By Jonathan Holslag, a Belgian professor, author, and policy advisor. Jonathan Holslag is a professor of international politics at the Vrije Universiteit Brussel, where he teaches diplomatic history and international politics.
Introduction
Citric acid is an important product in the food and drug industries. Over the past decade, China has dramatically boosted citric acid production. Today, China accounts for 70 per cent of global production capacity, giving it a dominant position (table). Due to Chinese expansion, there is too much citric acid on the market today. Chinese companies also offer their products cheaply in the market. Chinese citric acid cost around $825 per tonne in 2022. Elsewhere in Asia, that was $980 a tonne. In Europe, the price was $1,650 per tonne (footnote 1).
Table: Production capacity in kilotonnes. Source: CCM and own data
The European Commission already imposed an anti-dumping measure: a duty of 33 per cent on average on imported Chinese citric acid. (footnote 2). However, that measure has a limited impact, given that the price of Chinese citric acid is over 50 per cent cheaper. As a result, imports of Chinese citric acid continue to grow, reaching a record 300,000 tonnes in 2022. This almost equals the entire European production capacity of 340,000 tonnes. European producers are struggling as a result.
Chart: European imports of Chinese citric acid (tonnes).Source: UN Comtrade. Note: Figures for 2017 not available
While competition in a free market can lead to greater efficiency and innovation, Chinese competition is putting the brakes on innovation in Europe. For example, CITRIBEL, a producer in Tienen, Belgium, decided to postpone a €60 million investment due to Chinese competition. That investment was supposed to make the plant, with a capacity of 100,000 tonnes more sustainable, pave the way for circular production and reduce inconvenience. Jungbunzlauer, Austria, also made it clear that investment in more sustainable production depends on fair competition with China. (footnote 3) In this sector, China’s capacity expansion is putting a brake on innovation in Europe.
Chinese competitive pressure has several causes. The cost of key production factors such as labour, raw materials, land and energy is still lower in China. However, the main explanation in the case of citric acid is a particularly aggressive industrial policy. The national Chinese government has long delineated the chemical industry as a strategic sector. Local governments, in turn, have determined that parts of the chemical sector are of particular strategic importance to them.
This text shows how that is the case with the citric acid sector in Shandong province, specifically in Changle and Yishui districts. Shandong has developed into the world’s leading citric acid production centre and within that centre, Shandong Ensign, also known as Weifang Ensign, has become the largest citric acid plant in the world. At the same time, Seven Star Lemon Technology began a steep rise from nowhere. That success, it turns out, was only possible because of widespread support from the local government. While the citric acid industry often receives little attention in Europe, Changle and Yishui went full steam ahead. This brief analysis is an initial exploration of Chinese industrial policy in this sector.
Shandong
Shandong is a province on the Chinese coast. It has a population of 101 million. Traditionally, it is a major producer of maize and biochemicals. Citric acid is one of the industries that takes corn as a raw material. The province is home to several major citric acid producers: Shandong Ensign Industry (until 2020 Weifang Ensign), Shandong Lemon Bio-chemical (TTCA), Shandong Rizhao Jinhe Biochemical (RZBC), Laiwu Taihe Biochemistry and Seven Star Lemon Technology. The cluster in Shandong produced about 1,700,000 tonnes of citric acid in 2022, accounting for 80 per cent of China’s production and half of global output. Shandong also has one of the leading research centres in fermentation and food: the Shandong Food Fermentation Industry Research and Design Institute, established in 1963. (footnote 4). The institute focuses, among other things, on the development of high-quality citric acid.
Over the past decades, the province made great efforts to expand and modernise its chemical sector. In 2009, Shandong approved a plan to revitalise and adapt the chemical industry. “The international economic crisis is causing great uncertainty,” it sounded at the time, “Our technological development is weak, the production of high-quality chemical products is too limited and our exports are too small.” (footnote 5), Consequently, the plan provided for more exports, more research and development, more space for the chemical industry, tax breaks and special funds. (footnote 6)
The focus of that plan was mainly on the petrochemical industry. In 2012, however, the province approved a new project to support the development of key technology and industry in the biotech production of citric acid (柠檬酸⽣物制造关键技术与产业化) (footnote 7). The main stakeholder in that project was Weifang Ensign, so now known as Shandong Ensign. Shandong Ensign’s home district, Changle, also showed great ambition to support the industry.
