Zhongjin Securities believes that capacity expansion overseas is an important way for current Chinese chemical companies to promote international development, expand markets, and achieve win-win cooperation. It is also the only way for excellent Chinese chemical companies to further expand their business. In recent years, the pace of capacity expansion overseas by Chinese chemical companies has significantly accelerated, and related enterprises in industries such as tires, PET bottles, amino acids, and gases have announced plans or continued to push forward capacity expansion overseas. Although there are many challenges facing capacity expansion overseas, the Zhongjin team believes that the most important thing is for entrepreneurs to actively play their innovative and pioneering spirit and engage in second entrepreneurship.

Currently, product exports are the mainstream way for enterprises to participate in overseas markets, and the pace of capacity expansion overseas has significantly accelerated. Zhongjin Securities divides China's industrial expansion into three categories: product expansion (exports), capital expansion (overseas acquisitions), and capacity expansion (overseas plants). At present, local production plus product exports is the mainstream way for China to participate in overseas markets. In 2022, China's chemical exports amounted to USD 313.2 billion, with an average compound growth rate of 11.2% from 2010 to 2022, and the global share of chemical exports has steadily increased. Due to many restrictive factors, capital expansion overseas has been relatively stable in recent years. Regarding capacity expansion overseas, Zhongjin Securities has analyzed 44 chemical enterprises that have already expanded overseas or planned to take action. In recent years, the pace of capacity expansion overseas by Chinese chemical companies has significantly accelerated, and related enterprises in industries such as tires, PET bottles, amino acids, and gases have announced plans or continued to push forward capacity expansion overseas.

Currently, Zhongjin Securities is bullish on enterprises that engage in capacity expansion overseas. Although capacity expansion overseas faces many economic and non-economic challenges, Zhongjin Securities has also seen successful examples of Chinese tire enterprises establishing overseas plants, Chinese refining enterprises participating in the Brunei refining project, and Japanese advanced material enterprises successful expanding overseas, and has conducted a summary of these experiences. Zhongjin Securities believes that the internationalization level of domestic chemical industry leading enterprises is relatively low and that it is necessary to take another step forward on the current basis. Capacity expansion overseas is the only way. According to Zhongjin Securities, relatively weak economic challenges exist in four types of enterprises: those facing developed countries' demand, those in industries with relatively leading global technology, those in domestic industries with scarce resources, and those with newly-established large-scale refining projects overseas. Of course, Zhongjin Securities is more looking forward to enterprises successfully expanding overseas in competitive industries by promoting entrepreneurs' innovative and pioneering spirit.

Through capacity expansion overseas, enterprises can engage in second entrepreneurship. Zhongjin Securities is bullish on: (1) chemical industry leaders that have already established production bases in Europe and achieved successful operations; tire companies that still have layout space overseas; PET bottle enterprises actively going abroad; (2) mid-stream material overseas expansion for lithium batteries; (3) newly-built large-scale refining projects in Southeast Asia and the Middle East; (4) domestic industries with scarce resources, such as oil and gas, potassium fertilizers and fluorspar, going abroad; and (5) capacity expansion overseas in competitive industries, second entrepreneurship.

Risk

There are risks of uncertainty regarding overseas political and economic environments, as well as cross-border management issues after capacity expansion overseas.