An Overview of Overseas Investment by Chinese Pesticide Enterprises, along with an Analysis of Challenges and Risks

In recent years, the state has tightened its oversight of environmental protection and workplace safety, raising the approval thresholds for new pesticide production capacity. Following the March 21 Xiangshui accident, major eastern chemical‑producing provinces—led by Jiangsu—launched comprehensive rectifications of their chemical industrial parks, resulting in production restrictions or shutdowns at many enterprises. To meet order demands, safeguard sales channels, ensure corporate survival, and mitigate production risks, pesticide manufacturers in eastern regions such as Jiangsu, Shandong, and Zhejiang have been compelled to seek new locations. Meanwhile, provinces and autonomous regions including Inner Mongolia, Gansu, Ningxia, Sichuan, Chongqing, Jilin, and Heilongjiang, driven by their own development needs, have actively developed chemical industrial parks and introduced favorable policies to attract investment.

1. Overview of Domestic Investments by Pesticide Companies in Recent Years

According to statistics, approximately 50% of Chinese enterprises currently remain outside chemical industrial parks. As national environmental protection policies tighten, some companies have been compelled to relocate their production capacity; the majority are investing in and building new production bases in central and western regions, placing the industry’s spatial layout in a period of major restructuring. Survey findings indicate that the reasons behind these out-of‑region investments are multifaceted, with environmental and safety considerations playing a key role, while corporate growth and development also constitute an important factor.

Figure 1: Analysis of the Reasons Behind Enterprises’ Off-site Investment in Factory Construction

The geographic distribution of newly built production capacity among China’s pesticide companies can be summarized as “westward expansion and northward advance.” In the west, key locations include Alashan League, Ordos, and Wuhai in central and western Inner Mongolia; Jiuquan, Lanzhou, and Baiyin in Gansu; Shizuishan in Ningxia; Guang’an, Leshan, Dazhou, Mianyang, and Nanchong in Sichuan; and Changshou District and Wansheng Economic Development Zone in Chongqing. In the central region, the main areas are Hubei, Anhui, and Jiangxi provinces. In the north, priority sites comprise Chifeng and Tongliao in eastern Inner Mongolia, Fuxin in Liaoning, Jilin City in Jilin, and Daqing and Suihua in Heilongjiang. According to responses from the 84 surveyed enterprises, over the past three years, 36% have undertaken cross‑regional investment projects to establish new plants. Among the provinces identified as particularly suitable for such investments, 35% favored Inner Mongolia, 33% preferred Ningxia, and 20% opted for Gansu, with the western region accounting for more than 80% of these preferences. Additionally, Anhui was cited by 19%, Shandong by 18%, and Liaoning by 15%.

Figure 2: Provinces That Enterprises Deem Suitable for Establishing Manufacturing Facilities

According to incomplete statistics, over the past three years, Chinese agrochemical companies have invested a total of more than RMB 52 billion in out-of‑province projects and new facilities, covering approximately 140 active ingredients and adding nearly 500,000 tonnes per annum of production capacity. Investment has been concentrated primarily in the western region—western Inner Mongolia, Ningxia, Gansu, Shaanxi, Sichuan, and Chongqing—accounting for 58% of the total investment. New projects have also been launched in central provinces such as Anhui, Jiangxi, Hubei, and Jilin, as well as in the northeastern region, though at a somewhat lower scale compared with the west. Meanwhile, in provinces like Shandong and Jiangsu, most investments are led by local firms, largely clustered within specialized industrial parks within those provinces.

2. Environmental Analysis of Regions Where Pesticide Companies Are Establishing New Production Capacity

2.1 Resource and Environmental Analysis of Regions Where Pesticide Companies Are Currently Building New Production Capacity

Overall, in recent years, with the exception of southern Liaoning and the eastern Hebei region along the Bohai Sea—areas that are particularly well-suited for developing fine‑chemical projects—the remaining regions, including eastern and central‑western Inner Mongolia, Gansu, Ningxia, Sichuan, and Chongqing, are all located in upstream river basins. In these areas, the locational advantages for establishing new chemical enterprises are inferior to those of the eastern coastal regions. The primary factors driving investment in plant construction in these regions are: (1) a proactive push to develop the fine‑chemical industry in response to economic development needs; (2) advances in equipment and technology that have enhanced clean production and resource‑efficiency in the pesticide and other fine‑chemical sectors, thereby alleviating local resource and environmental pressures; (3) labor‑cost advantages; and (4) resource endowments, such as natural gas, petroleum, coal, and electricity. An analysis of the investment environment in these regions is presented in Table 1.

