In the past year, China has released several policies against "involutionary" competition. For example, in July 2024, the Political Bureau of the CPC Central Committee proposed strengthening industry self-regulation to prevent "involutionary" vicious competition. In December 2024, the Central Economic Work Conference emphasized comprehensively rectifying "involutionary" competition and regulating the behavior of local governments and enterprises. In March 2025, the "Government Work Report" required accelerating the establishment and improvement of basic institutional rules, breaking down local protectionism and market segmentation, removing bottlenecks and obstacles restricting economic circulation in terms of market access and exit, and comprehensively rectifying "involutionary" competition.

Since 2025, several fields in China's chemical industry have also conducted relevant discussions on "anti-involution." For example, on March 13, 2025, a special conference on "anti-involution" in the glyphosate industry was held in Beijing, aiming to comprehensively discuss and effectively solve the "involution" problems such as excessive competition, repeated investment of resources, and continuous compression of profit margins that generally exist in the industry, so as to promote the healthy and sustainable development of the industry. On July 1, 2025, the Hazardous Chemicals Logistics Branch of the China Federation of Logistics and Purchasing issued the "Initiative on Opposing 'Involutionary' Competition and Promoting High-Quality Development of the Chemical Logistics Industry." On July 3, 2025, the Ministry of Industry and Information Technology (MIIT) held a symposium for manufacturing enterprises in the photovoltaic industry, emphasizing the need to comprehensively manage the problem of low-price and disorderly competition in the photovoltaic industry in accordance with laws and regulations. On July 18, 2025, Xie Shaofeng, Chief Engineer of the MIIT, stated at a press conference of the State Council Information Office on July 18 that work plans for stabilizing growth in ten key industries such as steel, non-ferrous metals, petrochemicals, and building materials are about to be released, and the MIIT will promote key industries to focus on adjusting structure, optimizing supply, and eliminating backward production capacity.

The intensive policies have sent a clear signal to the market that the era of "Supply-Side Structural Reform 2.0" may be accelerating. This round of supply-side structural reform has been upgraded from supply-side reform to the rectification of "involutionary" vicious competition. What are the differences from the first round? What impact will it have on chemical companies?

The "four trillion" plan in 2008 stimulated various domestic industries and also promoted a substantial increase in the scale of the chemical market, which subsequently led to supply imbalances and price crashes. Chemical prices fell for 54 consecutive months. Against this background, the first "supply-side structural reform" was introduced. This reform mainly focused on "cutting overcapacity, destocking, deleveraging, reducing costs, and strengthening areas of weakness."

In terms of cutting overcapacity, the chemical industry mainly focused on industries such as coal, coke, cement, and plastics. Through administrative production restrictions, banning illegal production capacity, and forcing environmental protection, hundreds of millions of tons of excess capacity were forcibly reduced. Under a series of measures, the capacity utilization rate of the national chemical industry hit a record high. At the same time, these measures also brought about chain reactions in the industry, with raw material prices soaring, downstream profit margins being squeezed, and the game between the market and policies becoming increasingly fierce.

From 2015 to 2018, the supply side either actively cleared out or forcibly cleared out small and backward production capacity through environmental protection and other requirements, adding leverage to the demand side.
 

From 2020 to 2021, the supply side actively and strongly cleared out, and also proposed the "dual carbon" goal and "dual control of energy consumption," which temporarily forced the shutdown of some high-energy-consuming production capacity. In addition, public health events also boosted the demand for some chemical products.

The 2025 reform highlights information such as "anti-involution," "national unified market," and "high-quality development," reflecting the shift in the focus of reform and the upgrading of governance ideas. The 1.0 era emphasized accelerating the exit of backward production capacity through administrative means to solve the problem of overcapacity. The 2.0 era "anti-involution" refers to the vicious competition among enterprises and the bad competitive behavior of various entities, which is more extensive than before. As far as the chemical industry is concerned, it not only involves the actual production plant scale of the chemical industry, but also involves the competition order and competition efficiency of the chemical industry. This time, the spearhead is directed at "disorderly low-price competition," pointing to the vicious competition atmosphere in which all parties invest but there is no incremental output, and the purpose is to improve the quality and efficiency of the supply side, rather than just compressing the quantity.

In addition, the difference between the highlighted "unified large market" and "cutting overcapacity, destocking, deleveraging, reducing costs, and strengthening areas of weakness" emphasizes market integration and unified rules, which is the optimization of institutional supply. This policy is more inclined to use market-oriented and rule-of-law means to improve resource allocation, and pays more attention to the adaptation of the supply structure to the demand structure and innovation-driven, not only to clear out backward production capacity, but also to cultivate new quality productivity.

China's chemical industry is facing disorderly expansion of production capacity, insufficient overall operating rate, and serious waste of resources. The production capacity of the traditional coal chemical industry is still growing, the production capacity of soda ash and PVC continues to increase, and the production capacity of other subdivided fields is also increasing.

In the face of this situation, this supply-side 2.0 reform, for high-energy-consuming, high-polluting, and low-tech-content production capacity, through mandatory indicators such as environmental protection standards, dual control of energy consumption, and safety access,划定“负面清单”, determine the elimination range, and implement production restrictions, relocation or withdrawal for non-达标 enterprises to achieve supply-side reform.

