Risk in China: BASF Invests Billions in New Plant

LUDWIGSHAFEN (dpa-AFX) – BASF will officially open its new integrated site in Zhanjiang, China, in the first quarter of the year – an industrial location featuring interconnected production facilities, logistics, and material flows. At approximately €8.7 billion, the plant represents the company's largest single investment project to date. Critics warn that, following costly write-downs in Russia due to the war in Ukraine, BASF is once again making itself dependent on an autocratic regime. BASF counters that there is no way around the future market of China. Here are some key questions and answers on the topic.

Why is BASF investing in this location?

Because China is growing. "We expect that around 80 percent of growth in the chemical industry will be concentrated in the Asia-Pacific region by 2035," BASF states. Even today, China, which holds about a 50 percent share of the global chemical market, is already a major contributor to this growth.

"Given this trend, BASF remains underrepresented in the largest future market: in 2024, BASF generated about 13 percent of the BASF Group's total sales in China. The market share is significantly smaller than in the USA or even in Europe," the company notes. The commitment in China does not mean focusing on a single market or shifting production. Most of what BASF manufactures in China is sold locally.

German chemical companies remain generally optimistic about growth prospects in China. A business climate survey published in December by the German Chamber of Commerce Abroad in Beijing found that 84 percent of members in the chemical industry in the People's Republic expect an increase in average annual growth over the next five years. Sixty-one percent said they plan to increase their investments in China over the next two years.

How does BASF ensure human rights and labor standards?

In 2024, the company sold stakes in two joint ventures in China. The reason: reports indicated activities at the joint venture partner that "are not compatible with BASF's values." BASF intends to continue systematically auditing its own entities and suppliers. "We take every indication of human rights violations very seriously and investigate them thoroughly." Compliance with legal requirements is checked through audits.

What risks does the company see with its China engagement?

Beijing makes no secret of its desire to unify democratically governed Taiwan with China – by military means if necessary. A conflict would have devastating economic consequences, as the Taiwan Strait and the Western Pacific are key maritime trade routes, Taiwan supplies the world with urgently needed computer chips, and China, in the event of conflict, would face international sanctions. BASF says it monitors geopolitical developments very closely and assesses risk scenarios. This applies to all countries in which it operates.

What do critics say about the investment?

Critical shareholders of the chemical giant fear that BASF is making itself too dependent on the leadership in the Far East with its China investments. Recent costly write-downs in Russia are cited as a warning for management. When CEO Markus Kamieth – the former head of the company's Asia operations – took office at the annual general meeting almost two years ago, critical shareholders already voiced concerns about China, which were reiterated at the most recent meeting.

Arne Rautenberg, fund manager at Union Investment, the fund company of the Volks- und Raiffeisenbanken, is skeptical whether the investment will pay off for shareholders. Linus Vogel of the Sparkassen fund company Deka called it a "risky bet" – "especially since today's China is very different from the China at the time the investment decision was made."

How sustainable is the project?

According to BASF, the Zhanjiang plant will be powered "100 percent" by electricity from renewable sources. Through various measures, the site will reduce its CO₂ emissions "by up to 50 percent" compared to a conventional petrochemical site. "A significantly lower CO₂ footprint than most competitors – and at competitive costs: that makes us an attractive partner for our customers in China," the company promotes.

How is BASF currently doing?

The company has been suffering for some time from weak demand and falling prices. In addition to sluggish economic conditions, U.S. tariff policy is also a burden. CEO Markus Kamieth recently told the "Handelsblatt": "The chemical industry is probably experiencing its toughest period in 25 years." BASF has shut down facilities at its loss-making main plant in Ludwigshafen and launched several cost-cutting programs, including job cuts, across the group.

In Ludwigshafen, the group intends to avoid layoffs for operational reasons at least until the end of 2028 and to invest billions. With more than 30,000 employees, about a third of BASF's global workforce is based there.

Kamieth aims to steer the group onto a new course through restructuring. Some business units are to be sold off, and the agricultural division is slated to go public in 2027. Overall, BASF plans to transform from a broadly diversified, integrated chemical group with many interconnected business areas to a company with a core business in four divisions and several independent business units.

China is no longer growing as fast. What does that mean for BASF?

"Currently, there is overcapacity in China for many chemical products," the company admits. At the same time, the Chinese market continues to show very robust demand growth. "It is expected that older plants with lower energy efficiency and poorer environmental standards will have to be shut down in the coming years." In the medium term, this will lead to a reduction in overcapacity.

How big is the plant – and who works there?

"The site will be BASF's third largest integrated site after Ludwigshafen and Antwerp," the company states. Covering an area of about four square kilometers – almost the size of Mainau Island in Lake Constance – it will employ 2,000 people. "The management team consists largely of Chinese employees."

What is produced there?

The new plant includes a so-called steam cracker with a capacity of one million tons of ethylene per year and several facilities for producing petrochemicals, intermediates, and other products. According to the company, customers include, among others, the packaging industry for plastics and specialty chemicals, the construction sector for high-performance plastics, and the automotive industry for coatings and plastics./wo/DP/zb