Recently, five government departments—including the Ministry of Industry and Information Technology and the National Development and Reform Commission—jointly issued the "Notice on Conducting a Baseline Assessment of Outdated Facilities in the Petrochemical and Chemical Industries," setting forth relevant regulations for the baseline assessment of aging production facilities. Currently, this work has been implemented at all levels across the country, with major petrochemical provinces such as Shandong, Liaoning, Guangdong, and Zhejiang already deploying related initiatives. From the provincial level down to the city level, comprehensive surveys and baseline assessments have been carried out. This marks the first nationwide baseline survey of aging production facilities whose main equipment and installations have reached their designed service life or have been in actual operation for more than 20 years. By the end of August this year, all regions across the country will submit, in a centralized manner, the assessment results of these outdated facilities along with recommendations for their renovation and upgrading, including whether the facilities need to be renovated or upgraded, the proposed renovation and upgrade methods, as well as planned start and completion dates.
 

　　The census provides a comprehensive inventory and establishes a detailed database, which holds two major significances. First, it supports the ongoing efforts—launched in 2024 and still underway—to phase out and upgrade outdated chemical facilities. More importantly, it lays the groundwork for more systematic advancement of industrial restructuring and upgrading. Faced with the grim reality of oversupply coupled with a large share of backward and inefficient production capacity, the petrochemical industry has taken the lead in launching its “anti-involution” campaign, which has now entered an irreversible stage of practical implementation.

　 　Supply-side structural reform enters Phase 2.0.

　　This year marks the 10th anniversary of the supply-side structural reform. Back in 2015, China launched a large-scale supply-side structural reform centered on the steel and coal industries—the cornerstones of traditional heavy industry—and the results have been evident to all. In particular, the steel and coal industries—already on the brink of systemic collapse at the time, with “cabbage prices” rampant throughout the sector—have achieved remarkable feats of revival. The entire industries have been brought back from the brink and have now entered a new stage of high-quality, long-term development.

　　The supply-side structural reform was originally designed and initiated with the aim of addressing the chronic problems of oversupply and price volatility, while also responding to the upgrading of social demand. Through macroeconomic regulation, it seeks to optimize industrial structure by implementing targeted industrial policies that both support and restrain certain sectors. Specifically, it involves phasing out inefficient, outdated production capacities that fail to meet safety and environmental standards, while fostering and strengthening advanced production capacities that can not only meet but even lead high-quality demand. In this process of "replacing old birds with new ones," the overall quality, efficiency, and competitiveness of industries will be significantly enhanced.

　　Reform is inherently gradual and must be rooted in actual needs. The more pressing the actual needs, the more thorough and systematic the reform tends to be. Compared with the steel and coal industries, which underwent radical reforms aimed at addressing deep-seated problems, objectively speaking, many other industrial sectors at the time did not undergo reforms that were nearly as systematic or profound. Take the petrochemical industry as an example: By the end of 2015, China’s total refining capacity stood at 710 million tons. Based on a reasonable operating rate of 85%, domestic refining capacity was already oversupplied by 100 million tons. Although signs of supply overcapacity had begun to emerge, the situation was still in its early stages of exposure, and the problem was not yet particularly acute. Consequently, the industry itself did not yet fully perceive the severity of the issue. That year, the entire industry added 30.2 million tons of new refining capacity while eliminating 40.57 million tons of outdated capacity, resulting in a net reduction of 10.37 million tons. In the context of the vigorous initial wave of supply-side structural reform at the time, this modest adjustment could hardly be considered more than a mere drop in the bucket.

　　It is precisely because the breadth and depth of reform have not been sufficiently prominent or systematically comprehensive that existing problems have gradually accumulated, laying the groundwork for the eventual outbreak of overcapacity. Ten years have passed, and times have changed. Today, in China’s petrochemical industry—except for a few highly specialized and sophisticated materials such as certain high-purity electronic chemicals—the entire sector has entered an era of widespread overcapacity. Even polyurethane, once considered a premium product that was extremely hard to come by, now suffers from oversupply. This alone illustrates the extent of the problem. While moderate overcapacity can foster healthy competition, excessive and prolonged overcapacity will inevitably lead to the disastrous consequences of price wars. In a market dominated by existing stock, once oversupply becomes the new norm, prices are bound to remain depressed and fail to recover. Over the past two years, prices of many petrochemical products have plummeted—some even halved or more—and the industry as a whole has suffered massive losses, mired in a vicious cycle of price wars from which it finds it increasingly difficult to escape.

