Washington, D.C. — Chinese chemical companies are on track to join the ranks of the world’s leading innovators in the industry within a decade or two, according to a new report from the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology.
China has long been the world’s leading producer of industrial chemicals—particularly basic, commodity chemicals. But ITIF’s new study finds that China is also making rapid progress on key indicators of chemical innovation, including patents, R&D spending, and highly cited academic research papers.
This suggests Chinese firms will soon catch up to leading innovators in the West in producing more complex fine chemicals that serve as key inputs for a wide range of applications in advanced industries, including batteries, semiconductors, and solar panels.
“The chemicals industry is enormous and underpins most economic activity, potentially creating supply chain vulnerabilities if production is dominated by an adversary,” said ITIF President Robert D. Atkinson, who authored the new report. “China has dominated basic chemical manufacturing for more than a decade. Moving forward, the Chinese government has made a strategic decision to focus more on new chemicals for new applications—with a goal of increasing fine chemicals to half of China’s total production. So, if the United States wants to remain the leader in chemicals innovation, then policymakers will need to incentivize more research.”
The new report is the second in a series examining China’s ability to innovate in advanced and strategically important industries instead of serving as just a manufacturing center. The first report in the series assessed innovation in China’s robotics industry. Coming reports will cover artificial intelligence, quantum computing, semiconductors, biopharmaceuticals, consumer electronics, commercial space, nuclear power, and motor vehicles.
In examining China’s chemicals industry, ITIF’s new report reviews industry output data along with indicators of chemical innovation, including patents, R&D spending, and scholarly article citations. It then profiles two Chinese chemical companies—Wanhua Chemical Group and Rongsheng Petrochemical Co., Ltd. Altogether, the analysis shows Chinese chemical firms making rapid progress as innovators.
China is already the largest chemicals market in the world, giving Chinese producers a key advantage in their home market, ITIF notes. And while China accounted for 44 percent of global chemical production in 2022, it also accounted for 46 percent of capital investment. Given China’s pattern of performance in other industries, ITIF concludes it is likely China will be on par with foreign chemical producers in terms of innovation in the moderate term at the latest, while also enjoying a significant cost advantage.
Despite China’s advancements, the United States retains a considerable innovation advantage. To maintain this leadership in chemical innovation, ITIF recommends Congress should:
- Expand funding for chemistry and chemical engineering research via the National Science Foundation.
- Establish new Engineering Research Centers.
- Significantly expand the R&D credit.
- Restore first-year expensing of capital equipment investments.
“China wants not just to become self-sufficient in chemicals but to lead the industry globally,” said Atkinson. “China’s strategic shift toward greater innovation marks a pivotal moment in the chemicals industry. Absent coherent policy responses, Western companies’ shares of global chemical production will likely fall significantly.”
Read the full report.
