On August 25, 2023, the Ministry of Industry and Information Technology (MIIT), the National Development and Reform Commission, the Ministry of Finance, the Ministry of Ecology and Environment, the Ministry of Commerce, the Ministry of Emergency Management, and the All China Federation of Supply and Marketing Cooperatives jointly issued The Work Plan for Stable Growth in the Petrochemical and Chemical Industry (Work Plan), to promote the smooth operation and development of the petrochemical and chemical industries.
I. Background
China is a major country in the world’s petroleum and chemical industries, with an industrial scale ranking second in the world. China’s chemical industry ranks first worldwide, with sales revenue accounting for nearly 40% of the global revenue. In 2022, the gross production of China’s petrochemical and chemical industries reached approximately 4.9% of China’s GDP. The stable growth of the industries is of great significance to ensure the safety of the industrial supply chain and the stable operation of the industrial economy. Due to the global economic downturn, in the first half of 2023, the price of petrochemical and chemical products and enterprise revenue in China experienced a significant drop, more noteworthy than the national industrial average drop rate.[1] The Work Plan outlines measures for the stable growth of the industries for a two-year period from 2023 to 2024, provides solutions to current problems such as weak demand and supply tensions of production factors, and aims to promote the smooth operation and high-quality development of the industries.
II. Objectives
In light of the overall profit decline in the petrochemical and chemical industries, the Work Plan sets out the primary objectives for the stable growth of the industries from 2023 to 2024: (i) to maintain stable growth in the industries, with an average annual growth rate of industrial added value at around 5%; (ii) In 2024, the main business revenue of the industries (excluding oil and gas extraction) is to reach RMB15 trillion, with ethylene production exceeding 50 million tons and fertilizer production (converted to pure volume) stabilizing at around 55 million tons.
III. Measures
A. Promoting Investment
a. Accelerating major project construction
The Work Plan proposes the construction and EIS of more than five national major petrochemical projects currently under construction by the end of 2024, accelerating the evaluation of proposed major petrochemical projects, and promoting the commencement of a batch of “oil reduction and chemical increase” projects. The Work Plan requires each region to establish a rolling list (or library) of major projects, promote the construction of major projects in batches and the early construction, EIS, and profitability of projects under construction.
b. Promoting technological upgrades
China has been strengthening its energy efficiency control in high energy consumption sectors and promoting energy conservation and carbon reduction in major industries such as refining, ethylene, synthetic ammonia, and calcium carbide. Its aim for major industries is to make over 30% of their production capacity meet energy efficiency benchmark levels by 2025. The Work Plan continues energy conservation and carbon reduction policies in the petrochemical and chemical industries by applying energy efficiency and pollutant emission limits, and promoting energy conservation, pollution and carbon reduction reformation in areas such as refining, ethylene, p-xylene, methanol, synthetic ammonia, polyvinyl chloride and refined terephthalic acid. The Work Plan also plans to release intelligent manufacturing construction guidelines for the industries.
c. Promoting intensive and concentrated development
The Work Plan proposes to strictly follow the national development zone management system, improve the full lifecycle management of chemical parks throughout their establishment, expansion, adjustment and withdrawal, and upgrade their safety, clean production and pollution prevention levels.
B. Optimization of Production and Supply
In 2022, six departments including the MIIT issued The Guiding Opinions on Promoting the High-quality Development of the Petrochemical and Chemical Industry During the 14th Five-year Plan. This aimed to strictly control the new production capacity of refining and extend the petrochemical industrial chain, increase the supply capacity of high-end polymers and specialized chemicals, promote lightweight olefin raw materials, optimize the structure of aromatic raw materials, and improve the use of by-products such as C5 and C9.
The Work Plan continues the promotion of “oil reduction and chemical increase”. It encourages petrochemical and chemical enterprises to upgrade their product structure. It proposes to focus on demands in key industrial chains such as aerospace, electronic information, new energy, energy conservation and environmental protection, hydrogen energy and medical health and plans to support the industrialization of specialized chemicals including catalysts, special polyesters, membrane materials, new chemical materials, and key monomer raw materials.
C. Maintaining stable exportation and foreign investment
The Work Plan is the first official document issued in recent years by the central government to emphasize the promotion of foreign trade and higher-level opening-up in the petrochemical and chemical industries. It supports industry associations in leading the establishment of chemical trading platforms targeting RCEP member countries, and to conduct standard certification and brand registration for the chemical products of Europe, America, and RCEP member countries.
