According to a report by Yicai on August 13, 2024, the global chemical industry is currently grappling with complex challenges such as reduced demand and slowed growth amid the energy transition and carbon reduction efforts. As the world’s largest consumer market and a leading chemical producer, China's chemical sector saw declines in both profits and trade volumes in 2023. Achieving growth while prioritizing environmental sustainability has become a critical issue for chemical companies navigating this transformation.
In a recent dialogue with Yicai, Mr. Zhu Ji, Global Executive Vice President and President of Cabot’s Global High-Performance Materials Business and Asia-Pacific Operations, shared insights on the issue of overcapacity in certain domestic industries.
Yicai Reporter: How do you view the current overcapacity issue in some sectors of the domestic market?
Zhu Ji: Overcapacity is not a new phenomenon; it has likely existed for over a decade, but it was not a major concern at the time. The market was growing rapidly, and there was a belief that this capacity would be absorbed to some extent, especially as it also catered to core businesses in Europe and the U.S.
Now, however, the problem is becoming increasingly apparent. The sluggish performance of the Chinese stock market and issues in the real estate sector are partly linked to overcapacity. Real estate companies constructed numerous new properties in recent years, which are now left unoccupied. Real estate, as a fixed asset, relies on local consumption to absorb this capacity. In contrast, other industrial and consumer goods can be exported. While these solutions differ, the underlying issue of overcapacity remains the same.
China accounts for about 19% of global GDP. Given its industrial capabilities and labor productivity, I believe a global production share of 20-25% is normal. However, in many sectors, China holds 50% of global capacity, with some areas reaching 80-90%. This extensive capacity heavily consumes carbon energy, which is not a sustainable long-term strategy for China.