Hormuz showed baseline thinking in action: petrochemical capacity holding firm under blockade; it also showed how far the most advanced materials remain out of reach
When the Hormuz Strait effectively closed in April 2026, Beijing rode out the oil-price shock better than its Asian neighbours, and in doing so helped shape how the shock played out worldwide. Crude imports fell from around 11.7 mb/d in February to under 9 mb/d by late May, drawing on strategic reserves that had reached some 1.4 billion barrels.
That single adjustment accounted for close to three-quarters of the fall in global crude imports. Analysts at JP Morgan and Société Générale identified Beijing’s drawdown of inventories as one of the principal reasons Brent held near US$100 rather than spiking toward the US$200 some had forecast. The 1973 embargo cut around 7 percent of global supply and roughly quadrupled the price. The Hormuz disruption put a far larger share at risk, about a fifth of world flows, yet once reserves and rerouting absorbed the shock, the net cut was nearer 14 percent and the price settled about 30 percent higher.
Beijing planned for this. The war marks a lasting change in how oil is priced, argues CNPC (China National Petroleum Corporation) chief economist Wang Zengye 王增业: bloc trading, rising marine insurance and resource nationalism are lifting the underlying oil price over the long run, and the trend will hold for some time. The PRC guards against this by relying less on what passes through the chokepoints. Electric vehicles displaced almost 70 million tonnes of petrol and diesel in 2025; domestic crude output reached a record 216 million tonnes; reserves stood ready. When Hormuz closed, that buffer, not the risk premium, set the price the rest of the market paid.
That logic explains what the PRC petrochemical sector looks like from the outside: an industry building furiously while losing money. It is dominated by CNPC, Sinopec (China Petroleum and Chemical Corporation) and CNOOC (China National Offshore Oil Corporation), the ‘three barrels of oil’, as well as specialised chemical group Sinochem. Private firms have also lifted their share of capacity from around 24 to 38 percent between 2020 and 2025.
On paper, the sector looks to be struggling. Sector profits fell 6.4 percent in 2025 to C¥454 bn (~US$63 bn), a fourth straight annual decline, and the industry-wide margin has slipped to just 4.5 percent. Yet the same industry now makes around 42 percent of the world’s major chemical products and recorded C¥14.5 tn (~US$2 tn) in revenue in 2024, up 45 percent on 2020.
PRC share of global basic chemicals
On a longer view, profit was never the binding objective. With traditional drivers of oil demand plateauing and set to peak in the years ahead, planners want to move the sector from a petrochemical ‘large nation’ to a ‘powerhouse’, whatever the short-term returns. What Hormuz showed is that the overcapacity, whatever its origins, has become insurance.
how oil and gas become petrochemicals
building through the slump
Total ethylene capacity (the feedstock behind most plastics, packaging and synthetic fibres) exceeded 63 million tonnes a year by 2025, around 1.8 times the 2020 level, and another 60–70 million tonnes is due over the 15th 5-year plan. The build-out continued through a demand slump: the property downturn gutted polyethylene and PVC orders, electric vehicles displaced some 28 million tonnes of petrol and diesel in 2024 alone, and the naphtha-ethylene spread has sat near a loss-making US$200 a tonne. CNPC’s Dai Jiaquan 戴家权 sees a further 15–20 percent fall in refined-fuel demand by 2030.
Exports have become the relief valve, and with them the dumping charge. Producers across Europe, Japan, South Korea and Southeast Asia are shutting or idling capacity, much of it citing PRC competition, with Japan alone set to cut national ethylene capacity by nearly 30 percent. The US, EU, Japan and India have opened anti-dumping investigations into PRC chemicals.
Beijing rejects the dumping framing. Ultra-low export prices, on its account, are a byproduct of involution, the ruinous internal price competition the anti-involution drive is meant to discipline rather than a weapon aimed at international rivals. The traffic runs both ways: Beijing opened its own probe into Japanese chemical imports in early 2026. Yet its stated cure, to turn rising volumes and falling prices into higher-value sales, is harder to square with a purely defensive reading.
The targets are ambitious. Refining capacity is capped at one billion tonnes a year, refiners under 2 million tonnes face closure, and Xi Jinping’s July 2025 call to retire backward capacity gives the campaign top-level backing. Yet profits keep falling, new capacity keeps arriving, and the drive runs into local resistance, since provinces lose revenue and standing when plants close. Capacity cut in one sector tends to reappear in another, because the growth incentives behind it are left untouched.
energy security as the deeper logic
Read as insurance, the build-out makes sense. The aim is a sector large enough to supply itself under any conditions, including blockade, which is why energy security overrides the commercial signal to stop building. Coal reinforces the point. Coal is 94 percent of the PRC’s fossil resource base, making it the natural substitute for imported oil and gas. The PRC is now the world’s largest producer of modern coal chemicals. The key process, coal-to-olefins, turns coal into the same base chemicals normally made from oil, and is the only coal route that competes on cost with oil-derived production, even for producers who buy their coal rather than mine it themselves.
