Against China’s “anti-involution” backdrop, the chemical industry is likely to see a pick-up in prosperity. Leading enterprises, with advantages in technology, scale and resources, may benefit significantly, such as expanding market share and increasing profit margins.
In general, there are several top-down directions to seize the opportunities of “anti-involution” in the chemical industry. For example, the continuous advancement of dual control over carbon emissions means chemical enterprises need to more strictly control carbon emissions in production and adopt cleaner production technologies; higher requirements for energy consumption levels urge enterprises to improve production processes and reduce energy consumption per unit of products; the elimination of old and backward production capacity can reduce ineffective supply in the industry and avoid resource waste and vicious competition. From the bottom-up perspective, attention can be paid to the self-discipline opportunities of the industry after the improvement of industrial concentration, such as leading enterprises taking the lead in formulating industry norms to avoid market disorder caused by low-price dumping.
The following four aspects may affect the pattern of the chemical industry:
- The stricter approval of new projects. Relevant departments will conduct stricter reviews from environmental protection, energy consumption, market demand and other aspects, which may slow down the growth of new production capacity and reduce the pressure of overcapacity in the industry.
- The transformation of old devices. Enterprises upgrade old production devices by introducing advanced technologies, which may improve production efficiency, reduce energy consumption and pollutant emissions, bring positive changes to the supply side, and enhance product quality and market competitiveness.
- The industry conducts self-discipline and tries to “anti-involution”. Enterprises strengthen communication and cooperation to jointly maintain market price stability, avoid disorderly competition and form a benign market environment.
- The continuous improvement of energy consumption standards on the supply side. Enterprises that do not meet the standards will face the pressure of rectification or withdrawal from the market, which is expected to promote the optimization of the overall supply structure of the industry and concentrate industry resources on efficient and environmentally friendly enterprises.
The policy deployment of “anti-involution” is advancing continuously, and its importance is also increasing. It is not only related to the healthy development of the chemical industry, but also of great significance to the adjustment of the national economic structure and green development.
In July 2024, the concept of preventing “involutionary” vicious competition was put forward for the first time at the meeting of the Political Bureau of the Communist Party of China Central Committee, which kicked off a series of anti-involution policies. This round of anti-involution policies takes “promoting the construction of a unified national market” as the core task, aiming to break local protectionism and market segmentation and allow resources to flow more freely and efficiently across the country. At the same time, it emphasizes the “orderly withdrawal of backward production capacity” by formulating clear standards and timetables to promote the gradual withdrawal of high-energy-consuming, high-polluting and low-efficiency production capacity from the market; “green technology transformation” encourages enterprises to increase investment in research and development and application of environmental protection technologies and energy-saving technologies to achieve sustainable development. According to the characteristics of supply pattern, various chemical sub-industries respond to the call of anti-involution policies in different ways. Some sub-industries closely follow policy guidance and timely adjust production plans and development strategies; some sub-industries carry out coordinated production reduction through consultation between enterprises to balance market supply and demand; others hold industry meetings to unify ideas and jointly formulate industry development plans.
Looking back at history, every supply constraint has led to a rise in chemical prices.
The supply-side reform starting at the end of 2015 had a profound impact on the chemical industry. In the process of reform, by eliminating backward production capacity and integrating resources, the prices of chemical products at that time gradually rose, and the profits of enterprises were also restored. With the continuous implementation of relevant policies in the petrochemical industry, more and more backward production capacity was eliminated, the production efficiency and product quality of the industry were improved, and the industry prosperity slowly recovered. In 2021, the implementation of the dual control policy on energy consumption led to a reduction in supply. At that time, the chemical industry was already in an upward cycle of prosperity, and the reduction in supply pushed it to a climax. The prices and price differences of many products hit new highs in recent years, and many enterprises thus obtained considerable benefits. From this, it can be seen that if there are policy-driven supply constraints in the future, such as further improving environmental protection standards and restricting the production of high-energy-consuming capacity, chemical prices may rise due to reduced supply.
From the current situation, the chemical industry is in the bottom area, with the overall development of the industry being relatively flat and the profit space of enterprises being relatively limited. The implementation of the “anti-involution” policy may change this situation and lead to a rebound in chemical prices.
On the demand side, China and the United States have initially reached an agreement, which creates a relatively stable environment for the trade of chemical products between the two countries, and the international trade environment is still under control. From the PMI index, the global manufacturing PMI in 2025 is approaching the boom-bust line from the bottom, indicating that the downward trend of manufacturing industry has slowed down and the global economy has shown signs of gradual recovery. Domestic and overseas investment and consumption have shown a steady recovery trend. Domestically, the government has introduced a series of policies to stimulate investment and consumption, promoting the development of related industries such as infrastructure construction and real estate, which in turn drives the demand for chemical products; with the gradual recovery of the economy, the overseas market’s demand for chemical products is also increasing.
On the supply side, the pace of new domestic production capacity put into operation has slowed down, which reduces the pressure on the growth of market supply. The implementation of “anti-involution” is also expected to help eliminate backward production capacity on the supply side, reduce low-level redundant construction and vicious competition, thus promoting the repair of supply and demand relations, balancing market supply and demand, and leading to a recovery in industry prosperity.