Shandong Ensign
Shandong Ensign emerged as the world’s largest citric acid producer. Shandong Ensign is part of a large industrial group strongly supported by the local government. The company’s plan is to double its production of citric acid: from 560,000 tonnes to one million tonnes. Shandong Esign alone will then produce more citric acid than Europe and the United States combined. Shandong Ensign’s site has expanded rapidly especially in the past three years. Between 2019 and 2021, in full Covid crisis, an entire residential area gave way to an expansion. That will increase production capacity by another 400,000 tonnes (on financing: see below).
However, the Chinese government recognised the problem of overproduction. Back in 2009, it identified overcapacity among China’s citric acid producers. (footnote 8) But instead of closing factories, the Chinese government decided that the factories should be modernised. In 2010, the State Council stated that the whole sector is a “strategic emerging industry” that deserves more government support. (footnote 9) “To take a strong position in global competition, our country must accelerate the construction of strategic industries, master key technology and acquire proprietary knowledge.”
This was the signal for Shandong province to give its chemical industry more support. In 2012, Shandong Ensign was awarded a RMB 96 million (€12 million) grant to conduct research on sustainable fermentation of citric acid with the Shangdong Institute of Biology and the Shandong Food Fermentation Industry Research and Design Institute. (footnote 10) Shandong Ensign became a “champion of Shandong’s manufacturing industry” in 2017. This means the company can claim more support from the government, is closely monitored by the government and the latter will help the company green its competitiveness and acquire the right technology “to achieve the strategic goal of a powerful country.” (footnote 11)
Image: Shandong Ensign in 2012, 2019 and 2021. Source: Google Earth.
The local government’s support to those producers is diverse. For starters, the local government, both the province and Changle District, recognises Shandong Ensign as a so-called “indispensable industry” that “should play a leading role in regional development. “The company benefited from cheap land. An entire district was expropriated and bulldozed for its expansion. The local government also approved a programme in 2012 that helped the companies modernise their technology. (footnote 12). State-owned banks also play a crucial role. In the case of Shandong Ensign, it is the local branch of Agricultural Bank of China. ABC set up a special team to support Shandong Ensign in developing a new, environmentally friendly 400,000-tonne production line. To do so, it put a state loan of RMB500 million (€63 million) on the table.
The local government wants to promote exports. (footnote14) Forty per cent of Shandong Ensign’s production is exported. Zheshang Bank’s branch also explains how Shandong Ensign benefited from export support. With the so-called Yongjin Export Pool 2.0 it offered more flexible financing to support exports. (footnote 15) The local government website proudly explains how “Nearly RMB 20 million (EUR 2.5 million) per month is transferred to Ensign’s account.” (footnote 16)
The local customs department is tasked with supporting Shandong Ensign as much as possible: “Customs will serve the enterprise with heart and soul and maintain close contact at all times.” (footnote 17) The Shandong provincial government also exploits new trade agreements, such as RCEP, an agreement with other Asian countries, and tries to increase and spread exports as much as possible as a result. Furthermore, the province also supports the going-out of companies. RZBC, for example, already invested 100 million building a citric acid plant in Hungary, good for a capacity of 100,000 tonnes.
Image: Visit by Shandong Ensign to the Communist Party museum in Anqiu. Source: Shandong Ensign.
The Shandong government is furthermore working on a strategy for the entire production chain: “The local government should support the industry, provide new targeted support, enable the development of alliances between maize producers and industry, build clusters, develop production parks, reduce costs and boost efficiency. ” (footnote 18) Today, the company plays a major role in the management of local strategic maize stocks.
Shandong Ensign, like many companies, is considered an extension of the Communist Party.The company considers itself a red fortress. (footnote 19) It prides itself on offering Party education and “never losing sight of the original mission of the Communist Party, showing perseverance and taking responsibility.” (footnote 20) It does this through visits to Communist Party monuments, through campaigns such as “My Motherland and I.”
Seven Star Lemon Technology
Seven Star Lemon Technology is another example of China’s fast-growing production capacity. It is an entirely new company, founded in 2018. The first phase of development took place between 2019 and 2021. Despite the Covid pandemic, a new factory with a capacity of 112,000 tonnes was built, worth RMB 1.2 billion (€150 million). The second phase would bring total production capacity to 400,000 tonnes and accounts for another RMB 1.8 billion (€230 million) investment. In just five years, this will see Seven Star Lemon Technology surpass the total European production capacity.
Image. Seven Star Lemon Technology in 2019 and 2020. Source: Google Earth.