When Hormuz closed, Beijing told Sinopec and PetroChina to swing output toward coal-based routes; coal-route PVC operating rates jumped nine points and oil grew more expensive relative to coal than at almost any point since 2015, handing coal production its sharpest cost edge in a decade.
The cost is carbon. Coal-based chemical production emits significantly more CO2 than oil- or gas-based routes: around 436 million tonnes in 2022, roughly France’s entire national footprint.
PRC firms made up 11 of top 50 global chemical firms in 2025
the high-end shortfall
Holding the low end is one bet. Breaking into the high end, the advanced materials that emerging industries need, is the harder one, and the one the PRC has yet to win.
Demand for battery separators, electronic chemicals, high-performance fibres and composites is growing in double digits. The industrial chemicals behind everything from EV batteries to AI server boards and humanoid robots are the ‘mother of emerging and future industries’, in the words of Petroleum and Chemical Industry Planning Institute’s Zheng Baoshan 郑宝山. The chemical new materials market is set to top 70 million tonnes over the 15th 5-year plan, against 2–3 percent growth for bulk plastics.
The PRC is not there yet. Self-sufficiency remains uneven: electronic chemicals sit at roughly 67 percent, high-end polyolefins near 42 percent, and photoresist localisation below 30 percent overall.
Photoresists, the light-sensitive polymers used to pattern circuits onto semiconductor wafers, show what the gap means in practice. Japan controls over 90 percent of the high-end market and supplies close to all of the EUV-grade resist used in the most advanced chips. As Japan–China relations sharpened in November 2025, PRC industry reported that Japan’s trade ministry had placed 12 core semiconductor materials, including high-end ArF and EUV photoresists, on an export-control list covering 42 named PRC firms, and that suppliers led by Shin-Etsu had pared shipments, its exports to China falling around 42 percent month-on-month. Tokyo announced no formal ban, and parts of the account remain disputed, but the alarm was immediate: the resists are consumable, with a shelf life of three to six months, so there is no stockpiling against a cut-off.
Beijing’s answer ran in a familiar sequence: standards, then funding, then guaranteed buyers. The first national EUV-photoresist testing standard appeared in October 2025, the second phase of the National Integrated Circuit Industry Investment Fund was steered toward core materials, and foundries were pushed to favour qualified domestic suppliers, with an official self-sufficiency target of 40 percent by 2026. Yet the binding constraint is time. A new material takes over 15 years to develop, and the hardest part to copy is performance stability, which comes only from years of production. (A forthcoming companion explainer, ‘can the PRC petrochemical sector close the high-end gap?’, works through how far that answer can go.)
the multinational bet
Beijing’s approach to the multinationals has grown more deliberate. Revisions in 2024–25 removed manufacturing from the Foreign Investment Negative List, and the chemical majors are being drawn toward the advanced-materials and green-tech priorities where the PRC is weakest. At the frontier, capability is co-developed, and Beijing wants the strongest international firms inside the ecosystem building it, not outside competing with it.
The commitments bear this out. ExxonMobil’s wholly owned ethylene cracker in Huizhou produces 1.6 million tonnes a year and is its largest investment in China, at over C¥31 bn (~US$4.3 bn). It began commercial operation in July 2025. Approval to groundbreaking took 18 months, against a typical five years.
BASF’s Zhanjiang Verbund site, its single largest investment ever at over 10 bn euros (~US$11 bn), was fully commissioned in early 2026 and is only viable over decades. The CNOOC-Shell joint venture’s third Huizhou cracker belongs to the same cluster. Greater China now generates 18–19 percent of BASF’s group revenue, and peers such as Covestro, the German polymer maker, and Invista, the US nylon producer, are deepening their PRC bases.
For the multinationals, the PRC is the world’s largest chemical market with the fastest-growing advanced demand; Asia-Pacific is forecast to grow 7.3 percent a year through 2030, and proximity to EV, electronics and renewables customers is irreplaceable. For Beijing, international capital and technology speed the high-end pivot without spending scarce state funds, and BASF Zhanjiang, running on entirely renewable power with emissions up to 50 percent below conventional sites, sets a decarbonisation benchmark domestic peers have not matched.
Beijing’s bet is that it can hold four contradictions together: chronic overcapacity as a strategic asset, a high-end push against a 15-year development cycle, decarbonisation funded on shrinking margins, and multinationals brought deeper in without ceding control.