Table 1 Environmental Analysis of Selected New Capacity-Developing Regions

2.2 Policy Analysis on the State’s Regulations Governing Out-of-Region Investment and Plant Construction by Chemical Enterprises

(1) The ongoing and increasingly stringent push for environmental protection

In 2016, General Secretary Xi Jinping issued two directives on ecological and environmental protection in the Yangtze River Economic Belt, explicitly stating that all economic activities along the Yangtze must be conducted on the premise of not harming the ecosystem. In 2018, he reiterated that “restoring the Yangtze’s ecology must be given overriding priority.” To implement General Secretary Xi’s strategic vision, in 2017 the former Ministry of Environmental Protection announced the establishment of a robust mechanism for ecological and environmental constraints and the delineation of ecological red lines across the 11 provinces and municipalities along the Yangtze. In 2018, the Ministry of Ecology and Environment released the Action Plan for the Tough Battle to Protect and Restore the Yangtze, strengthening strategic‑planning–based environmental impact assessments. That same year, the Ministry of Industry and Information Technology issued the Three-Year Action Plan for Resolutely Winning the Battle Against Pollution in Industries and Other Sectors, which affected numerous chemical enterprises and industrial parks along the river, requiring their relocation or upgrading. According to statistics, pesticide producers account for approximately 17.8% of national production capacity within one kilometer of rivers, with this share rising to 23.5% for key product categories in the Yangtze River Basin. Ecological and environmental governance has played a crucial role in reducing the number of pesticide enterprises and facilitating their relocation.

(2) The impetus provided by national policies on the relocation and upgrading of chemical enterprises

In 2016, the State Council issued the “Guiding Opinions on Adjusting the Structure, Promoting Transformation, and Enhancing Efficiency in the Petrochemical Industry,” which facilitated the rationalization of industrial spatial planning. In 2017, the State Council released the “Guiding Opinions on Advancing the Relocation and Renovation of Hazardous Chemical Production Enterprises in Densely Populated Urban Areas,” actively promoting the relocation and upgrading of chemical enterprises located in densely populated urban zones that fail to meet prescribed safety and health protection distance standards, while also driving the transformation, upgrading, and green development of the pesticide and intermediate‑product industries. In December 2017, the National Development and Reform Commission and the Ministry of Industry and Information Technology jointly issued the “Guiding Opinions on Promoting Green Development in the Petrochemical Industry,” stipulating that all new chemical projects must be sited within legally established chemical industrial parks. Furthermore, starting in August 2017, the former Ministry of Agriculture implemented the “Administrative Measures for the Licensing of Pesticide Production” (Ministry of Agriculture Order No. 4 of 2017), which requires manufacturers of various chemical active ingredients to locate within designated specialized industrial parks.

(3) Deployment of work safety measures and the impetus provided by relevant work safety incidents

In recent years, production accidents at chemical enterprises have repeatedly become major public concerns. Since 2005, the state has launched four rounds of special rectifications targeting chemical manufacturers, along with a series of initiatives to enhance chemical safety. The “March 21” Xiangshui accident in 2019 spurred a large-scale overhaul of Jiangsu Province’s chemical industry. On April 1, 2021, the Jiangsu provincial government released a draft plan for the restructuring of the chemical sector, setting stricter requirements for reducing the number of facilities, mandating shutdowns for upgrading, raising entry barriers, relocating operations from urban areas into industrial parks, and strengthening oversight of workplace safety. Meanwhile, Shandong Province decided to conduct a three-month, province-wide special enforcement inspection on workplace safety in key sectors, including hazardous chemicals, starting April 9, 2021. Additionally, provinces such as Henan and Jiangxi have introduced their own plans to restructure the chemical industry, focusing on streamlining and consolidating chemical parks.

