The Chinese government is set to reduce the number of oil refiners and petrochemical producers in a strategic move to address significant overcapacity within the industry. According to a report by Bloomberg, the authorities plan to shut down smaller refineries and upgrade outdated facilities, which account for approximately 40% of China’s total refining capacity. This initiative aims to streamline operations and enhance production efficiency across the sector.
In an effort to adapt to market demands, the Chinese government is encouraging refiners to shift their focus from bulk refined products to specialty chemicals. Demand for these chemicals is currently stronger, driven by sectors such as artificial intelligence, biomedical devices, robotics, semiconductors, and alternative energy. The push for greater production of specialty chemicals is expected to alleviate some of the pressures caused by oversupply in traditional refining outputs.
China currently holds the title for the highest oil refining capacity worldwide, with over 21 million barrels per day projected for 2024. However, industry analysts from Wood Mackenzie suggest that this extensive capacity may not be sustainable in the long term. The consultancy anticipates that 10% of China’s refineries could shut down by the end of 2034, underscoring the urgent need for consolidation in the sector.
The refining and petrochemicals industry in China has already experienced significant financial losses, which increased by 8.3% in the first half of 2025 compared to the same period in 2024. Contributing to these losses is a continuing price war affecting various sectors within the Chinese economy. Specifically, losses in the refining segment surged by more than $1.25 billion (approximately 9 billion Chinese yuan) during this timeframe.
Interestingly, while the solar power industry was expected to reduce reliance on oil and gas, it too has faced challenges related to overcapacity. This situation has ironically led to price wars and company failures in the solar sector, resulting in 87,000 layoffs in the previous year. The drive to enhance capacity in both the refining and solar industries has created a complex landscape where both sectors struggle to maintain profitability.
As China navigates the complexities of its refining and petrochemical landscape, the government’s proactive stance on consolidation and modernization may play a crucial role in stabilizing the industry for the future.
