-intensive products, and some Chinese fine chemical products will face competition from Japanese and South Korean products.

Chinese enterprises may encounter unfair competition, such as dumping when actively expand imports and exports. Enterprises should take good use of the measures allowed by the agreement, such as trade remedies, to safeguard their legitimate interests.

Development proposals

1. In-depth study trade policy

At the beginning of the implementation of the RCEP agreement, Chinese fine chemical enterprises should familiarize themselves with the preferential tariff commitments of RCEP countries as soon as possible, seize the opportunity of high facilitation of regional trade, and expand the export of superior products and the import of high-quality commodities. Enterprises should carefully study the country-specific tariff concessions with RCEP member countries according to their own business development direction, implement policies according to countries, make use of their strengths and make up for their weaknesses, and focus on expanding the import and export of key products. Enterprises should make in-depth analysis and research on key products and key country market lists to receive reference for enterprises to develop markets. At the same time, enterprises should also pay close attention to the implementation of facilitation commitments such as customs procedures and inspection and quarantine in RCEP countries, and use the efficiency of regional logistics customs clearance to achieve continuous growth of new foreign trade formats such as cross-border e-commerce.

2. Accelerate the high-quality development

China's fine chemical enterprises must devote efforts to improving quality standards and promoting products and services to a new level, and must carry out international advanced industry benchmarking with enterprises in RCEP member countries, increase investment in technological transformation and upgrading, apply advanced and applicable technologies to update equipment, and improve industrial basic capabilities. At the same time, it is necessary to correctly understand the competition brought about by the high-standard opening of RCEP, accelerate the pace of transformation and upgrading, improve the level of grasping international rules, enhance the ability to prevent risks in the international market, and make preparations for the challenges. Enterprises should pay attention to scientific demonstration and risk prevention and control, formulate more reasonable international business strategies, transform the urgency of transformation and upgrading into the excellence of practical actions, accelerate technological innovation, and enhance core competitiveness.

3. Explore the rational layout of global industries

Enterprises should take active actions in "Go global" strategy, strive to explore trade and investment cooperation with regional countries, and participate in the competition of a broader international environment. Enterprises will receive stronger protection when investing overseas and providing cross-border services thanks to the high openness and transparency of RCEP's service trade and investment commitments. Enterprises should seize the opportunity of the opening up of RCEP member countries, combine their own advantages and characteristics, promote the integrated development of manufacturing and high-end service industries, and improve their position in the value chain.

The RCEP agreement has opened up a large market for China's fine chemical industry, as well as brought competition for high-end products from developed markets in the region. China's fine chemical enterprises should strengthen the division of labor and cooperation with enterprises in RCEP member countries, optimize the production system, build an industrial chain and supply chain with mutual benefit and win-win result, and work together jointly to grow and develop.