The origins of Seven Star Lemon Technology are very dim. No information is available about its founder and current managing director, Liu Chengquan (刘成全). About the origin of the investment capital, there is no clarity either. The local branch of Ping An, as in the case of Shandong Ensign, praises its customer-friendly cooperation in “guaranteeing the company’s capital needs” and refers in advance to a RMB500 million project financing concluded in just two months. (footnote 21) The Yishui district government reports a RMB13 million grant “for policy implementation”, a RMB0.5 million special grant for green industry, a RMB20 million special fund for sustainable production and grants for training. (footnote 22)
Seven Star Lemon Technology is embraced by the government in several other ways. It was awarded as a “Shandong Gazelle Enterprise” and Liu Chengquan as a “Linyi City Industry Leading Entrepreneur”. Yishui district, which has a population of 1.2 million, has long been working to develop a strong biochemical industry. To this end, it opened the Lushan Chemical Industrial Park in 2010. Existing companies were financially encouraged to move to the park to build a joint ecosystem there. (footnote 23) Yishui District aims to generate RMB 100 billion in industrial output and collect RMB 1 billion in taxes on it. “We strive erbaar to build emerging and strategic industrial clusters. ” (footnote 24) As elsewhere in Shandong province, the government aims to collaborate with agriculture in doing so.”
Industry takes the lead and farmers get rich” (Leading companies + base + cooperation + farmers, ⻰头企业+基地+合作社+农户). (footnote 25) In this way, it claims to contribute to unity and food security. (footnote 26)
Yishui district is providing a project fund of RMB100 million to encourage cooperation and build a “production chain for golden maize”. (footnote 27)
In Yishui’s chemical cluster, Seven Star Lemon Technology is the youngest but also the fastest-growing company. The local district government is doing all it can to support this rapid development, including a one-stop shop for administration, working visits and a special official to assist the company. (footnote 28) “Projects are king and the companies are respected.” (footnote 29) Yishui district considers Seven Star Lemon Technology a “vital company for exports”. (footnote 30). To this end, it funds an expo for biochemistry and food companies, the “Yishui Food Expo” and efforts to strengthen brand names.
Conclusion
Citric acid is not a strategic product and there is a lot of supply in various regions. However, acid is an important product, also for the pharmaceutical industry. China’s global
market share of almost seventy per cent hear means it is becoming very dominant. China’s industrial policy in the citric acid sector is multifaceted and extremely ambitious. Not only do low prices come into play, but also significant support for innovation and exports.
This short study offers a brief insight into the case of Shandong and, more specifically, the fast-growing companies Shandong Ensign and Seven Star Lemon Technology. The study makes it clear that the citric acid cluster in Shandong is considered a strategic cluster and also presents itself as an instrument of the Communist Party. Despite the Chinese government’s awareness of the overcapacity of citric acid production, it continues to encourage the expansion of companies such as Shandong Ensign and Seven Star through credits from state-owned banks, subsidies, customs facilities, and so on.
The citric acid sector is not the most strategic sector, but it is one of many sectors suffering from Chinese industrial policy. It confirms that European anti-dumping measures are unimpressive and that Chinese governments are continuing their expansionist policies. Local and provincial governments invariably refer to national policy visions to justify this.
Incidentally, the anti-dumping measures have no impact on bilateral trade for now either, as European imports from China continue to grow. Where free competition is considered a driver of innovation, it appears that this government-driven competition complicates innovation in the case of Europe. It not only affects existing production capacity, but also puts a brake on European producers’ plans to modernise and make production capacity more sustainable.
Originally published in Dutch
Disclaimer nr 1: The author lives in a city where a major citric acid producer, CITRIBEL, is located.He drafted this text without any compensation from that company, but out of a concern for the future of the company, its employees and the city.
Disclaimer nr 2: www.BrusselsReport.eu will under no circumstance be held legally responsible or liable for the content of any article appearing on the website, as only the author of an article is legally responsible for that, also in accordance with the terms of use.