(4) Guidance from national industrial restructuring policies

As environmental and safety requirements continue to tighten, provinces such as Shandong and Jiangsu have successively shut down a number of chemical enterprises, significantly raising the准入 thresholds for entering industrial parks. In April 2020, the State Council’s Work Safety Committee issued the “Three-Year National Special Rectification Action Plan for Work Safety,” under which pesticide companies are expected to move away from their current fragmented spatial distribution and establish new production bases in the central and western regions as well as the northeastern region.

3 Difficulties and Challenges Faced by Pesticide Companies in Establishing New Production Bases

Domestic agrochemical companies face several major challenges when establishing new production bases: ① Rebuilding operations is difficult. Petrochemical projects typically have long construction cycles, while industry upturns are often short-lived; ② Securing suitable industrial parks is challenging. Currently, there are few well‑developed, standardized parks that offer comprehensive infrastructure, sound management, and robust safety and environmental safeguards; moreover, with the introduction of new policies in various provinces over the past two years, the number of such parks is expected to shrink further; ③ Securing adequate funding for construction is a significant hurdle. Petrochemical investments often run into tens of millions, or even exceed billions, placing substantial financial pressure on new‑build projects; ④ The technological standards required for new facilities are high. Newly built plants must align their products, processes, and management practices with the current domestic cutting edge. According to feedback from surveyed companies, the primary obstacles to investing in and building new production bases in different locations center on site selection, operating costs, and local policy constraints.

Figure 3: Main Challenges Faced by Enterprises Investing in and Establishing Factories in Other Regions

4 Analysis of the Pros and Cons of Establishing New Production Capacity in a Different Location for Pesticide Companies

4.1 Analysis of Favorable Factors

(1) Promote the optimization of enterprise spatial planning

By establishing new factories through cross‑regional investments, companies can enhance their product portfolios, streamline their value chains, and align their offerings more closely with market demand.

(2) Introduce new production processes to reduce costs and improve efficiency.

The newly built pesticide plant employs production processes that typically meet the current domestic industry‑leading standards. By adopting advanced technologies, state‑of‑the‑art equipment, and automated control systems, the facility achieves lower material and energy consumption while ensuring more consistent, high‑quality product performance.

(3) Better leverage park resources

Public utilities and engineering systems are shared across the park. Centralized collection and treatment in chemical parks reduce the costs of managing the “three wastes”; moreover, the exchange of materials, energy, and water enhances resource utilization.

(4) Low land costs

Land use for pesticide technical‑grade active ingredient and intermediate manufacturers typically exceeds 100,000 m², with some sites spanning thousands of mu. Comparing chemical industrial parks in the eastern and western regions, the difference in land‑use costs alone can amount to roughly RMB 100 million.

(5) Operating costs for certain stages, such as electricity and labor expenses, can be appropriately reduced.

4.2 Risk Factor Analysis

(1) Resource Risks

When enterprises relocate to chemical industrial parks in China’s central and western regions as well as the Northeast, the primary risk they face is a shortage of skilled industrial workers. Historically, the western region has been dominated by heavy industries such as petrochemicals and coal‑based chemicals, with a weak foundation in fine chemicals and a lack of both technical personnel and production workers in this sector. Furthermore, inadequate supply‑chain integration and the distance from major pharmaceutical‑consumption provinces necessitate long‑distance transportation of raw materials, intermediates, and finished products, making it difficult to ensure sufficient transport volumes and timely delivery.

(2) Environmental Risk

Enterprises are relocating from coastal regions to the upper reaches of rivers, particularly to the ecologically more fragile northwest. Meanwhile, the production of pesticide active ingredients and intermediates is water-intensive and generates complex pollutant profiles; if factories and industrial parks lack adequate technologies and capabilities for treating “three wastes,” a major environmental incident could spread downstream from the upstream areas, imposing adverse impacts on the entire river basin.

