August 20, 2025 [Oil Price]- The Chinese government is planning to reduce the number of oil refiners and petrochemicals producers in the country in a bid to solve the industry’s problem with overcapacity.

According to a Bloomberg report, the authorities will shut down some smaller refineries and upgrade facilities that have become outdated. The latter constitutes some 40% of China’s total refining capacity, the report, which cited unnamed sources familiar with the plans, said.

These will be retrofitted in order to boost their production. This production will also change, with the government encouraging, per Bloomberg, refiners to produce more specialty chemicals rather than bulk refined products, where supply significantly exceeds demand.

In specialty chemicals, demand is healthier, with a focus on artificial intelligence applications, biomedical devices, robotics, and semiconductors, as well as alternative energy, Bloomberg also said, citing its sources.

China has the highest oil refining capacity in the world, at over 18.2 million barrels daily as of 2024. By next year, this will have grown to over 21 million barrels daily. This massive capacity, however, is unlikely to survive the next ten years without some trimming, Wood Mackenzie warned earlier this year. The consultancy said it expected 10% of China’s refineries to shut down before the end of 2034.

China’s refining and petrochemicals sector saw losses across the industry rise by 8.3% in the first half of 2025 compared to the same period last year on the back of this overcapacity and amid continued price wars that plague many Chinese industries. Losses in the refining industry alone jumped by more than $1.25 billion (9 billion Chinese yuan) in the first half of the year from the first half of 2024.

Solar power is another industry struggling with overcapacity, which us somewhat ironic given that solar, along with wind, was supposed to replace oil and gas, decimating the refining industry. Yet the same drive to boost capacity in refining drove a massive capacity buildout in solar, causing yet more price wars and company failures, along with 87,000 layoffs last year alone.