1 Citric Acid Price Trend and Forecast, Chemanalyst.com, June 2023. (link)
2 Europese Commissie, 2023. Implementing Regulation (EU) 2023/583, 15 March 2023. 3 Progress of New Citric Acid Plant in Austria, Jungbunzlauer, 13 November 2020. (link) 4 Website van het instituut. (link)
5 ⼭东省化学⼯业调整振兴规划, The Shandong Chemical Industry Adjustment and Revitalization Plan. 24 April 2009, chapter 1. (link)
6 Ibid. Chapter 4.
7 “柠檬酸⾼效⽣物制造技术开发与产业化”获 2015 年⼭东省科技进步⼆等奖, “Development and industrialization of high-efficiency biomanufacturing technology for citric acid” won the second prize of Shandong Science and Technology Progress Award in 2015, Shandong Key Laboratory for Biosensors, 11 Juli 2019. (link)
8 hVps://www.gov.cn/gzdt/2009-05/03/content_1303018.htm
9 Decision on Accelerating the Cultivation and Development of Strategic Emerging Industries
10 “ 柠檬酸⾼效⽣物制造技术开发与产业化” 获 2015 年⼭东省科技进步⼆等奖, “Development and industrialization of high-efficiency biomanufacturing technology for citric acid” won the second prize in the Shandong Science and Technology Progress Award in 2015. (link)
11 英轩实业获评⼭东省制造业单项冠军示范企业, Ensign Industrial was rated as a single champion demonstration enterprise in the manufacturing industry in Shandong Province, 23 December 2017.
12 2012-2015 Shandong Provincial Major Project “Key Technologies and Industrialization of Citric Acid Biological Manufacturing”.
13 ⼀户⼀策助推产业转型升级, Eén team, één beleid helpt de industriële ontwikkeling en modernisering. China Banking Insurance News, 10 August 2023.
14 简体繁体⽆障碍浏览国家税务总局⼭东省⼈⺠政府, State Administration of Taxation of Shandong
Provincial People’s Government offers Simplified and Barrier-Free Tax Procedures, 28 July 2023. (Link)
15 浙商银⾏“涌⾦出⼝池”2.0 版正式发布. Zheshang Bank officially releases version 2.0 of “Yongjin Export Pool”, Lujiazui Financial Network, 10 August 2023.
16 担当作为优化营商环境 狠抓落实⼒促经济发展, Take responsibility in optimizing the business environment, pay close attention to implementation and promote economic development, 19 February 2019. (Link)
17 潍坊海关关⻓王波⼀⾏莅临英轩实业调研指导⼯作, ang Bo, head of Weifang Customs, and his entourage visited Ensign Industrial for research and guidance, Weifang Esign News, 8 February 2023
18 结构性产能过剩 ⽟⽶深加⼯转型, Structural overcapacity corn deep processing transformation, Agriculture Daily, 29 June 2016.
19 众志成城 潍坊英轩实业有限公司 2020 ·The 2020 New Year’s Day Party of Weifang Ensign Industrial Co., Ltd. was successfully held 2 January 2020
20 英轩实业组织党员赴安丘开展红⾊教育学习, Ensign Industry organized party members to go to Anqiu to carry out red education and study, 1 August 2020.
21 平安銀⾏濟南分⾏助⼒鄉村振興與⾼端制造業轉型升級, Ping An Bank Jinan Branch Advances Rural Revitalization, Transformation and Upgrading of High-end Manufacturing, Ping An Bank Jinan Branch, 7 May 2023. (link)
22 沂⽔县⼯业和信息化局 2020 年⼯作总结和 2021 年⼯作计划, Yishui County Industry and Information Technology Bureau 2020 Work Summary and 2021 Work Plan, 沂⽔县⼯业和信息化局, 25 February 2021; ⼯业振兴 沂⽔先⾏, Yishui First: Industrial Modernization, Yishui County Bureau of Industry and Information Technology, 25 April 2022. (link) Subsidies for training: For an overview see the county’s website (link).
23 hVp://gxt.shandong.gov.cn/art/2022/3/2/art_15166_10300623.html
24 hVps://rmh.pdnews.cn/Pc/ArtInfoApi/article?id=33787345
25 2022 年政府⼯作报告, 2022 Government Work Report, Yangzhuang Town, 4 February 2022. (Link)
26 平安銀⾏濟南分⾏助⼒鄉村振興與⾼端制造業轉型升級, Ping An Bank Jinan Branch Advances Rural Revitalization, Transformation and Upgrading of High-end Manufacturing, Ping An Bank Jinan Branch, 7 May 2023. (link) Ook: 打造⽟⽶精深加⼯⻩⾦产业, Create a Golden Industry for Enhanced Processing of Corn, 7 June 2023. (Link) 2022 年度乡村振兴⼯作进展情况, Progress of Rural Revitalization Work in 2022, Yishui County Agriculture and Rural Bureau, 20 October 2022 (link)
27 打造⽟⽶精深加⼯⻩⾦产业, Create a Golden Industry for Enhanced Processing of Corn. 14 June 2023. (Link) 28 七星柠檬项⽬:店⼩⼆式服务让项⽬建设跑出加速度, Seven Star Lemon Project: One Stop Ship Services Makes the Construction of the Project Go Fast, 14 November 2019. (Link) 陈⼠贤带队调研⻝品⽣产企业发展情况, Chen Shixian Led a Team to Inspect the Development of Food Production Companies, 8 June 2023 (link). 29 建⽴营商环境监测点 拓宽以商招商新渠道 –杨庄镇⼈⼤开展⼈⼤代表优化营商环境⼯作实, Build a Business Environment Coordination Point to Broaden New Avenues of Corporate Investment, 27 May 2022 (link) 30 Chen Fei Visited our County to Investigate Foreign Trade Work, 陈⻜来我县调研外贸⼯作, 17 August 2023 (link).
