China cracks down on aging petchem plants to tackle overcapacity; will this be a game changer for global markets?

In a decisive move to address long-standing overcapacity and inefficiency in its vast petrochemical sector, China has initiated a game changing reform targeting production units over 20 years old. The initiative marks a major shift in industrial policy, signaling Beijing’s determination to phase out outdated facilities and modernize its petrochemical landscape.

A structural overhaul begins

The policy, spearheaded by the Ministry of Industry and Information Technology (MIIT) alongside other regulatory bodies, lowers the threshold for what constitutes an "aging" chemical facility from 30 years to 20. A comprehensive review and phased elimination of these assets will now begin, prioritizing environmental performance, energy efficiency, and safety compliance.

This sweeping reform comes amid mounting concerns over excessive capacity, especially in commodity petrochemicals where utilization rates have sharply declined in recent years.

Which facilities are affected?

The scope of the plan covers a wide swath of the petrochemical chain:

• Oil refineries


• Naphtha-based ethylene and propylene crackers


• Benzene units


• Paraxylene (PX), PTA and MEG units in polyester value chain


• Chlor-alkali production


• Downstream operations such as urea and phosphate-based fertilizer plants
.

• Synthetic fiber lines
.

• Polymer production units like PVC, PP, and PE

According to market estimates, more than 40% of China’s propylene production and about 12% of ethylene capacity currently stem from facilities older than two decades. The ratio is similarly high in segments such as short-fiber textiles and chlor-alkali, where more than 40% of installed capacity may be affected. These plants are often less efficient, more polluting, and carry higher operational risk.
On the other hand, initial market anticipations suggest that the polyester value chain may not feel much impact from this coming review given the fact that most of the sector’s rapid capacity expansion took place after 2010.

What comes next: closure, retooling or replacement?

The strategy for dealing with aging capacity appears to be multi-pronged. In some cases, authorities may mandate the outright closure of high-risk or non-compliant units. In others, facilities might be allowed to remain in operation after undergoing technological upgrades—if they meet revised energy efficiency and emissions standards. A third mechanism, known as capacity replacement, will require that any new project be offset by the closure of an equivalent or greater amount of outdated capacity.

This approach aims to slow the sector’s net expansion while supporting safer, cleaner, and more competitive operations. However, the effectiveness of this system will depend on local enforcement, financial incentives, and the willingness of operators, many of whom are privately owned or locally supported, to cooperate.

A move to cool overcapacity

Overcapacity has been a recurring challenge in China’s petrochemical sector. Years of aggressive investment and pro-growth industrial policy have created large surpluses in key products, weighing on margins and depressing utilization rates. The retirement of inefficient capacity could offer a long-term rebalancing mechanism, particularly in commodity-grade polymers like PVC, PP, and PE, where global competitiveness has come at the cost of domestic profitability.

That said, the extent and pace of implementation remain uncertain. Political considerations, local government priorities, and market conditions could delay or dilute the intended effects. Still, the policy marks a notable shift in tone from previous years and suggests that Beijing is becoming more serious about imposing structural discipline on its chemical industries.

A wave of new capacity still looms

The reform effort comes in the shadow of a massive supply boom. Between 2021 and the first half of 2025, China added nearly 16 million tons per year of ethylene capacity, over 28 million tons of propylene, just above 18 million tons of PP, almost 11 million tons of PE, and around 5.72 million tons of PVC, as per data from ChemOrbis Supply Wizard.

Even more capacity is expected to come online in the years ahead. From the second half of 2025 through 2029, China is projected to add an additional 28 million tons per year of ethylene, 19.8 million tons of propylene, 15.31 million tons of PP, and almost 18 million tons of PE.

Turning point or temporary signal?

While the true scale of plant closures and policy enforcement is still evolving, China’s direction, if sustained, could reshape competitive dynamics across global petrochemical markets. A gradual reduction of inefficient production may provide some relief to global producers who have long struggled with low-cost Chinese exports and depressed international margins.

Still, caution is warranted. The reform’s long-term impact will hinge on actual enforcement and regional follow-through, both of which have varied widely in past campaigns. Moreover, the exact timeline for the plan’s implementation remains uncertain. Whether this marks a genuine turning point or just a policy signal remains to be seen.