China's refining cycle has pivoted from building capacity to optimizing it. Replacement builds inside national petrochemical bases are raising the quality of the operating refineries, while policy is steadily retiring units that fail current quota and compliance requirements or face sourcing constraints. Refinery runs are therefore determined by configuration and compliance rather than headline Crude Distillation Unit (CDU), with retail-tax execution and feedstock oversight now the key factors shaping refinery profit margins.
1 | Capacity Replacement: Integrated hubs anchor runs as low-efficiency units exit
Approvals have shifted from greenfield growth toward upgrades and "large replacing small" inside national petrochemical bases. Incremental additions concentrate in integrated complexes, while inefficient units - primarily among independents - exit under policy discipline and demand realignment. Since most of the phased-out units were operating far below their designed capacity, their removal raises the overall efficiency of the fleet instead of cutting national throughput proportionally. The production capacity envelope into 2030 is capped, with composition skewed more integrated, more compliant, and easier to schedule.
China's Capacity Distribution by Refining Groups (2024)
Source: GL Consulting
For 2030 outlook values, please refer to the full report
2 | Operating Rate Rebalance: Integration supports higher averages
Integrated state-owned and leading private complexes sustain structurally higher and steadier operations, supported by feedstock security and value-chain synergies. Independents operate within quota, sourcing and compliance constraints. As high-efficiency units scale and legacy sites wind down, the national refining operating rate is expected to stabilize toward the upper end of its historical range by the end of the decade.
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Demand mix shifts - EV in light-duty transport, LNG in freight, aviation normalization - encourage yield strategies that reward configuration depth, widening the performance gap in favor of integrated assets. |
3 | Quota & Scale Consolidation: Majors expand share as independents retreat
By structure, majors hold the larger share of national CDU and anchor national runs, while large private integrated hubs form the second pillar. Tighter quota control, higher substitute-feedstock costs, and limited export licenses are pushing traditional independents to retrench. Independents' lower run rates and thinner profit margins reflect the erosion of discounted-barrel advantages and a slate tilted to gasoline and diesel.
The forward balance is a more concentrated map: majors expand share, leading private complexes pivot further into olefins and specialty chains, and sub-scale independents face attrition rather than growth.
Utilization Performance of Shandong Independents (2021- Early April 2025)
Source: OilChem
4 | Policy Screens the Margin Chain: Retail tax shift and feedstock rules compress discounts and raise costs
The retail-end consumption-tax shift, stricter deduction rules for substitute feedstocks, and refined-product export rebate adjustments reprice costs and compress discounts along the chain. Retail profit margins historically favored gasoline over diesel at key intervals, but discount-driven buffers narrow as digital oversight strengthens.
Feedstock oversight and deduction rules lift effective costs for plants reliant on fuel oil or bitumen feedstocks, accelerating rationalization in regions where compliance is weakest. As export opportunities become increasingly dependent on license availability and policy windows, refinery margin cycles are moving more in step with policy timing. The net effect is higher compliance, narrower discounting, and faster exit of marginal production capacity - while scale, traceability, and trace depth remain durable advantages.
Click here for a report of China's refining capacity utilization, the SOE-independent balance, and policy pass-through to margins through 2030.
This white paper is part of the Special One-off Report – Thriving in Turmoil: Unveiling the Future of China's Oil Market (2024–2030)
Explore the previous editions here:
A 360 View: Navigating China's Oil Value Chain from Crude to Fuel Oil
From Margin Disruptions to Product Rebalancing: China's Refining Response Mechanism
Macroeconomic Drivers & China's Shifting Oil Demand Structure (2024–2030E)
Sectoral Shifts in China's Economy: Redefining Oil Demand through 2030E
Import quotas and supply security: What's next for China's crude?
