In my first blog post on chemical parks in Europa and China, I talked about the emergence of chemical parks in Europe and their current situation. I will now explain how chemical parks in China can benefit from Western experiences. 

Part II: How China can take chemical parks to the next level

Compared to Europe, in China the situation of chemical parks is a different one: Most chemical parks in existence now have expressly been established with the goal of attracting multiple chemical companies. However, this has not led to an ideal situation either. Some of the issues currently encountered with regards to chemical parks include:

  1. Large number of parks
    There are currently 381 national key chemical industrial parks and probably at least the same number of local parks – in total, this is more than 5 times the number of parks in Germany. While this may at first not seem to be a problem, it means that many of them are still fairly empty and lack the critical mass to gain real economies of scale from shared services. As a consequence, the current government policy explicitly limits further growth of the number of chemical parks, and states that chemical industry parks which fail to meet the standards shall be rebuilt, improved or shall exit legally.
  2. Low management skills
    While a number of national-level parks have highly professional management, many smaller ones particularly in Western China are run mainly by government officials with limited experience regarding the needs and requirements of chemical companies.
  3. Limited level of planning
    A s a consequence of the above, many of the smaller chemical parks are not optimized with regard to planning and integration of services. This relates to a multitude of issues including safety and environmental protection, sewage treatment, dangerous chemical waste treatment facilities, public accident emergency pool, dangerous chemical vehicle management facilities, emergency response and rescue command systems, etc.

However, these limitations of current Chinese chemical parks also highlight the benefits that may be gained from utilizing Western experience. This is particularly relevant as there is strong government support for establishing a common standard for chemical parks, and to create an independent service infrastructure for the chemical industry. In this regard, China can benefit from the experience gained at European chemical parks. While no truly standardized operating model for chemical parks has emerged yet, the existing proven models show significant similarities and thus allow identification of some key factors that render chemical parks successful:

Separate operating companies with site operations as their core business.

  • They should focus their service offering (mostly on infrastructure and utility services as well as chemical park governance) and leave non-core services to be offered by third parties (e.g. maintenance, analytics).
  • Overhead should be lean and cost should be transparent (scalable pricing through service level agreements).
  • The relationship with tenants should aim at a win-win-constellation (through risk or profit sharing).

In my experience, site service companies are the most effective if they can roll out their blueprint across multiple sites and thus realize synergies with regard to cost and know-how. In Germany, some multi-site operators have already emerged which bring the value proposition of chemical parks to a new level.

Outlook

This perspective should be even more appealing for China. Chemical parks may even become a new asset class that is attractive for industrial infrastructure investors. It is open whether and when that vision will become reality. But China can certainly overtake Europe in developing chemical park models and dedicated providers, as the general business environment makes it easier for operational companies to focus on their core competencies and leave chemical park operations to focused players. The “plug and play” ideal, only partly realized in Europe due to the constraints of existing sites, but with the successful showcases overseas (e.g., Jurong Island, Singapore) may live up to its promise in China. Partnering with European chemicals parks or using their consulting services may further accelerate that development and avoid pitfalls in developing the chemical infrastructure.

I would like to thank Dr. Kai Pflug for his contribution to this article.

 

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