Who Will Be the First to Bleed When the Domestic PC Bubble Bursts?

During the brutal reshuffling period of overcapacity and persistently low prices in China's polycarbonate (PC) industry, a group of manufacturers is teetering on the edge. The alarms sounded by their financial statements are becoming increasingly piercing. Who will be the first to fall, becoming the first drop of blood in this bloody consolidation? The answer is not unclear—certain types of manufacturers, due to their structural deficiencies, have already been pushed to the forefront of potential collapse.

Manufacturers that are highly dependent on technology and lack control over core processes are the first to bear the brunt. Such manufacturers are burdened with high technology licensing fees or depreciation and amortization expenses, leading to heavy fixed costs. Immature processes also result in unstable plant operations, frequent shutdowns that cause losses, and damage to customer trust. Their product quality often fails to meet the requirements of high-end markets (such as optical-grade or medical-grade), or their costs are significantly higher than those of similar products. Insufficient R&D investment makes it difficult for them to transition to high value-added sectors or optimize processes to reduce costs, putting them at high risk of being eliminated during industry upgrades.

Cross-industry players with tight cash flow and high leverage face significant risks. These companies, which do not have a background in the chemical industry, entered the market during its peak by taking on debt. Once the projects were completed, they coincided with a downturn in the industry, resulting in revenues far below expectations, while high interest expenses continued to deplete cash flow. The payback period for investments has been severely extended, making it easy to encounter liquidity shortages when short-term debts mature, leading to credit defaults or asset freezes, and even causing projects to be abandoned, with prior investments becoming sunk costs.

In addition, manufacturers with unreasonable regional layouts, standalone plants lacking cost synergy, as well as outdated facilities with high energy consumption, are also under pressure. The former are isolated outside core chemical industrial parks, resulting in high logistics costs, weak ability to obtain preferential raw materials and energy, and poor resilience to external shocks. The latter suffer from outdated technology, low efficiency, and high energy consumption. Under the strict “dual carbon” policy, they are either facing elimination or must bear huge renovation costs, making them completely uncompetitive in a low-margin environment.

Overall, the companies most likely to collapse first are those simultaneously burdened with multiple disadvantages: deeply entrenched in the low-end general materials red ocean, small in scale, poor cost control (due to outdated technology and/or lack of synergy), high financial leverage, and persistently negative cash flow. Sudden shocks such as drastic raw material price fluctuations or further demand contraction will act as catalysts for their capital chain rupture.

In the coming years, China's PC industry is bound to undergo a profound reshuffle. A large number of backward and small-scale producers lacking core competitiveness will be phased out. Leading companies with integrated industrial chains (such as in-house BPA production), advanced technology, large-scale production, high-end product structures (specialty PC), and strong financial strength will also face cyclical pressures. However, with their strong risk resistance and competitiveness, they will ultimately become the beneficiaries of market consolidation.