According to The Economist, Changxing Island in northeastern China has transformed from farmland and fishing villages into a global chemical powerhouse in little more than a decade. The island’s specialized petrochemical plant opened in 2012 and has grown relentlessly, with private company Hengli investing approximately 25 billion yuan ($3.5 billion) to become the world’s largest producer of purified terephthalic acid (PTA). China has gone from being a net importer of PTA a decade ago to now accounting for more than 60% of global production, forcing companies in Canada, Europe, and Japan to reduce output or stop production entirely. The transformation was fueled by state support including tax incentives, preferential land pricing, credit lines from state banks, and collaboration with the Dalian Institute of Chemical Physics. This case study illustrates why displacing China in global supply chains remains extraordinarily difficult despite international concerns about excess capacity.
The Unbeatable Combination
What makes China’s manufacturing dominance so difficult to challenge isn’t any single factor, but the synergistic combination of elements working in concert. The Changxing Island story reveals a playbook that’s been replicated across countless Chinese industries: strategic geographic selection of underutilized deepwater ports, comprehensive government support spanning from infrastructure development to regulatory fast-tracking, and private sector ambition that leverages these advantages to achieve global scale. Unlike Western industrial policies that often operate at arms-length, China’s approach creates direct pipelines between academic research, government planning, and corporate execution. The proximity of the Dalian Institute of Chemical Physics to Hengli’s facilities represents a level of integration that most competitors simply cannot match, creating what amounts to a state-funded R&D department for private enterprises.
Supply Chain Realities for Global Competitors
For international businesses and policymakers, the implications extend far beyond chemical production. The consolidation of PTA manufacturing in China creates critical dependencies that ripple through multiple industries, from textiles to packaging. While some argue that commodity chemicals like PTA aren’t strategic concerns, this overlooks how supply chain concentration creates systemic risk. The Biden administration’s executive order on supply chain resilience specifically highlighted the need to reduce dependence on single sources for critical materials. Yet as Changxing demonstrates, rebuilding domestic capacity becomes increasingly challenging once China achieves dominant scale and cost advantages. Competitors face not just the capital investment required, but also the technological gap created by China’s integrated research-to-production pipeline.
The Sustainability Question
Despite the impressive growth trajectory, significant challenges loom for China’s chemical dominance model. The article’s mention of truck drivers waiting for orders and concerns about Hengli’s debt points to broader vulnerabilities in China’s industrial strategy. The country’s manufacturing sector has historically prioritized market share over profitability, leading to chronic overcapacity issues that IMF research shows have contributed to corporate debt levels exceeding 160% of GDP. This creates a delicate balancing act: maintaining global competitiveness while addressing the financial sustainability of these industrial champions. The current slowdown in polyester demand suggests that even dominant positions don’t guarantee immunity from global economic cycles.
Beyond Chemicals: The Broader Pattern
The Changxing story matters precisely because it’s not unique to chemicals. We’re seeing similar patterns emerge in automotive exports, renewable energy equipment, and electronics manufacturing. What makes this particularly concerning for Western policymakers is the compounding effect: as China moves up the value chain into more sophisticated chemical products, as planned for Changxing’s next phase, the technological gap widens. The island’s evolution from basic PTA production to building its own supertankers for crude oil transport demonstrates the vertical integration strategy that makes Chinese manufacturing clusters so resilient and difficult to displace.
The Moving Target Problem
The most challenging aspect for competitors is that China isn’t standing still. While other nations debate industrial policy, China continues executing its manufacturing upgrade strategy. The planned move into more specialized chemical products represents exactly the type of value-chain ascension that Western economies hope to achieve themselves. This creates what economists call a “moving target” problem – by the time competitors organize response strategies, Chinese manufacturers have already advanced to the next technological frontier. The combination of scale, state support, and relentless private sector ambition creates a momentum that’s extraordinarily difficult to counter, suggesting that chemical supply chain diversification efforts will need to be both strategic and sustained to have any meaningful impact.
