YANTAI, CHINA (REUTERS) – A crackdown on the chemical sector by the Chinese government is having a bigger impact on businesses than the United States-China trade war, an industry association official said on Wednesday (July 31), with supply chains disrupted by tough inspections and plant closures.

China has launched a series of inspection campaigns aimed at tackling illegal or irregular chemical production after a lethal explosion at an industrial park in Jiangsu province killed 78 people and injured dozens more in March.

The blast in the coastal city of Yancheng also drew attention to the role played by thousands of poorly regulated Chinese chemical manufacturers in the global supply chain, with the stricken Tianjiayi factory said to be providing components to several multinational conglomerates.

But the inspections have already disrupted the flow of key chemical ingredients, and forced international suppliers to look elsewhere or even consider moving their businesses abroad, said Mr Fu Xiangsheng, the vice-chairman of the China Petroleum and Chemical Industry Association.

“Blanket cuts at petrochemical industrial parks have much bigger impacts than the Sino-US trade war,” Mr Fu told an industry conference, without elaborating.

He also said that some local authorities had made the closure of chemical plants one of the key performance indicators for government officials, which was another major concern for investors.

China’s chemical sector crackdown is ongoing, with Jiangsu province itself promising to shut down dozens of industrial parks and small-scale chemical manufacturers and improve the way surviving plants are regulated.

Mr Shao Ji, a director of the petrochemical department of the National Development and Reform Commission, told the conference that Beijing was working to clean up, rectify and relocate chemical parks throughout the entire country, but he did not provide any further details.

China is planning to relocate more than 80 per cent of its hazardous chemical production capacity by the end of next year, with much of it being shifted to specialised industrial parks.

The Caixin financial magazine said some factories were being forced to move for a second time as a result of increasingly stringent zoning restrictions.

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