On July 30, the Political Bureau of the Communist Party of China (CPC) Central Committee reiterated its call to "regulate disorderly competition among enterprises in accordance with laws and regulations, and advance capacity governance in key sectors," reinforcing the policy shift since early July toward anti-involution and capacity cuts.
Earlier, on July 1, the Central Financial and Economic Affairs Commission revived, for the first time in a decade, the concept of "orderly exit of outdated capacity," and notably called for curbing destructive low-price competition. This triggered swift moves across industries: steel-producing regions imposed output restrictions, leading solar PV firms scaled back production, the cement sector accelerated capacity optimization, and automakers and building materials companies halted aggressive discounting. Momentum behind the anti-involution campaign continues to build, with overcapacity reduction identified as a key priority for the petrochemical sector.
Petrochemical Sector Undergoes Structural Upgrades
The petrochemical sector faces a triple squeeze: rising feedstock costs, policy-driven capacity reduction, and weak downstream demand. This will lead to further market consolidation around leading players with scale and technological innovation capabilities. Small and mid-sized refiners face mounting pressure:
- Rising Costs: U.S. sanctions on Iran, combined with tighter domestic regulations, have driven up feedstock costs. Adjustments to tariffs and consumption tax have increased costs by 500–700 yuan/tonne, accelerating the exit of smaller players.
- Outdated Capacity Elimination: Although "anti-involution" was not explicitly mentioned, policy-led capacity reduction has steadily progressed over the past two years. An estimated 60–80 Mtpa of refining capacity (roughly 6.3%–8.3% of current total) is expected to exit over the next 3–5 years. State-owned refiners will primarily upgrade via capacity swaps, while independents face market-driven, involuntary shutdowns, with limited new capacity coming online.
- Demand Shift: This round of supply-side reform is not a blanket capacity cut, but a structural reshaping of the sector – targeting inefficient capacity while promoting technological upgrades. Demand for low-end chemical products (e.g., PE, PP) may be hardest hit amid restrictions on energy-intensive industries. Meanwhile, policy support is tilting toward advanced, low-emission, and energy-efficient chemical products, accelerating an upgrade along the refining and petrochemical value chain.
This round of 'anti-involution' campaign targets both traditional and emerging industries, signaling a broad structural reform.
- Traditional industries (steel, cement, oil refining): pressured to eliminate inefficient and non-compliant capacity.
- Emerging sectors (EVs, solar PV): encouraged to avoid price wars through production discipline and rational pricing.
Market-Driven, Rule-Based Reforms
Unlike the top-down, mandatory capacity cuts of 2015, the current reform emphasizes:
1) Enterprise Self-Regulation & Standards Upgrading
In emerging sectors – largely dominated by private enterprises – firms are phasing out backward capacity through voluntary production cuts and standards upgrading. The focus is on targeted elimination of outdated capacity, rather than across-the-board shutdowns.
2) Curtailing Local Protectionism
Beijing is cracking down on subsidy-driven, uncoordinated investment attraction and advancing a unified national market with harmonized entry rules and infrastructure.
3) Stronger Legal Deterrents
The revised Pricing Law sets legal benchmarks for unfair pricing. A new Anti-Unfair Competition Law, effective October 2025, explicitly prohibits involution-style competition, reinforcing fair market order.
Our full report provides deep insights into China's latest anti-involution and de-capacity campaign, including:
- How the 2025 approach differs from 2015
- Key measures and their implications for petrochemicals
- Analysis of the sector's triple pressure points
- Capacity, margin, and utilization trends
- A timeline of national and sector-level anti-involution policies
The above content is the major conclusions and highlights extracted from China (Energy Transition) Policy Perspective. To get detailed full text, send an email to glconsulting@mysteel.com.