　　It is precisely against this backdrop that the state’s “anti-involution” policy has been introduced, directly addressing the current reality in many industries—where oversupply has triggered widespread price wars. In this sense, the “anti-involution” policy is closely aligned with supply-side structural reform; it represents the 2.0 phase of supply-side structural reform, emerging at a specific stage of development and within a particular economic and social context. While it shares commonalities with previous reforms, it also possesses unique reform implications, characteristics, and priorities.

　　 The “involution” in the petrochemical industry has become quite prominent.

　　Currently, the issue of oversupply in the petrochemical industry has become strikingly systemic and complex, warranting high-level attention from regulatory authorities. Since 2015, apart from Shandong Province—which, under the unified deployment of a special campaign to enhance safety production in the chemical industry, has made sustained and substantial efforts to phase out outdated refining capacities, having cumulatively eliminated over 50 million tons of obsolete refining capacity—other regions across the country have achieved remarkably little in terms of capacity reduction in the petrochemical sector. Meanwhile, over the past decade, China has commissioned a large number of advanced integrated refining and petrochemical projects, including Hengli Petrochemical, Zhejiang Petrochemical, Yulong Petrochemical, CNOOC Huizhou Refining & Chemical Phase II, PetroChina Guangdong Jieyang Refining & Chemical Project, Qinzhou Refining & Chemical in Guangxi, and CNOOC Daxie Petrochemical. The scale of these projects generally exceeds 12 million tons per year. This has led directly to a situation where, while old capacities remain unaddressed, new capacities continue to come online, driving domestic refining capacity steadily upward. As a result, capacity utilization rates and industry profitability have been declining sharply. Today, the sustainable development of the refining and petrochemical industry has reached the brink of collapse, and it can no longer afford to be ignored or delayed any further.

　　Currently, the nation’s refining capacity has exceeded 1 billion tons per year, far surpassing the United States to become the world’s largest. However, the capacity utilization rate has already fallen to around 70%, with structural overcapacity exceeding 300 million tons. According to scheduling data from March 2025, the capacity utilization rate of China’s independent refiners has dropped to 58.51%; that of local refineries has declined to 59.5%; and that of major state-owned refineries has fallen to 77.4%. As a result, the overall capacity utilization rate of China’s refineries has decreased to 70.3%.

　　From the perspective of industry performance, the profits of refining and chemical enterprises over the past two years have been quite dismal. In the first half of this year, Sinopec’s net profit came in at 21.483 billion yuan, a year-on-year decrease of 39.8%, returning to its lowest level in nearly a decade—roughly equivalent to the level seen in 2015, when the industrial economic situation was particularly challenging. Although privately-owned refining and chemical enterprises newly built over the past decade have generally demonstrated high operational quality, they too have faced widespread difficulties in profitability, weighed down by factors such as persistently low petrochemical product prices and substantial capital expenditures. In this grim context... Supply Against the backdrop of oversupply, no one can remain unaffected.

　　It’s not just that refining capacity is overcapacity—domestic bulk petrochemical products that once faced long-term shortages, such as olefins and aromatics, are now also experiencing supply saturation and even oversupply. By the end of 2024, China’s annual polyolefin production capacity reached 78 million tons, while output stood at 62.25 million tons, leaving an excess of over 10 million tons. In 2024, China’s PTA production capacity reached 86.015 million tons, with output at 71.8 million tons, also resulting in an excess of nearly 10 million tons.

　　And from the perspective of forecasting future trends, Supply The issue of overcapacity appears unlikely to see a sustained reversal in the foreseeable future. Over the past decade, China’s electric vehicle market has experienced explosive growth. As of June 30, 2025, the number of new-energy vehicles in China reached 36.89 million, accounting for 10.27% of the country’s total vehicle fleet. Among these, the number of pure electric vehicles stood at 25.539 million, representing 69.23% of the total new-energy vehicle stock. With electric vehicles continuing to grow at a rapid pace, demand for fuel oil is shrinking, and strictly controlling the overall capacity of refining and petrochemical industries has become an inevitable trend.

