Privately owned chemical companies in China are seeing the fastest sales growth, closing the technology gap with foreign-owned firms, according to a new study.
Meanwhile China's state-owned enterprises are losing market share and have low profitability, according to the study from Shanghai-based consultancy MC Chemicals.
Private Chinese-owned firms went from being the smallest of the three main sectors in China's chemical industry in 2006 to the largest in 2011, while their foreign competitors maintained their lead in sales and profit per employee.
“Private domestic companies perform best, achieving sales and profit growth rates that are substantially above the industry average,” study author Kai Pflug wrote. “In contrast, the performance of foreign-owned chemical companies is slightly below industry average while the results of state-owned chemical enterprises are substantially below [the] industry average.”
Private Chinese chemical firms grew from 454 billion Chinese yuan (US$73.8 billion) in sales in 2006 to 1.89 trillion yuan (US$307.3 billion) in 2011, outpacing foreign-owned firms, which saw their China sales rise from 548 billion yuan (US$89.1 billion) to 1.56 trillion yuan (US$253.6 billion).
State-owned firms, by contrast, grew “only” from 615 billion yuan (US$99.9 billion) to 1.16 trillion yuan ($186.6 billion) in that time.
Sales for foreign-owned chemical firms in China's grew 19 percent a year from 2006 to 2012, explaining the strong interest in foreign investment there, according to the report, which was published in the October issue of the Journal of Business Chemistry.
But, that was less than the overall market growth, and the study suggests that foreign firms may have a hard time keeping their lead.
“Compared to an average annual market growth of 22 percent during the same period, the achievements of foreign players are much less impressive,” the report said. “This development is most likely the consequence of a shrinking technology and knowledge gap between foreign and domestic companies.”
“Given the rapid advances of local companies within the relatively short observation period, maintaining a high market share in China will be a huge challenge to foreign chemical companies,” it said. “In the long run, competition between foreign and domestic chemical companies in China will presumably be one between comparable players, much like competition between, e.g., German and US chemical companies in the U.S. market.”