Industrial gases have been dubbed the “blood of the industrials market” and hence play an important role in China’s national economy. Industrial gases are widely used in metallurgy, petroleum, petrochemicals, chemicals, mechanical, electronics and aerospace and are of great importance to a country’s national defense, construction and healthcare sectors. However, given the current economic downturn, slowdown in growth and excess capacity reduction, investors may be hard-pressed to determine where new investment opportunities and growth prospects lie. In this Executive Insights, L.E.K. Consulting assesses investment opportunities in this market.
L.E.K. expects that the industrial gas industry in China will maintain double-digit growth due to two key drivers: 1) steady GDP growth (6―7%), 2) the Chinese government’s 13th Five-Year Plan’s prioritization of eight industries.
The industrial gas value chain encompasses four major stages: raw material and equipment, gas production, gas supply and downstream application. The first three stages have been largely integrated already. Among the three major downstream application industries, we believe the electronics industry is more attractive for future investment opportunities due to: 1) rapid growth in demand; 2) high reliance on specialty gas and advanced technologies; 3) relatively low competition compared with other industries.
In a market where multinational corporations monopolize the Chinese electronics gas market, L.E.K. suggests domestic gas companies think about the following choices:
- Accelerate R&D
- Cooperation with industrial gas research institutions
- Mergers and acquisitions within the industry
- Pursue joint ventures with foreign manufacturers and facilitate technology exchange