Why do upstream polymer resin companies shrink back from modified engineering plastics projects starting at 300 million RMB?

Currently, China has a significant number of enterprises engaged in the polymerization of resins like PPA, PPS, LCP, and PA66. Yet, why do they primarily sell base resins and refrain from entering the modified engineering plastics sector to serve downstream manufacturing customers directly? What are their underlying concerns?

The reasons why upstream resin producers cautiously avoid entering the modified engineering plastics field can be summarized as follows, analyzed alongside industry barriers and the competitive landscape to uncover their root and key factors:

I. Core Entry Barriers

1.Technical Barriers

Core Formulations & Processes: The core competitiveness of modified engineering plastics lies in customized formulation design. High-performance formulations are often protected as trade secrets or by patents held by foreign companies, making breakthroughs difficult for domestic firms.

Insufficient R&D Capability: Domestic technological accumulation is weak. Early high-end products (e.g., semi-aromatic nylons, polyphenylene sulfide - PPS) relied heavily on imports. The early successful entrants into PPS and PPA modification were mostly agile, market-driven companies.

Process Complexity: Modification processes demand extremely high equipment precision and teams with extensive production experience (involving safety, quality, and efficiency). Such experienced talent is scarce domestically (highly educated individuals often avoid deep involvement in production lines). Furthermore, imported compounding equipment (e.g., a fully configured twin-screw system) can require investments reaching tens of millions of RMB. Small engineering plastic trading firms typically lack the capital to bear such costs.

2.Customer & Certification Barriers

Long Certification Cycles: Downstream industries like automotive and electronics impose strict supplier audits, requiring certifications such as UL. New entrants must invest significant time, capital, and demonstrate sufficient patience.

Strong Customer Stickiness: High-quality customers prefer stable relationships with existing suppliers. New companies struggle to rapidly build trust.

3.Capital & Scale Barriers

High Investment Requirement: Establishing production lines requires imported equipment (e.g., twin-screw extruders), with a single line costing tens of millions of RMB. Economies of scale are crucial for effective cost reduction.

Working Capital Pressure: Upstream suppliers (petrochemicals, glass fiber, additives) often offer short payment terms, while downstream customers (e.g., automotive injection molders) demand long terms (e.g., the "3+6" model - 3 months deposit + 6 months credit). This mismatch puts immense strain on cash flow.

4.Talent & Brand Barriers

Scarcity of Multidisciplinary Talent: There is an urgent need for R&D and application teams combining expertise in materials science (understanding modification processes) and downstream applications (e.g., automotive, electronics). Apart from foreign companies and the Kingfa system (China's leading modified plastics company), domestic cultivation of such talent is insufficient (e.g., graduates from Sichuan University, East China University of Science and Technology, Shanghai Jiao Tong University, Zhejiang University between 2000-2005 often entered sales at foreign firms, lacking manufacturing experience).

Low Brand Recognition: Foreign companies (e.g., DuPont, Polyplastics) have long dominated the high-end market with high brand awareness. Domestic firms require sustained, long-term investment to build brand trust among downstream professional customers – an immensely difficult task.

II. Root Causes

China's industry history is short, with most resin breakthroughs occurring post-2015. Technical barriers are the core root cause. Developing high-performance modified engineering plastic formulations and processes requires long-term accumulation. Domestic companies, constrained by insufficient R&D investment and lagging fundamental materials science, struggle to break through the technological blockade by foreign firms. For instance, modification technology for general engineering plastics (e.g., PBT, PC) is relatively mature, but specialty engineering plastics (e.g., PPA, PPS) remain heavily import-dependent.

Historically, joint-venture automakers largely adopted foreign R&D and manufacturing systems, prioritizing the use of foreign material brands. Although the rapid rise of electric vehicles is changing the landscape, their supply chains still show insufficient brand recognition for domestic modified engineering plastics. Building a high-end brand requires persistent, long-term effort. Simultaneously, foreign plastic brands are implementing localization and low-price strategies, squeezing the profit margins of domestic brands.

Private enterprises, limited by inadequate investment (relying on low-cost extruders costing around 300,000 RMB which are unsuitable for quality modification, and underinvesting in technical talent), struggle to enter high-value-added markets, becoming trapped in low-end, homogeneous competition ("involution"). Foreign engineering plastic brands, leveraging their accumulated capital, brand advantages, and recent low-price tactics, have also intensified this "involution" within the Chinese market.

III. Key Factors Ranking: Talent > Equipment > Resin > Materials

1.Talent: The technical accumulation and experience of the R&D team are central to breakthroughs in formulation design and process optimization. The lack of multidisciplinary talent (combining materials + application knowledge – extremely rare and often requiring internal cultivation) is the biggest bottleneck for technological upgrading. This necessitates excellent compensation systems and robust organizational development.

2.Equipment: High-end production equipment (e.g., imported twin-screw extruders) is fundamental to ensuring product quality and stability, but requires massive investment and relies on imports.

3.Resin: High-performance synthetic resins (e.g., specialty PA, PPS) depend on imports, resulting in high costs and unstable supply chains, undermining product competitiveness.

4.Materials (Additives): The low domestic production level of additives (e.g., flame retardants, toughening agents) has a relatively smaller impact and can be mitigated through partnerships or procurement.

IV. Localization Opportunity: Resin Breakthroughs & Capital Threshold

Breakthroughs in domestic resin production present an opportunity, but require economically robust enterprises to invest in modification R&D and manufacturing. A moderately scaled modified engineering plastics company, considering the "3+6" payment realities of the automotive market, requires at least 100 million CNY in capital just to commence operations. Even after starting, the downstream customer payment terms tie up significant working capital, making achieving 100 million CNY in sales revenue a major challenge in itself (as evidenced by the 2018 case of abandoning cooperation with a major charging/high-voltage supplier in Longgang, Shenzhen).

How many resin polymerization companies are willing to invest 100 million CNY to enter the modified engineering plastics sector, especially knowing the field might take 5-10 years to become profitable? Therefore, it is recommended that only companies possessing over 300 million CNY in strength should consider this as a long-term strategic move (and even 300 million may prove insufficient within a 20-30 year horizon). Small private enterprises lack the capital and experience accumulation; this endeavor is better suited to be led by capable upstream polymer producers.

Concurrently, actively seeking out multidisciplinary talent and leveraging their experience is crucial for rapidly entering downstream niche markets and establishing brand recognition.

Conclusion

For domestic resin companies seeking to enter the modified engineering plastics field, prioritizing the resolution of technical R&D and talent cultivation is essential. They must overcome equipment and raw material bottlenecks through capital investment, while simultaneously addressing market access, marketing, and brand building.

At the policy level, support for industry-academia-research collaboration and promoting the localization of specialty resins can help lower entry barriers. However, the long-term development required to serve demanding downstream customers like the automotive industry ultimately necessitates deep strategic thinking and sustained commitment at the enterprise level.