Cheap Chinese chemicals put Dutch industry under pressure

The Netherlands is among the European countries most reliant on Chinese chemicals. While competitive pressure was long concentrated on consumer goods, it is now shifting toward industrial chemicals and intermediate products—a trend with significant implications for the Netherlands.

Direct imports from China account for 3.6 percent of all chemical products used by Dutch companies; when indirect supply chains are included, that figure rises to 5.3 percent. This makes the Netherlands significantly more dependent than, for instance, France. While these percentages may seem low, China already holds a monopoly on many substances.

To draw a parallel with the automotive industry: if you manufacture a car yourself but the engine must come from China, that engine represents only a small percentage of the vehicle—yet it is an essential component. The same applies to the chemicals that serve as raw materials for a vast array of products manufactured in the Netherlands.

Geopolitical risk

This dependency is not merely an economic issue; it also poses a geopolitical risk. In recent years, China has imposed export restrictions on materials such as gallium, germanium, and certain graphite products. A similar restriction on basic chemicals would hit the Netherlands hard.

Basic chemistry is the branch of the chemical industry focused on producing simple, large-scale chemical substances that serve as building blocks for more complex products, such as plastics, medicines, paints, and cosmetics.

Strategic risks

While cheap imports lower costs for companies in the short term, they leave the Netherlands vulnerable to geopolitical tensions or export restrictions. In such a scenario, the resulting economic loss would outweigh the gains previously realized from cheap imports. 

“That is where the tension lies for me: between short-term gain and long-term loss,” acknowledges Mark Boneschanscher, Dean and Professor of Sustainable Chemistry Innovations at TU/e. 

“You might reap an economic benefit today from a cheaper product from abroad, but in doing so, you simultaneously dismantle something in the Netherlands that you might desperately need later on.”

Displacement of Dutch production

If basic chemicals—essential for broader industrial supply chains—shift to China, the Dutch manufacturing industry weakens. Rabobank calculated the impact: if chemicals from China become 10 percent cheaper, Dutch production drops by 7 percent.

Rabobank also modeled what would happen if Chinese basic chemicals became even cheaper. A 10 percent price drop leads to a 7 percent decline in Dutch basic chemical production. This decline comes on top of an already significant contraction: since 2022, the Dutch chemical sector’s output has fallen by a quarter.

Political concerns

If Europe loses too much production capacity, we become increasingly dependent on China for products essential to our economy and sustainability efforts. CDA members Judith Bühler and Joris Lohman recently submitted parliamentary questions regarding this issue.

Anglo-Saxon vs. Rhineland models

“It is also a philosophical question: what do we actually expect from a company in the Netherlands? You can reason primarily based on shareholder value and financial returns, which drives a focus on short-term profit.”

“This Anglo-Saxon model is dominant in the petrochemical industry. Alternatively, you can take a broader view based on the value a company creates for employees, the region, and society. We often associate the latter with the Rhineland model, with BASF and DSM serving as prime examples.”

Crossroads

The Dutch chemical sector is currently at a crossroads: do we opt for short-term gain or long-term resilience? And how much production capacity can the Netherlands afford to lose?

Boneschanscher considers this a complex question. “The chemical industry is highly integrated. If you specialize in high-end fine chemicals but become dependent on, say, China for virtually all your building blocks, you increase your supply chain dependency and lose vertical integration.” 

“The more steps in the chain you lose, the less efficient you become; your margins shrink, and you are more likely to lose your knowledge advantage.”

“You don’t have to carry out every step of every supply chain in the Netherlands; that isn’t realistic. However, supply chain integration fosters knowledge exchange, speed, and economic benefits. If you remove the foundation, you shouldn’t be surprised when the end of the chain eventually follows suit.”

Battery market

China demonstrated this itself with the battery market. “For a long time, the prevailing view in Europe was: let the extraction and processing of raw materials happen elsewhere, while we handle the high-tech segment—and the associated margins—such as selling electric cars. But it’s not that simple.”

“Whoever controls processing, materials, and large-scale production builds up knowledge, infrastructure, a supplier base, and a skilled workforce. That makes the step to the next part of the value chain increasingly smaller.”

This is how China built a highly integrated battery value chain. Moving from raw material processing to battery cell production, integration into battery packs, and finally the manufacturing of electric cars proved to be a small step. “And yet, here we are, surprised that China is ‘suddenly’ taking over the international electric car market,” says Boneschanscher, shaking his head.

Cars

“I recently attended a car show in Amersfoort and saw a massive surge of Chinese brands: Firefly, NIO, BYD, Dongfeng,” Boneschanscher notes. “To my mind, Tesla was the only real competitor left.”

“The Chinese vehicles were more advanced and cheaper than the electric models from BMW and Mercedes. I even saw a Huawei car online recently that featured a home cinema system. European cars are simply being pushed out of the market now.”

“That is precisely why I object to the idea that basic chemicals are a low-margin business and can therefore just be shifted to China,” the chemist says, circling back to the original question.