In addition, establish a differentiated and precise energy control mechanism. Implement "capacity early warning" for basic chemical raw materials such as ethylene, propylene, and PX. Set a capacity ceiling based on the growth rate of downstream demand to avoid the recurrence of centralized investment waves. Relax the access threshold for high-end chemical products and new materials products, and encourage new production capacity through special bonds, tax incentives and other policies to fill the import gap.

The overall R&D investment intensity of Chinese chemical companies is low. In 2023, the overall R&D investment accounted for only 1.2%, while the R&D investment of international giants reached 3%-5%. The homogenization of many products in China's chemical industry is relatively serious. When competing in the same area, more companies choose to adopt a low-price competition strategy, which ultimately hurts both sides.

This supply-side reform 2.0 will improve the innovation ecosystem, reduce R&D risks, and establish a "pilot incubation platform" to provide small and medium-sized enterprises with equipment and technical support for small-scale to pilot-scale tests, reducing the cost from laboratory to industrialization. In addition, strengthen the enforcement of patent infringement in the chemical field and establish a "patent pool" to avoid repeated R&D and involution in infringement. At present, this measure has been launched in individual parks and enterprises, and will drive the high-end development of Chinese chemical products by establishing an innovation ecosystem.

In addition, we will focus on "bottleneck" technologies and products, and break through high-end barriers in a targeted manner. This reform 2.0 advocates that leading enterprises take the lead in forming an innovation consortium with upstream and downstream enterprises, universities and research institutes to tackle key problems in subdivided fields, such as electronic wet chemicals for semiconductors, separator materials for new energy batteries, and high-performance resins for aerospace, and drive enterprises to achieve technological breakthroughs through government subsidies. In addition, small and medium-sized enterprises can avoid the main tracks of large enterprises, focus on subdivided markets, and establish competitive barriers through "small batches, multiple varieties, and high services," thereby reducing "involutionary" competition.

In this supply-side reform 2.0, multiple policies simultaneously mention the 'industrial chain collaboration' mechanism, where industry associations build digital platforms to integrate the capacity, demand, and inventory data of upstream and downstream enterprises, reducing blind expansion or inventory backlog caused by information asymmetry. Furthermore, 'price guarantee and stable supply' agreements are signed for varieties with strong cyclicality, and price crashes are avoided through 'staggered production' and 'on-demand adjustment of operating rates.' This approach requires high-level government consideration to coordinate the overall supply and demand information of China's chemical industry, achieving large-scale 'integration' in China.

In addition, vertical integration and industrial cluster models need to be developed, encouraging enterprises with scale to transform from 'single product' to 'integrated industrial chain,' reducing intermediate costs by increasing the self-sufficiency rate of raw materials, minimizing dependence on external markets, and avoiding low-price competition caused by raw material price fluctuations. It is advocated to plan the closed loop of the industrial chain with the park as a unit, and attract upstream and downstream enterprises to settle in the park through land and tax incentives to form a closed-loop production of 'raw materials-intermediate products-terminal products,' thereby enhancing the overall competitiveness of the park.

In this supply-side 2.0, almost every policy mentions 'green transformation' as the goal, and 'greening' has become a rigid indicator for chemical companies, breaking local protectionism. The state establishes a networked environmental monitoring system for the chemical industry to implement 'one-size-fits-all' penalties for enterprises that exceed standards, eliminating unfair competition in 'environmental cost depressions.' Furthermore, 'green certification' is used to distinguish product grades, encouraging downstream companies to prioritize the purchase of qualified products, so that environmental protection investment is transformed into a competitive advantage rather than a cost burden. This measure will significantly enhance the competitiveness of green products and provide a direction for companies to avoid 'anti-involution.'

In addition, this policy also advocates a waste resource recycling model, promoting 'waste material sharing' among enterprises in the park, such as the resource utilization of carbon dioxide in the park, reducing the cost of share disposal through the industrial chain model, forming a win-win situation of 'environmental protection-cost reduction.'

Despite the increasing number of trade frictions, the 'going out' of Chinese chemical products is still an option. Chinese chemical companies can target the needs of countries along the 'Belt and Road' by means of technology licensing and joint ventures to circumvent international trade barriers and transform domestic excess high-end capacity into overseas market share. This not only transfers domestic excess capacity, but also effectively seizes foreign market share, which is beneficial to the long-term development of Chinese enterprises.

Chinese chemical companies with strength can also actively acquire overseas high-end technology companies, expand access to patents, quickly enter the high-end market, and reduce the 'involution competition' of independent research and development.

Supply-side structural reform version 2.0 advocates the concepts of 'anti-involution' and 'national unified market,' which is a landmark event from 'scale expansion' to 'value enhancement.' By eliminating inefficient production capacity, innovating and collaborating 'green slimming,' exploring the international market, and integrating the collaboration of parks and enterprises, China avoids 'involution' competition and builds a new long-term development ecology for the future.

Source: 化工平头哥 、 化易天下