(3) Operational Risk

At present, redundant construction has emerged, and overcapacity in certain sectors is worsening, thereby increasing the risk of sustained profitability for enterprises.

4.3 Issues Related to Off-site Investments by Pesticide Enterprises

(1) Impact on the location of the enterprise’s existing production base

Due to the high saturation of chemical industrial parks in provinces such as Jiangsu, Anhui, and Zhejiang, coupled with significant pressures on resources, the environment, and workplace safety, reducing both the number of parks and the number of chemical enterprises has helped improve the ecological environment—though this approach also risks impacting local fiscal revenues. Notably, since 2019, Zhejiang Province has permitted well-performing, safe, and environmentally compliant enterprises within its chemical parks in Hangzhou, Taizhou, Shangyu, and other locations to continue production and launch new projects.

(2) Impact on the location of the newly established production base

Given the long industrial chain in the production of pesticide active ingredients and intermediates, with investments often running into hundreds of millions of yuan, this sector can stimulate the development of related supporting industries, yielding a clear boost to the local economy. However, chemical manufacturing is highly dependent on natural resources and the environment, placing stringent demands on freshwater supplies, energy consumption, and the management of waste—particularly wastewater, exhaust gases, and solid waste.

5 Forecast of the Trend Toward Domestic Relocation and Establishment of New Production Bases by Pesticide Companies

From the domestic perspective, safety and environmental‑protection regulation is set to become the new normal. Coupled with persistently high land and labor costs in eastern China, pesticide manufacturers in major chemical‑producing provinces such as Jiangsu and Shandong will likely continue to establish new production bases in relevant chemical parks across central, western, and northeastern regions. As for the entities undertaking cross‑provincial expansion, eastern‑based companies—led by those from Jiangsu—are expected to remain the primary drivers. In terms of product portfolios and capacity shifts, currently popular active ingredients like glufosinate, mesotrione, and prothioconazole have all seen substantial capacity expansions in this round of new‑base projects, raising concerns about potential overcapacity and intensified price competition for certain products. According to survey data, given tightening safety and environmental standards, rising production costs, adjustments to regional industrial policies, and constraints on the number of chemical parks and concentrated zones, 50% of firms anticipate that, after 2021, Chinese pesticide producers will increasingly build new facilities in other provinces. Meanwhile, owing to high relocation expenses, limited available space within existing provincial parks, and the fact that most companies planning new sites have already completed site selection in recent years, 45% expect no further large‑scale expansions, while 5% foresee a decline in new‑base initiatives.

6 Policy Recommendations

Over the past three years, most eastern‑region enterprises have invested in establishing new production bases in other regions. This “relocation” is, in essence, out‑of‑region investment and constitutes capacity expansion, rather than a full-scale shift of the firms themselves to the central, western, or northeastern regions. Such out‑of‑region investments pose potential risks to the local ecological environment, to the control of product capacity, and to the enterprises’ own development.

6.1 It is necessary to assess and mitigate the safety and environmental risks associated with enterprises’ cross‑regional investments.

Guide enterprises to upgrade their production equipment and technological processes, enhance management standards, and mitigate safety and environmental risks. Chemical industrial parks should strengthen their capacity in safety and environmental protection, improve their ability to accommodate new projects, prioritize the development of supporting industries, and foster vertical integration of upstream and downstream products, mutual energy supply, and resource recycling, thereby supporting the green development and transformation and upgrading of agrochemical companies within the park.

6.2 It is necessary to assess and mitigate the risk of overcapacity in certain pesticide products.

Strengthen regulation and guidance over enterprises, local governments, and industrial parks; intensify research on market dynamics and production capacity for high-demand products; and issue industry early-warning alerts. Governments at all levels should adopt a holistic approach, curbing the excessive expansion of production capacity for certain pesticide products by focusing on three key areas: capacity management, enterprise capabilities, and park‑level capacity.

Source: Pesticide Science and Management, Issue 8, 2021.

Author: Research Group on the Development of the Pesticide Industry