　　In response to the issue of oversupply in the petrochemical sector, five government departments—including the National Development and Reform Commission—issued the “Special Action Plan for Energy Conservation and Carbon Reduction in the Refining Industry” in June 2024. The plan mandates that by the end of 2025, the primary crude oil processing capacity be reduced to no more than 1 billion tons, and production capacities with energy efficiency below benchmark levels—accounting for as much as 15% of total capacity—will be phased out. The policy explicitly calls for the complete elimination of atmospheric and vacuum distillation units with a capacity of 2 million tons per year or less, and promotes the concentration of production capacity toward industry giants through “reduction-and-replacement” measures. In July of this year, China National Petroleum Corporation’s Dalian Petrochemical Complex—a refinery with an annual capacity of 20.5 million tons—was fully shut down. At the same time, the Changxing Island integrated refining and chemical project with an annual capacity of 10 million tons was launched, shifting the focus toward the production of new chemical materials and fine chemicals.

　　If we say Supply Overcapacity is merely a superficial phenomenon and a reflection in the general ledger; yet, if we look more closely, the root of the problem lies in structural inefficiencies. There are still many aging enterprises and outdated facilities, and a significant number of refineries remain purely fuel-based. By contrast, modern integrated refining-and-chemical complexes—characterized by high operational flexibility—have not yet become industry standards. Refining and chemical processing is an industry that’s as traditional as it gets. Many of the older refineries have been in operation for decades, and although their equipment has undergone several rounds of technological upgrades, their overall efficiency, energy consumption, material utilization, and performance still fall markedly short when compared to integrated refining-and-chemical projects built in response to the digital wave of the new century.

　　Therefore, at a time when the industry is experiencing both prosperity and decline, it is high time—and indeed urgently necessary—to abandon the fragmented, patchwork mentality of the past and adopt a more macroscopic and in-depth perspective to launch a systematic effort to revitalize and upgrade the petrochemical industry. Bringing the “anti-involution” spirit into the entire petrochemical sector is not only timely but also critically important.

　 　Focusing on Three Areas to Combat “Involution” in the Petrochemical Industry

　　This multi-department initiative to conduct a comprehensive assessment of aging facilities in the petrochemical and chemical industries zeroes in on equipment that has been in operation for over 20 years. The targeted approach is highly specific and leaves considerable room for future policy development. As some industry insiders analyze, once the total capacity and structural composition have been thoroughly mapped out, regulators will have several effective tools at their disposal, directly addressing the core objective of combating “internal involution.” At the micro level—on the enterprise level—this initiative will facilitate the formulation and implementation of precise technical upgrade and renovation measures for lagging enterprises. By establishing special industrial funds and introducing fiscal subsidy policies, relevant enterprises will be required to complete the upgrading and modernization of their aging facilities within specified timeframes; those unable to meet the upgrade requirements will be phased out and shut down. At the meso level—within the industry—this effort will help carry out a systematic and comprehensive overhaul of the petrochemical and refining sectors. It will gradually phase out small-scale facilities at the institutional level, upgrade outdated production capacities, and redirect investment toward advanced materials, thereby consolidating gains and preventing a resurgence of overcapacity. From a broader socio-economic perspective, properly addressing the principal contradictions and key issues will help us grasp the crux of the problem, provide valuable experience for China’s efforts to combat internal involution, and contribute to the establishment of sound institutional frameworks. The refining and petrochemical industry is one of the most critical foundational and livelihood-oriented sectors of the national economy. With its large scale and predominantly dominant market players—many of which are major state-owned enterprises, private companies, and foreign-invested firms—the industry involves diverse economic components. Reducing long-term overcapacity in low-value-added areas and driving the industry’s transformation from “energy”-oriented to “materials”-oriented has long been a formidable challenge. If this persistent and complex issue can be effectively resolved, it will serve as a pivotal breakthrough for the nationwide fight against internal involution, providing a systemic and comprehensive solution that can unlock lasting progress.

