In December 2025, China convened the Central Economic Work Conference (CEWC) to set the policy direction for 2026. Compared with the previous year, the conference delivered a decisive shift in official narrative:
For the first time, it explicitly acknowledged that the contradiction between elevated supply and sluggish demand has become prominent.
This marks a transition in policy priorities - from an emphasis on demand-side stimulus toward supply-side selection and structural upgrading, and from capacity expansion toward system-wide optimization. For the energy and chemicals sector, this signals the beginning of a new phase defined by stock-based competition, compliance-driven survival, and technology-led differentiation.
1 | Supply–Demand Dynamics: Confronting Overcapacity Through Regulation
Original policy language
- "The contradiction between elevated supply and sluggish demand has become prominent" (2026)
- "Formulate regulations for building a unified national market and intensify efforts to anti-involution competition." (2026)
GL Consulting interpretation
Overcapacity is no longer downplayed.
Rather than framing the issue solely as "insufficient demand," policymakers have directly pointed to the supply side. This suggests that large-scale approvals for new capacity are unlikely in 2026, with policy attention shifting toward destocking and the orderly exit of inefficient or outdated capacity.
From guidance to enforceable regulation.
In 2025, the policy objective was framed as drafting "guidelines" for building a unified national market. In 2026, this has been upgraded to a formal regulation with legal force, materially strengthening enforcement.
Policy implications:
- Implicit inter-provincial barriers - such as restrictive logistics rules for hazardous chemicals or discriminatory inspections against non-local refinery products - are expected to face legal scrutiny.
- Logistics costs are projected to ease, while overall market efficiency is anticipated to improve.
Price floor support.
The explicit call to curb "involution-style competition" implies potential government intervention against destructive price undercutting. This could help bulk chemical prices stabilize near cyclical lows, rather than entering a prolonged downward spiral.
2 | Energy Transition: From Conceptual Targets to a Robust Energy System
Original policy language
- "Adhere to the 'dual carbon' framework and deepen energy-saving and carbon-reduction retrofits in key industries." (2026)
- "Formulate a blueprint for building a robust energy system, accelerate the development of a new-type energy system, and expand the application of green power." (2026)
- "Strengthen the national carbon emissions trading market." (2026)
GL Consulting interpretation
Energy policy in 2026 is no longer a collection of isolated efficiency measures. Instead, it forms a closed-loop framework encompassing top-level planning, infrastructure buildout, market mechanisms and the upgrading of existing assets.
- Strategic upgrade: from energy security to energy system strength.
China's policy objective has evolved from ensuring energy supply toward building a comprehensive and resilient energy system. Capital investment is expected to accelerate in integrated "source-grid-load-storage" systems, including power generation, grids, end-use electrification and energy storage.
- Opportunities:
Long-duration energy storage technologies, hydrogen infrastructure, and materials for smart grids are expected to benefit from clearer policy support.
- Expanding green power usage - an actionable signal.
The emphasis on expanding green power usage is particularly significant, as it elevates green electricity from the generation side to the end-user level.
- Industry implication:
Electrification of chemical production processes is expected to accelerate. Processes historically reliant on coal- or gas-fired boilers are likely to face increasing pressure - and incentive - to shift toward electric heating and heat-pump-based systems.
- A growing retrofit market.
Given the impracticality of shutting down all legacy facilities, energy-saving and carbon-reduction retrofits are expected to become a central theme in 2026.
- Strategic takeaway:
Foreign companies offering high-efficiency catalysts, waste-heat recovery solutions, or digital energy-efficiency management systems are likely to find greater market potential than those focused solely on selling basic chemical products.
- Expansion of carbon market coverage.
In line with earlier policy signals that all key industries are expected to be incorporated into the national carbon market by 2027, the petrochemical and chemical sectors are projected to accelerate preparations in 2026. This includes emissions data monitoring and the adoption of low-carbon technologies. Against the backdrop of "Elevated supply and sluggish demand," carbon trading is also expected to function as a market-based mechanism for phasing out inefficient capacity, materially raising the survival costs of high-emission producers.
3 | Fiscal Discipline and Compliance: Repricing the Cost Curve
Original policy language
- "Standardize tax incentives and fiscal subsidy policies and strictly enforce fiscal discipline." (2026)
(No corresponding reference in 2025)
GL Consulting interpretation
- The risk of subsidy withdrawal.
Many domestic chemical producers - particularly smaller, regionally based firms - have historically relied on implicit local government support, such as tax rebates or discounted land. In 2026, these support channels are expected to be systematically curtailed. - A more level playing field.
For foreign enterprises and compliant industry leaders that do not depend on subsidies, this shift is structurally positive. As distorted cost advantages fade, the true cost curve of the industry is expected to re-emerge, forcing low-end competitors without core capabilities to exit.
4 | Demand Drivers: Property Stabilization, New Growth Engines
Original policy language
- Real estate: "Control incremental supply, reduce inventory, optimize supply structure, and promote the orderly development of 'quality housing'." (2026)
- New growth drivers: "Develop new productive forces in line with local conditions and expand new sources of domestic demand." (2026)
GL Consulting interpretation
- No return to property-led demand.
The phrase "control incremental supply" clearly indicates that real estate is no longer expected to serve as a primary engine for bulk chemical demand such as cement, PVC or conventional coatings. - Structural opportunities instead of volume growth.
"Quality housing" and "optimized supply" point to a shift toward higher-end construction materials, including high-performance insulation and environmentally friendly waterproofing materials. Meanwhile, "new productive forces" suggest sustained demand growth in electronic chemicals, battery materials and specialty engineering plastics.
5 | Trade Orientation: Green Trade Moves Beyond Rhetoric
Original policy language
- "Actively develop green trade and advance the integration of trade and investment." (2026)
GL Consulting interpretation
The fact that "green trade" has been emphasized for two consecutive years - and paired with "trade-investment integration" in 2026 - suggests that China is actively aligning its export framework with evolving global rules, particularly those related to carbon compliance, such as the EU's CBAM.
Overall Assessment
China's energy and chemicals market is undergoing a fundamental reset in its underlying logic. Key takeaways include:
- Reset expectations: Broad-based demand expansion is no longer the base case; market dynamics are increasingly defined by stock-based competition.
- Compliance as a prerequisite: With tighter subsidy discipline and enforceable market integration rules, reliance on local protection and implicit support is becoming unsustainable.
- Green transition as the clearest growth path: Expanding green power usage and building a strong energy system represent the most policy-certain avenues for growth in 2026.
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