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The chemical industry has once again experienced a “year of deficitâ€
The chemical industry has once again faced a "year of deficit," standing in contrast to China's long-standing trade surplus. Historically, the chemical sector has consistently shown a significant trade deficit. Over the past three decades of reform and opening-up, China’s petroleum and chemical industries have made considerable progress, with their import and export activities achieving remarkable growth. The structure of exported products has evolved from a resource-intensive model to a more diversified one, incorporating both labor-intensive and technology-driven products.
In 2007, China’s total chemical import and export volume reached $319.79 billion, marking a 25% year-on-year increase, with a 4.3 percentage point rise compared to the previous year. Despite this impressive growth, the trade deficit in the oil and chemical sector remains a persistent issue, even growing larger over time.
According to Feng Shiliang, deputy secretary-general of the China Petroleum and Chemical Industry Association, although exports grew faster than imports in 2007, the overall deficit still expanded. Notably, pesticide exports surged by 20.1% in volume, reaching 477,000 tons, while export value jumped 30% to $1.35 billion.
A key trend in 2007 was the improvement in the quality of trade growth. Exports of high-tech and high-value-added chemicals saw significant increases, such as specialty chemicals, which rose by 153.2%, contributing $11.794 billion or 13.63% of total chemical exports. In contrast, the import of synthetic resins slowed to 5.4%, while exports of these materials grew by 33.3%.
Meanwhile, some high-energy products saw a decline in exports. For example, soda ash exports dropped by 5.7%, and liquid caustic soda exports fell sharply by 53% compared to the previous year. However, certain sectors like dyes and pigments saw modest growth.
China’s chemical trade also showed strong performance in specific areas. For instance, DAP exports increased by 150.8% in 2007, reaching 1.971 million tons. Despite this, the overall trade deficit in the chemical industry continued to widen, reaching $116.23 billion in 2007, up 10.7% year-on-year.
Feng Shiliang pointed out that rising crude oil imports are a major driver of the deficit. Additionally, domestic production of certain organic chemicals and synthetic materials fails to meet demand, leading to increased imports. In 2007, the crude oil trade deficit stood at $78.03 billion, accounting for 67.13% of the total chemical trade deficit. High oil prices further exacerbated the situation.
Another factor is the dominance of low-tech, low-value exports, while high-grade synthetic resins and fiber monomers are primarily imported. This imbalance contributes to the trade deficit.
From a global economic perspective, China’s chemical industry suffers from an unbalanced industrial chain, with many products still being general-purpose and energy-intensive. Fluctuating oil prices and uneven resource distribution also create uncertainty.
International activities, such as mergers and acquisitions, give foreign companies a competitive edge, while Chinese firms need to improve their competitiveness.
Experts also warn that the REACH Regulation, set to take effect in June 2008, could significantly impact China’s chemical exports to Europe. A drop of 44.49% in tire exports to the EU in June 2007 due to REACH demonstrates this risk. Once implemented, REACH will require registration of over 30,000 chemicals, affecting nearly all Chinese exports to the EU. This could raise costs for Chinese importers, weaken product competitiveness, and potentially lead to closures of smaller firms.
To reduce the trade deficit, experts suggest focusing on deep-processing chemical products, developing emerging industries like coal chemistry and biochemistry, and improving the technological content of exports. In 2007, new product output increased by 50.7%, showing positive signs.
Controlling overcapacity in certain sectors is also crucial. The yellow phosphorus industry serves as a cautionary tale, where oversupply led to falling prices and losses. With rapid investment growth in the sector, it is essential to manage capacity and ensure sustainable development.
Export companies must enhance their competitiveness, adopt a “go global†strategy, and build integrated upstream-downstream structures to reduce costs and risks.
Finally, responding to REACH regulations is critical. Domestic companies should actively prepare for pre-registration, with the China Petroleum and Chemical Industry Association working to support enterprises in navigating these challenges.