China’s chemical makers face headwinds despite push to cut capacity

Despite Beijing’s “anti-involution” drive to boost industrial performance by cutting excess capacity, China’s chemical industry is likely to face strong headwinds this year from weakening domestic demand and mounting pushback against its surging exports.According to data released Nov. 27 by China’s National Bureau of Statistics, major industrial enterprises booked total profits of $827 billion in the first 10 months of 2025, up 1.9% from a year earlier. But the picture for chemicals was bleaker: profits from chemical raw materials and chemical product manufacturing dropped 5.4%, to $43 billion.A research report by Beijing-based Cinda Securities finds that shrinking profits in the chemical sector closely track falling product prices: China’s chemical product price index has declined for 3 consecutive years by a total of almost 36%.Cinda analyst Zhang Yansheng blames two forces for this erosion: persistent overcapacity in key chemical markets as well as weaker demand caused by a slowing economy and prolonged real-estate slump. Citing basic-chemical data from the investment bank CITIC, Zhang notes that fixed-asset investment in chemicals surged from 2021 to 2024. Even though the growth of projects under construction eased in 2025, such assets are still on the rise overall, suggesting that the capacity-expansion cycle has yet to fully play out.To tackle overcapacity across manufacturing, China’s leadership promoted an “anti-involution” policy in March that urges firms to rein in output and curb new plant construction. For a brief moment, the chemical industry seemed to benefit. Caprolactam, a nylon intermediate, saw its price climb about 5% in November after