The fierce competition in the air separation market: Insights from multinational chemical giants on investing in the Chinese market

　　When did China's chemical industry surpass the United States to become the world's largest? In 2010!
　　The Chinese market is undeniably alluring, offering seemingly boundless potential for global chemical giants like BASF, Bayer, Invista, Lanxess, and Praxair.
　　China's petroleum and chemical industries have experienced over three decades of rapid growth. During this time, multinational chemical companies have evolved from simply exporting products to establishing offices, building factories, setting up wholly-owned and joint ventures, and eventually pursuing systematic localization – working with numerous Chinese partners to drive continuous development and prosperity within the chemical industry.
　　However, over 10, 20, or even 30 years, have multinational chemical companies truly "understood" China? The answer is somewhere between yes and no. The only certainty is "change." The days of welcoming chemical giants with flowers, champagne, and red carpets are gone.
　　Nothing describes the mindset of multinational chemical companies in China better than "crossing the river by feeling the stones." But if Chinese companies themselves are still feeling their way, it's difficult for foreign companies to surpass this stage. And – in over 30 years, many companies have fallen into the river without even finding a stone.
　　Industrial progress here can be incredibly rapid, while changes in policies, partners, competitors, and technological levels can be dizzying. The Chinese market can sometimes remain opaque to multinational chemical companies; standard Porter's Five Forces analysis and the Boston Matrix often prove less effective than the Art of War and traditional wisdom. Even with diligent study of the speeches of Chinese national leaders and a thorough understanding of "Chinese characteristics," the pressures and risks faced by some chemical giants are clearly no smaller than the expectations brought by opportunities.
　　Professor Juan Antonio Fernández, a management professor who has long studied the Chinese business environment, uses a metaphor in his book "Relationships." He describes a certain degree of disconnect between multinational companies and their Chinese partners (officials, clients, buyers) as a couple dancing, where the male partner wants to move too fast, while the female partner proceeds cautiously. For multinational companies, maintaining pace with the Chinese business environment is a difficult lesson – and no exception for some multinational chemical companies.
　　So, for chemical giants who have cultivated the Chinese market and gained a competitive position, what opportunities and risks do they see in the face of the new normal, new policies, new environment, and new competitors? The China Petroleum and Chemical Industry Federation conducted a survey, engaging in extensive discussions with senior executives from over a dozen multinational companies, including BASF, Dow, and Bayer, obtaining extremely valuable first-hand information.
　　Although the strategies, market and investment strategies of different companies vary greatly, their viewpoints show a clear convergence. Overall, they can be summarized as follows: the importance of the Chinese market is undeniable; future investment in the Chinese market will generally remain at a similar level; however, concerns about overcapacity in the industry are growing; energy demand, water resources, urbanization, demographic changes, and motorization may bring about profound changes to the industry; increased focus on cost control, profitability, value growth, and market-oriented research and development; high expectations for market-oriented reforms in the chemical industry and a strong desire for a fairer and freer market environment.
　　Mingcheng Qian, President of Lanxess Greater China:
　　In general, innovation that does not adapt to the market has no future; the two must be closely related. History has proven that even with good products, without market demand they will be eliminated.
　　Based on Lanxess' core business, we believe that future global development faces four major trends: green mobility, urbanization, clean water demand, and sustainable agriculture. Lanxess is particularly optimistic about mobility and urbanization.
　　In the 30 years since the reform and opening up, the industry must undergo transformation and upgrading to meet future challenges. Transformation is a painful process, with increasing demands for safety, environmental protection, and health during the transformation process. This is a process of survival of the fittest. The industry's transformation and upgrading requires cooperation from government, industry, associations, and other stakeholders, while also considering important aspects such as social stability.
　　Lanxess suggests that creating a long-term stable and clear policy environment is crucial for long-term development. For example, while the current trend of China's environmental protection policies is undoubtedly correct, there is a lack of stability, policies are unclear across different provinces and cities, and different projects may face different treatment. In addition, there are issues of insufficient policy continuity due to changes in local leaders. We believe that these issues will be further improved as reforms deepen.
　　For chemical companies, the pressure from raw materials is currently very high. To some extent, raw materials and market demand determine investment. For China, raw material supply is a shortcoming, while market demand is an advantage. In the future, Lanxess will be concerned with the degree of policy openness, and mixed ownership will be a key focus. It is expected that raw material supply will be more market-oriented in the future. Looking back, when Lanxess' business was spun off from Bayer in 2004, the Asia-Pacific region accounted for only 5% of its assets, while by 2015 that figure had reached 35%.
　　Dr. Bernhard Stief, President, Bayer Greater China:
　　Bayer cannot ignore the existence of various challenges. For example, short-term overcapacity is understandable, but long-term overcapacity will create major problems.
　　In the Chinese market, Bayer has been in a construction phase for the past 15 years, mainly investing in human resources, material resources, financial resources, and R&D. However, in 2015 or 2016, it will enter a high-growth phase, seeking higher efficiency and better customer service on the basis of completed infrastructure. This coincides with China's people-centered urbanization, achieving a new wave of growth through environmental protection and the pursuit of higher efficiency.
　　In terms of regional strategy, Bayer's overall approach is to maintain close communication with partners and customers. For example, when customers began shifting from coastal areas to central China, Bayer followed suit, establishing sales offices and system material factories to support customers who had moved to central China.
　　Innovation is indispensable. The most important aspects are efficiency and focus. At Bayer, we strive to achieve the integration of people, planet, and profit through our own breakthrough production process innovations. Given that Bayer's main products are polymers, and the products are relatively mature, there is no need for investment in basic scientific research.