17.10.2019
Emerging Chemical Parks: a Comparison of Europe and China‘s Chemical Centers
For a long time, Europe was regarded as the El Dorado of chemical centers. Within less than two decades, numerous companies throughout Europe have merged to form powerful chemical parks. Driven by the rapid development of the Chinese chemical industry, nationally important chemical centers were established in China too. In this blog article we compare Europe‘s and Chinas chemical parks.
Chemical Parks Conquer the European Chemical Industry
The origin of the first European chemical parks can be traced back to the 1990s. A change in thinking in the chemical industry, motivated by the use of synergies and economies of scale, led several independent chemical companies to merge into production plants. Over the years, these production plants have developed into closed industrial parks that are protected from external access and different chemical companies conduct joint research and production. The size of the chemical parks depends on the location. In Europe, chemical parks comprise of four to 60 different companies. In addition to synergy effects, chemical companies benefit above all from well-developed logistics and transport links, a value-added chain along the entire chemical production chain and a creative and research-driven innovation concept. In addition, industrial parks have a high proportion of qualified workers and low fluctuation and strike frequency. From an investor’s point of view, chemical parks are more interesting than individual chemical companies because chemical parks have a strong industrial base, diverse customer industries and a unique value chain that is not present in individual chemical companies.
As the number of chemical companies within a chemical park increases, companies are increasingly faced with the question of how resources and services can be allocated efficiently and in line with requirements. The companies located in the chemical park saw the answer to this question in independent operating companies that were familiarized with the management of the chemical park and with the needs of the users of the chemical park. The following advantages spoke in favor of setting up operating companies:
- The chemical park’s all-round offering helps chemical companies to concentrate on their core business and remain competitive. It is not the individual companies, but the site operators who take care of environmental protection, fire protection and plant protection.
- As a form of representation of interests, the site operators ensure that the duration of the companies located in the chemical park is taken into account to the same extent. Due to the neutral business relations, the companies still expect the operating company to work efficiently and transparently.
- The operating company ensures that the costs and risks with regard to the infrastructure and the services are borne equally. These responsibilities lie with the companies acquiring stakes in the operating companies or by the companies paying for the services used.
- A special task of the site operators is to make the site more attractive by implementing innovations, thus enabling new companies to relocate and connect to the infrastructure.
Successes and Problems of European Chemical Parks
The first chemical parks offered European chemical companies numerous advantages and helped them to assert themselves against competing companies from all over the world and consolidate their economic position. In particular, the operating companies enabled chemical companies to concentrate on their core business activities by taking over cross-company administrative activities. On the other hand, the long road to lean and efficient structures was problematic. Especially at the beginning, chemical parks turned out to be relatively administrative in nature. The biggest problem with European chemical parks, however, is maintaining their attractiveness. Although there are still big investors and companies settling in, such as the establishment of the Chinese plastics plant Kingfa in the Wiesbaden Chemical Park in 2016, the total investment is declining. At the same time, the construction of new chemical parks has become more expensive and costly due to stricter safety and environmental regulations. At the same time, new chemical parks were being built in East Asia, while US chemical parks became more attractive due to simplified access to shale gas through fracking. These circumstances led many chemical companies to leave the European chemical parks and settle in the USA or China. This resulted in the closure of plants at chemical parks all over Europe. For this reason, European operating companies are now hardly able to attract new tenants to their chemical parks. Instead, it can be observed that the space freed up is more likely to serve as additional working space for companies which already located in the chemical park.
Chinese Chemical Parks: At the Center of Growth Markets
While European chemical parks are struggling with decreasing tenants and investors, the goings of long-standing chemical companies and stricter regulations, Chinese chemical parks are enjoying great popularity. In hardly any other country is the chemical sector currently booming as strong as in China. In regions such as Nanjing, Shanghai and southern Guangdong, large and modern chemical centers have emerged that have been supported by billions in investment from all over the world. Investors include Shell, BP and the Kuwait National Petroleum Company. Furthermore in other Asian countries, numerous chemical parks have been and are being built with good logistical links to major and important customers in Asia. Despite the economic upswing, skepticism is spreading among some chemical companies and investors. The following points of criticism are frequently mentioned:
- Different significance of chemical parks
China has around 400 chemical parks, which are considered to be of great importance. That is about five times as many parks as in Germany. There are also numerous local parks. However, these parks in particular have the problem that large areas are not rented out. Particularly in remote locations, many business premises remain unused. They do not reach the critical number of companies it would take to achieve the desired sales effects. As a result, the Chinese government has recently restricted the construction of further chemical centers. Instead, new quality standards are being introduced, according to which the chemical parks are to be rebuilt and improved.
- Lack of industry experience
While the operating companies are mostly professional managers, numerous chemical parks, mainly located in western China, are supervised and managed by government officials. In contrast to the operating companies, however, the officials do not have sufficient management experience to be able to respond to the special needs and requirements of the chemical companies.
- Difficulties in coordination and integration
The limited industry experience of government officials has led to fundamental shortcomings in the coordination and integration of chemical park services. Important issues such as safety and environmental protection, which include wastewater treatment, hazardous chemical waste facilities, hazard prevention and the planning of rescue measures, are dealt with only rudimentarily compared to operating companies.
Despite the difficulties mentioned, experts are certain that Chinese chemical parks will be able to solve the problems. Many industrial parks have learned from the mistakes of European chemical parks by organizing experienced and independent operating companies whose primary objective is assisting local chemical companies and investors. They focus mainly on essential services relating to infrastructure, administration and utilities. Other non-core services are outsourced to specialized companies. The positive side effects are the structures remain lean and overheads can be kept low and transparent. Since the operating companies are independent and profit-oriented, they are constantly working to improve their chemical parks with the help of innovations and optimized location factors. This increases not only their attractiveness to potential tenants, but also encourages new investments. Experts consider the future prospects of Chinese chemical parks to be particularly promising if China continues to make its sites attractive for chemical companies and investors.