Energy conservation, environmental protection, and new materials drive a new economy in the chemical industry

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Import substitution contributed to the initial development of China’s chemical industry. China’s chemical industry has gone from nothing to something through import substitution, with industrial products shifting from imports to domestic production; as a result, production scales have expanded and products are exported around the world, accounting for the largest share in global output. The basic raw materials and fundamental chemicals used in China’s chemical industry have followed such a path of rapid development. In the future, the growth of this industry will pursue new avenues, relying on the rapid advancement of fine chemicals and new materials. 　　In line with the 12th Five-Year Plan, energy conservation, emission reduction, and the new materials industry will be key areas of development in the future, and we will focus our investments in these areas during the second half of the year. Energy conservation and emission reduction need to be achieved through efforts in three aspects. At the end of 2009, the Premier of the State Council emphasized the need to plan measures to address climate change, with the goal that by 2020 China’s carbon dioxide emissions per unit of GDP would be reduced by 40%-45% compared to 2005 levels. We believe that in the future, investment will be increased in three areas: 1. In terms of energy conservation, efforts are needed in industries such as construction and automotive to promote energy efficiency; this includes using more insulation materials in buildings and making vehicles lighter to reduce fuel consumption ； 2. To reduce emissions in the context of overproduction, it is necessary to cut back on the use of organic solvents in order to prevent environmental pollution ； 3. Finally, those polluting industries are subjected to further treatment, such as desulfurization, membrane treatment, and dust recovery. 　　The future development prospects of the new materials industry are promising. Electronic chemicals are entering a period of rapid development, and they have been mentioned on multiple occasions in the formulation of policies, with related products including liquid crystal materials and color toners. The engineering adhesives industry and PU synthetic leather are also set to experience rapid growth in the future. 　　Investment strategy: Considering the long-term development of the industry as well as the 12th Five-Year Plan, the future growth of the chemical industry will mainly occur in the areas of energy conservation and emission reduction, as well as new materials and fine chemicals. In addition to focusing on energy conservation and environmental protection, China is known as the world’s factory and is a major consumer of energy worldwide. In the future, the chemical industry will need to undergo industrial upgrading, with new materials of high added value and specialty chemicals receiving support through industrial policies. By transforming the chemical industry, it will be possible to meet domestic demand effectively while supporting the sustained and rapid development of the Chinese economy. Therefore, the companies we recommend are Hongbaoli, Huitian Rubber, Cangzhou Mingzhu, Hexin Shares, Sanju Environmental Protection, and Haoyuan Environmental Protection.