The Chinese government is set to reduce the number of oil refiners and petrochemical producers in an effort to address significant overcapacity in the industry. According to a report by Bloomberg, authorities plan to close smaller refineries and update facilities that have become outdated. The report states that approximately 40% of China’s total refining capacity will undergo retrofitting to enhance production capabilities.
Refining operations will shift focus, with the government encouraging refiners to prioritize the production of specialty chemicals over bulk refined products. This change is in response to a market where supply has notably exceeded demand for traditional petroleum products. Demand for specialty chemicals remains robust, particularly in sectors such as artificial intelligence, biomedical devices, robotics, semiconductors, and alternative energy.
China currently holds the title for the highest oil refining capacity in the world, exceeding 21 million barrels per day as of 2024. However, industry experts, including those from Wood Mackenzie, predict that without significant adjustments, this capacity may not be sustainable over the next decade. The consultancy has projected that 10% of China’s refineries could be shut down before the end of 2034.
The refining and petrochemicals sector has been facing mounting losses, which increased by 8.3% in the first half of 2025 compared to the same period in the previous year. This downturn is attributed to overcapacity and ongoing price wars affecting various industries in China. Specifically, losses in the refining sector surged by over $1.25 billion (approximately 9 billion Chinese yuan) during the first half of 2025, reflecting the urgent need for reform.
Interestingly, the solar power sector is also grappling with overcapacity, illustrating a paradox in an industry that was initially expected to diminish the demand for oil and gas. The rapid expansion of solar energy infrastructure has led to intense market competition, resulting in price wars, business failures, and significant job losses, with 87,000 layoffs reported last year alone.
As China moves forward with these strategic changes in its oil refining sector, the industry will likely face challenges and opportunities that could reshape its landscape in the coming years. The government’s proactive stance aims to ensure a more sustainable and efficient future for both refining and specialty chemicals production.
