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The Dutch chemical industry is under increasing pressure due to cheap imports from China. This is evident from research by Rabobank into import competition, in which domestic production is replaced by imports. China's competitive pressures are shifting more and more from consumer goods to industrial and intermediate products, including chemical products.
CDA MPs Judith Bühler and Joris Lohman on Tuesday put parliamentary questions to Minister of Economic Affairs and Climate Heleen Herbert and Minister Sjoerd Sjoerdsma (Foreign Trade and research Cooperation) about the growing vulnerability of the Dutch chemical sector due to cheap Chinese imports.
Chemical sector effect
Rabobank identifies 91 chemical items, plastics and rubber items to which there are clear signals of import competition. At sixteen of these product groups, import development mainly comes from China. These include PVC floor and wall coverings, amino acids to medical and manufacturing applications, surgical rubber gloves, adipic acid to nylon and petroleum resins to adhesive and rubber items.
The researchers find that the Netherlands is relatively heavily dependent on chemical items from China. Of all the chemistry that Dutch sector uses, 3.6 percent come immediately from China. When indirect dependencies through international value chains are also included, that share rises to 5.3 percent. This means that the Netherlands is clearly higher than various other European countries.
Cheap imports increase vulnerability
Rabobank also examined what the consequences might be if cheap Chinese chemical items gain a larger market share. In a model simulation with ten percent cheaper Chinese basic chemistry, the Dutch production of basic chemistry falls by seven percent. In the short term, some companies benefit from reduce raw material costs. At the same time, the application on Chinese supply is growing. When China then restricts the export of chemical items, this leads to greater production losses and a greater loss of wealth to the Netherlands than in the current situation.
Rabobank warns that continued import competition is not only putting pressure on production capacity and employment, however could also weaken the position of European manufacturing value chains. Chinese companies often benefit greater strongly from low-cost semi-finished items, according to the research, allowing competitive advantages to flow to items further down the chain, closer to the end product.
Geopolitical tensions
In addition, the disappearance of European production capacity can increase application on China and decrease security of supply when geopolitical tensions or trade restrictions occur. The researchers warn that rebuilding lost production capacity requires a lot of time and investment and is therefore not self-evident.
Source: Rabobank, The downside of cheap Chinese imports.
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