16 担当作为优化营商环境 狠抓落实⼒促经济发展, Take responsibility in optimizing the business environment, pay close attention to implementation and promote economic development, 19 February 2019. (Link)
17 潍坊海关关⻓王波⼀⾏莅临英轩实业调研指导⼯作, ang Bo, head of Weifang Customs, and his entourage visited Ensign Industrial for research and guidance, Weifang Esign News, 8 February 2023
18 结构性产能过剩 ⽟⽶深加⼯转型, Structural overcapacity corn deep processing transformation, Agriculture Daily, 29 June 2016.
19 众志成城 潍坊英轩实业有限公司 2020 ·The 2020 New Year’s Day Party of Weifang Ensign Industrial Co., Ltd. was successfully held 2 January 2020
20 英轩实业组织党员赴安丘开展红⾊教育学习, Ensign Industry organized party members to go to Anqiu to carry out red education and study, 1 August 2020.
21 平安銀⾏濟南分⾏助⼒鄉村振興與⾼端制造業轉型升級, Ping An Bank Jinan Branch Advances Rural Revitalization, Transformation and Upgrading of High-end Manufacturing, Ping An Bank Jinan Branch, 7 May 2023. (link)
22 沂⽔县⼯业和信息化局 2020 年⼯作总结和 2021 年⼯作计划, Yishui County Industry and Information Technology Bureau 2020 Work Summary and 2021 Work Plan, 沂⽔县⼯业和信息化局, 25 February 2021; ⼯业振兴 沂⽔先⾏, Yishui First: Industrial Modernization, Yishui County Bureau of Industry and Information Technology, 25 April 2022. (link) Subsidies for training: For an overview see the county’s website (link).
23 hVp://gxt.shandong.gov.cn/art/2022/3/2/art_15166_10300623.html
24 hVps://rmh.pdnews.cn/Pc/ArtInfoApi/article?id=33787345
25 2022 年政府⼯作报告, 2022 Government Work Report, Yangzhuang Town, 4 February 2022. (Link)
26 平安銀⾏濟南分⾏助⼒鄉村振興與⾼端制造業轉型升級, Ping An Bank Jinan Branch Advances Rural Revitalization, Transformation and Upgrading of High-end Manufacturing, Ping An Bank Jinan Branch, 7 May 2023. (link) Ook: 打造⽟⽶精深加⼯⻩⾦产业, Create a Golden Industry for Enhanced Processing of Corn, 7 June 2023. (Link) 2022 年度乡村振兴⼯作进展情况, Progress of Rural Revitalization Work in 2022, Yishui County Agriculture and Rural Bureau, 20 October 2022 (link)
27 打造⽟⽶精深加⼯⻩⾦产业, Create a Golden Industry for Enhanced Processing of Corn. 14 June 2023. (Link) 28 七星柠檬项⽬:店⼩⼆式服务让项⽬建设跑出加速度, Seven Star Lemon Project: One Stop Ship Services Makes the Construction of the Project Go Fast, 14 November 2019. (Link) 陈⼠贤带队调研⻝品⽣产企业发展情况, Chen Shixian Led a Team to Inspect the Development of Food Production Companies, 8 June 2023 (link). 29 建⽴营商环境监测点 拓宽以商招商新渠道 –杨庄镇⼈⼤开展⼈⼤代表优化营商环境⼯作实, Build a Business Environment Coordination Point to Broaden New Avenues of Corporate Investment, 27 May 2022 (link) 30 Chen Fei Visited our County to Investigate Foreign Trade Work, 陈⻜来我县调研外贸⼯作, 17 August 2023 (link).