The 15th 5-year plan has set the test. Standards, capital and procurement can be mobilised in months. The process knowledge that closes the high-end gap cannot.
minding the powerhouse
Fu Xiansheng 傅向升 | China Petroleum and Chemical Industry Federation deputy chair
The openings now outweigh the obstacles, argues Fu, with global restructuring underway and involution beginning to ease. Strategic opportunities exist in emerging sectors such as new materials, renewable energy, biomanufacturing and hydrogen, all of which depend heavily on advanced materials derived from petrochemicals and functional chemicals. However, the industry must first properly grasp four key relationships: integrating traditional petrochemicals with emerging sectors, shifting growth from investment + exports to innovation + domestic demand, accelerating the transition to biomass and bio-based manufacturing and controlling low-end expansion while upgrading existing assets.
A senior-engineer-turned-policy-voice known for his readings of where the sector is heading, Fu comments often on high-quality development and tech upgrading, and is among the most quoted federation figures on industry strategy. He has held his federation vice-chair post since 2015. He took his first degree at the Shandong Institute of Chemical Technology, now Qingdao University of Science and Technology, and holds a postgraduate qualification in economic management from the Central Party School.
Yang Ting 杨挺 | Chemical Industry Park Working Committee secretary-general China National Chemical Economic and Technological Development Centre deputy director
For Yang, China’s chemical industry has achieved both scale expansion and industrial strengthening over the past five years, laying the foundation for the country’s transition from a major chemical producer to a true chemicals powerhouse. Over the next five years, the industry should focus on developing ‘new quality productive forces’ by transitioning from a fuel-driven model to one based on materials. As it shifts to a global leader, China must also participate in international rulemaking and standards setting, while encouraging chemical enterprises to ‘go global’ and establish overseas chemical industrial parks. High-quality development of chemical industrial parks will form the basis of broader industry upgrading during the 15th 5-Year plan period.
Known as the federation’s leading voice on chemical parks, Yang has spoken for two decades on park-based development as the route to industry upgrading, arguing that the shift from a fuel-driven to a materials-driven model runs through the parks. He has led the Chemical Industry Park Working Committee, set up in 2002, and sits as deputy director of the China National Chemical Economic and Technology Development Centre.
Zheng Baoshan 郑宝山 | Petroleum and Chemical Industry Planning Institute deputy director
The petrochemicals industry is not only a pillar of the national economy but also a critical foundation for the development of emerging industries, notes Zheng. For instance, most core links in high-end new materials such as high-performance fibres and composites, advanced polymers and others belong to chemical new materials or speciality chemicals. Synthetic processes in biomanufacturing and hydrogen also depend on chemical technologies. New materials remain undersupplied and need accelerated development. Whether advancing new materials or pursuing decarbonisation, innovation is essential.
A planner known for his work on the sector’s spatial layout and its decarbonisation, Zheng has pressed for a single national carbon-accounting standard and warned that moving heavy industry west separates resources from markets. He edits the journal Chemical Industry and has headed both the petrochemical and the materials-chemistry divisions of his institute. A professor-level senior engineer and registered consulting engineer, he holds a master’s in business administration.
context
29 Ap 2026: Petroleum and Chemical Industry releases 15th 5-year development guidelines with a focus on ‘high-quality’ growth, green transformation, supply security and digital upgrading… proposes that by 2035, China will be a world-leading petrochemical power
17 Apr 2026: US-Israeli war on Iran highlights China’s import dependence and reserves
13 Apr 2026: Supply chain security elevated to core part of national governance per new regulations
03 Apr 2026: new plan to either upgrade or phase out outdated petrochemical capacity by 2029
31 Mar 2026: BASF launches Verbund site in Guangdong with a capacity of 1 million metric tonnes of ethylene per year
14 Mar 2026: 15th 5-Year plan calls for structural adjustment in petrochemicals; accelerating development of emerging industries such as new materials and biomanufacturing
12 Dec 2025: CNPC pushes back forecast peak in global oil demand to the 2040s
17 Nov 2025: PetroChina launch new subsidiary, PetroChina Electric Energy Company, tasked with building an integrated energy supply system
26 Sep 2025: ‘stable growth’ work plan aims for industrial upgrading and transformation while maintaining stability
09 Sep 2025: CEICs China Energy Outlook 2025-60 estimates the PRC has already reached peak oil
08 Sep 2025: PRC-Saudi joint venture announce Gulei Phase II refining and petrochemicals expansion project
19 Dec 2024: Sinopec announces completion of the Zhenhai Refining and Chemical facility, the PRCs largest petrochemical hub 01
Nov 2024: NDRC issues guidance calling for petrochemical sites to be relocated to regions with abundant renewable resources