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China – the Future of Chemical R&D

Posted on February 10th, 2016 by in Chemical R&D

chemchina_syngenta

In one of my previous posts, I described a certain slowdown in R&D activities in China on the part of multinational companies. My post today is a pledge to chemical companies to keep and expand R&D activities in China, as I am convinced that China will be the key future location of chemical R&D.

There are 5 reasons that lead me to this conviction:

Strong political support for R&D: The 13th Five-Year Plan for the period of 2016 to 2020 contains innovation as one of the key drivers for further development of the Chinese economy. It is expected to lead to a further increase of R&D spending as a share of GDP. The Five-Year Plan also promotes several industries related to chemicals, e.g., new materials and electric cars.

Increased environmental regulation: Pressure from the urban population will lead to further tightening of industry regulation. More importantly, president Xi´s anticorruption campaign also strongly promotes implementation of existing environmental protection laws. This will force chemical companies to upgrade their technologies, driving R&D.

Increased technological level of domestic companies: In the past, domestic players focused on the low end of the chemical market. However, overcapacities and low margins in this segment push the domestic companies to move upmarket – which forces them to invest in chemical R&D.

Further increase of China´s share of the global chemical market: There are good reasons to establish R&D capacity near key markets. As China´s share of the global chemical market is expected to increase from an already high 33% in 2013 to 40% or more in 2020, at least some of the global R&D resources will be located accordingly.

China as key location for new investments: China is the chemical market with the most rapid changes – old capacity is being shut down while new capacity is still added at a high rate. In addition, local chemical companies generally are well funded and tend to accept relatively low returns. As a consequence, China will increasingly have the most modern chemical plants in the world, whether run by domestic companies or by MNCs. Establishing these modern plants will both require and promote chemical research.

Chemical R&D therefore will more and more be located in China rather than outside. Even multinational companies are well-advised to consider moving some of their R&D functions from headquarters to the likely future most dynamic, innovative and largest market – China.

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