Despite significant oversupply -- contributing to a low 55 percent capacity utilization rate -- further expansions are underway in China's PVC sector in the next five years. However, new PVC capacity will focus on higher-value-added grades, replacing outdated, lower-end, and energy-inefficient plants.

China's PVC capacity totaled 20.4 million metric tons in 2010. Actual output exceeded 11 million metric tons in 2010, and is expected to rise almost 10 percent annually to more than 16 million metric tons in 2015, according to various industry reports.

While exports could theoretically be a solution to overcapacity, Chinese PVC producers -- many using coal as a feedstock -- are losing price advantages due to a number of factors including the strengthening currency. They also face rising coal prices as China becomes a net importer of coal. Low-price ethylene imported from the Middle East poses further challenges to coal-based PVC.

Demand-wise, since 70 percent of China's PVC output is used in construction, the future of the real estate market in China brings some uncertainty. However, Beijing's aggressive plans to add government-subsidized residential housing and remodeling of old building are expected to boost demand.

The government is also taking solid measures to encourage low-emission, energy-efficient manufacturing. Policymakers said they'll take a more active role in regulating the industry through the approval process of new PVC projects as well as economic incentives such as electricity prices, taxes and lending policies.