　　To tackle the “involution” in the petrochemical industry, three key areas of work need to be prioritized. First, we must strengthen categorized guidance and phased-out elimination of outdated production capacities. Previous surveys have shown that currently, petrochemical facilities operating for more than 20 years account for approximately 40% of the nation’s total refining and chemical processing capacity. It is imperative to accelerate the phasing out or upgrading of these older facilities to enhance production efficiency.

　　In addition to targeted measures for aging facilities, we must also implement a stringent policy framework for the outright closure of small-scale refineries. Small-scale refineries with an annual production capacity below 3 million tons must be shut down and phased out entirely. In line with the standard that a capacity of 5 million tons represents an economically viable scale for refining and petrochemical operations, the phase-out targets should be gradually increased to reach 5 million tons over time.

　　Second, transformation and upgrading. The refining and petrochemical industry has entered a new era characterized by green practices and digitalization. It is imperative to actively embrace new technological pathways, innovate better business models, and accelerate the renewal, iteration, and upgrading of traditional industries. The refining and petrochemical sector must adopt and integrate—on an even larger scale—technologies such as molecular refining, high-efficiency hydrogenation, green hydrogen coupling, wastewater reuse, inherently safe technologies, and digital and intelligent technologies that align with contemporary trends. To support the transformation and upgrading of refining and petrochemical enterprises, policies should provide multifaceted assistance, including tax reductions and special subsidies, and strive to achieve phased goals during the 15th Five-Year Plan period, namely eliminating outdated production capacity and upgrading and modernizing aging equipment.

　　Third is the shift toward “reducing oil and increasing chemical production.” The “reduce oil, increase chemicals” initiative has been implemented in China for many years and has achieved some progress, yet it still fails to keep pace with current changes in the situation. According to rough estimates, currently about 60% of domestically produced crude oil is used as fuel, while only around 15% is used as feedstock for chemical production—a pattern that continues to reflect a heavy reliance on oil refining and a relatively small contribution from chemical processing. In the future, as vehicle electrification continues to advance, by the end of the 16th Five-Year Plan period, the ratio of crude oil used for refining versus conversion into chemicals should reach roughly 1:1.

　　To this end, we should actively encourage refining and chemical enterprises to shift toward specialty fine chemicals, giving priority support to chemicals used in artificial intelligence, robotics, semiconductors, biomedical devices, batteries, and renewable energy, while reducing investment in bulk chemical products suffering from oversupply.

　　In the effort to “reduce oil refining and increase chemical production,” we must abandon the long-held mindset that bigger is better and instead adopt “maximizing efficiency” as our guiding principle. For a long time, China’s refining and petrochemical industry has regarded large-scale, integrated operations as the gold standard—seemingly believing that any refinery failing to reach an annual capacity of 20 million tons would be at a disadvantage from the very start. In reality, this isn’t necessarily true. Aside from the enormous capital investment required to build a 20-million-ton-scale refinery, if we had initially set the goal of constructing a chemical-oriented refinery, we could have streamlined the project by cutting out unnecessary components and starting with a lighter, more agile approach—achieving maximum economic benefits with far less investment. Practice has shown that a refinery scale of just over 5 million tons is actually sufficient. The key lies in maximizing the conversion of petroleum feedstock into a wide array of high-value, specialty chemical products, while emphasizing differentiated and specialized development. Take Shandong’s local refineries as an example—Wanda Group’s Tianhong Chemical Company, a leading enterprise in the region, operates a refinery with a capacity of only 5 million tons. Beyond producing a small quantity of petroleum products, it primarily manufactures dozens of high-value specialty chemicals, including acrylonitrile, methyl methacrylate, atorvastatin calcium, cis-butadiene rubber, polyacrylamide, and other products. The company has consistently demonstrated outstanding operational performance, setting a remarkable example for the industry. Clearly, despite years of efforts to “reduce oil refining and increase chemical production,” there is still considerable untapped potential. As long as we shift our thinking and reform our mechanisms, the possibilities remain vast and boundless.