The Work Plan gives positive signals to attract and encourage foreign investment in the industries. It emphasizes to secure labor, logistics and other essential services for foreign-funded projects. It encourages foreign enterprises to leverage their advantages in raw materials, technology, and marketing to increase investments in petrochemicals, new chemical materials, fine chemicals, and green and low-carbon industries in China. It promotes the smooth implementation and stable operation of foreign-funded projects.
D. Maintaining stable production
The Work Plan emphasizes guarantees in key production factors. It encourages major coal and gas users in the industries to sign medium to long-term contracts with suppliers and transportation service providers to secure the stable supply of production factors at reasonable prices.
The Work Plan stresses the policy of excluding fossil fuels used as raw materials from total energy consumption and intensity controls[2], establishes carbon emission accounting systems, and refines market-oriented trading systems for energy use rights, water use rights, and carbon emission rights, so as to create optimum conditions to launch new high-quality projects.
E. Encouraging leading enterprises
The Work Plan supports leading enterprises to become leaders in the industrial chain. It promotes mergers and acquisitions in companies with different forms of ownership and across different regions, and to cultivate a batch of world-class comprehensive chemical or integrated energy enterprises.
It also aims to encourage leading enterprises and small and medium-sized enterprises to conduct collaborative research in essential blocks of the key supply chain, to integrate small and medium-sized enterprises in leading enterprises’key supply chain management systems, and to guide the improvement of quality, standard and R&D management systems.
IV. Safeguarding measures
A. Enhancing policy coordination
The Work Plan requires local governments to prioritize stable growth in the petrochemical and chemical industries through local policy support and implementation.
B. Refining fiscal policy
The Work Plan proposes to improve the consumption tax refund approval process for naphtha used as a raw material.
It also encourages the use of various financial tools to accelerate petrochemical industrial reformation, and supports research in key materials, common technologies, major equipment, and industrial control software as well as model industrial applications.
C. Safeguarding services
The Work Plan puts forward a series of safeguarding services, including: (i) requiring local governments to establish a whitelist of key enterprises in the industry chain, and improving the direct service mechanisms for such key enterprises; (ii) strengthening the service and guidance of projects for high-end petrochemical and chemical products such as new chemical materials and electronic chemicals, and pilot projects, accelerating the project approval process; (iii) encouraging projects that are coupled with renewable energy resources and have their comprehensive energy efficiency per unit product superior to benchmark levels; (iv) emphasizing national professional emergency rescue capacity building and supporting petrochemical and chemical enterprises to form full-time fire brigades and refine their emergency response capabilities.
V. Epilogue
By issuing the Work Plan, the central government has released an important policy signal to boost the development of the petrochemical and chemical industries, which is conducive to reverse revenue decline and maintain stable industry growth from the second half of 2023 to 2024. Although the Work Plan is expected to raise confidence in the industries, as a high-level policy document, it is more of a framework regulation rather than a detailed guide. We understand that the implementation of relevant policies and the effects thereof still depend on specific implementation regulations and rules. Enterprises and investors are advised to monitor the regulatory developments of regulatory authorities and the issuance of local policies to refine their understanding of the policy benefits.
[1] China Petroleum and Chemical Industry Federation: Interpretation I of the Work Plan for Stable Growth in the Petrochemical and Chemical Industry, available at: https://www.miit.gov.cn/jgsj/ycls/ghzc/art/2023/art_ba6bfd6cd75a4815a8ae23e4ce8d96e4.html (in Chinese); National Bureau of Statistics of China: The Profit of Industrial Enterprises Above Designated Size Decreased by 15.5% from January to July 2023, available at: http://www.stats.gov.cn/sj/zxfb/202308/t20230827_1942335.html (in Chinese).
[2] “Fossil fuels used as raw materials” refers to fossil fuels not used as fuel or power, but as raw materials for the production of non-energy products. Coal, petroleum and natural gas used to produce olefins, aromatics, alkynes, alcohol and synthetic ammonia for non-energy purposes, are examples of fossil fuels used as raw materials. In China, local governments are subject to total energy consumption and intensity control indicators. Total energy consumption and intensity controls may become important factors that restrict proposed high energy consumption projects from getting local approval. The policy of excluding fossil fuels used as raw materials from total energy consumption and intensity control helps guarantee the energy use rights of projects using fossil fuels as raw materials.
