GreenergyDaily

Aug. 18, 2025

The Chinese government is set to launch a sweeping overhaul of its petrochemicals and oil refining sector, phasing out smaller facilities and targeting outdated operations for upgrades, while redirecting investment to advanced materials.

Remedies to curtail longstanding overcapacity in lower-value parts of the industry are likely within the next month, according to people familiar with the matter. The detailed plan is awaiting final approval from the Ministry of Industry and Information Technology, they said.

Under the measures proposed, petrochemicals facilities over 20 years old — or about 40% of the country’s total — will need retrofitting to increase their yields, according to the people. Plants will also be encouraged to shift to specialty fine chemicals, rather than bulk materials already threatened by oversupply, they said.

Chemicals that will be favored under the new investment regime include those used in artificial intelligence, robotics, semiconductors, biomedical devices, batteries and renewable energy, they said.

The latest plan also targets smaller oil refiners, and those with less than 2 million tons of annual capacity could be shut, the people said. That’s necessary to offset a contraction in demand for gasoline and diesel, which has cut operating rates and left the sector with about 60 million tons of excess capacity, they said.

An emerging concern that may not be directly tackled in the current overhaul is ethylene — an ingredient in textiles, rubber and plastics — which could face curbs on new permits from 2026 due to a looming glut, the people said. This has been pitched by the industry as a priority for the coming Five Year Plan, to be unveiled in March.