The Research on the Development of Petrochemical Industrial Cluster:

Lessons from Hubei Petrochemical Industry

XIAO Zelei1,2
1 Department of economy and management,Wuhan Polytechnic University, P.R.China, 430026
2 Department of economy and management, Nanjing University of Aeronautics and Astronautics,
P.R.China, 210016
ieicddd@163.com
Abstract In China, the industrial cluster will become an important strategic way in the economy
development. Because similar to firm competitive advantage, cluster advantage implies that the cluster
industry will be more productive and more innovative than individual enterprise. As a sample of
petrochemical industry in Hubei province, this paper describes the relation between the petrochemical
industry and ten high-tech industries and investigates the petrochemical industrial cluster status quo in
Hubei province, then puts forward the main problems of petrochemical cluster. At last, according to the
experiences from developed regions, the author gives the possible solutions in order to keep fit for the
development of Chinese petrochemical industrial cluster.
Key words Petrochemical industry, Cluster, Hubei province, Petrochemical enterprises, Green cluster

1 Introduction
An industry cluster, according to Porter, is a geographically proximate group of interconnected
companies and associated institutions in a particular field, linked by commonalities and
complementarities. As a new spatial organizational form, clusters offer more flexibility to companies in
the ever-changing industrial environments by offering a position between the arm's-length markets on
the one hand and hierarchies, or vertical integration, on the other. The dividing line between markets
and hierarchies was successfully set and explained in transaction cost theory in that agglomeration
economies were purported to improve the competitiveness of participating agents by lowering
transaction costs[1]. However, the technological and sociological shifts of the late twentieth century have
had a profound impact on the form and nature of organizations and the dividing line between markets
and hierarchies has blurred[2]. Industrial systems built on regional networks have been suggested to be a
main factor in shaping the competence of clusters[3]. A region's industrial system has three dimensions:
local institutions and culture, industrial structure, and corporate organization. Industrial structure
highlights the social division of labor, namely the degree of vertical integration in a specific industry. In
other words, the extent and nature of links between customers, suppliers, and competitors determine a
cluster's advantages with respect to industrial structure. Examining the contrasting experiences of
Silicon Valley in America and Zhongguancun Park in China, suggested that clusters with developed
industrial systems are more flexible and technologically dynamic than those in which experimentation
and learning are confined to individual firms.
Synthesizing the antecedent theories, Porter proposed the Diamond Metaphor to investigate the
advantages of clusters and advocated clusters as a source of strategic competitive advantage for
individual firms in clusters as well as clusters as a whole to compete with other regions. Within clusters,
firms have easy access to specialized inputs, employees, information, institutions, and public goods, and
they also benefit from the presence of complementarities. Productivity and innovation is enhanced as a
result. The linkages between firms in clusters confer competitive advantage without requiring firms to
sacrifice flexibility for economies of scale. Low barriers of entry in clusters produce high rates of new
business formation, which further enhances cluster advantages through entrepreneurship and growth
potential. Similar to firm competitive advantage, cluster advantage implies that the cluster in question is
more productive and more innovative than others. In China, the industrial cluster will become an

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important strategic way in the economy development. In Hubei province, the petrochemical industry
was regarded as one of three leading industries. With the positive adjustment of industry structure and
the thorough implement of project-driving strategy, the petrochemical industry chain in Hubei province
has been improved gradually; the petrochemical industrial cluster has already begun to show tendency
of development. It is playing a more and more important role in improving the competitive advantage of
petrochemical industry, and promoting the regional economic growth.

2 The Description of Petrochemical Industrial Status Quo in Hubei Province

As a top supplier in industry chain, Petrochemical industry will lead the development of relevant
industries, for example, the advanced manufacture, electrical information industry and so on. The figure
1 explains the relation between petrochemical industry and other ten high-tech industries. So the local
governments also pay more attention to grow the petrochemical industry.
At present, the Hubei provincial petrochemical industrial cluster mainly lies in two places, Yichang
district of Yichang city and the area of Wuhan city cycle which has been passed by the center of
government at end of 2007. The former gives priority to develop phosphorous petrochemical industry,
such as refining phosphorous product and related byproducts, like phosphorous salt. The latter gives
priority to develop the serial projects of aromatic hydrocarbon and salinization products. The cluster has
played a positive role in promoting the regional economical competitive ability.
As an important area of phosphate industry in China, this city encloses the core enterprises, such as
Yihua group Ltd, Xingfa group Ltd and so on, to make bigger and stronger phosphate industry. In 2006,
Yihua group Ltd output has been exceed 10 billion Yuan, and Xingfa group Ltd has been become the
biggest in China for producing phosphate, as well as ranked sixth in the world in related petrochemical
area. There are 7 scale-above enterprises of petrochemical industry in the district, which realized total
industrial output value of about 9,800 million Yuan (current price), account for 28. 91% of gross output
value petrochemical industry of the whole province. According to reports, the city has completed 26 key
projects of phosphorus, the annual sales income will be over 20 billion Yuan in next five years, that
means its comprehensive strength, the capability of technological development and the core
competitiveness will be at the tops of China.

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Hydrogen use

Oil and gas field

The
advanced
transport
industry

Resin modified
asphalt, automotive plastics and
rubber and so on

The
advanced
manufacture
industry

The modern
agriculture
industry

The modern
packing
industry

Oil and basic organic chemicals

(triphenylmethyl, triene, methanol)

Molding-process
supplementary
material

Polymers and polymer

matrix composites material

Agricultural film,
watering materials,
pesticide instruments
dry material and so on

Packaging films and

bag containers foam
foherbicides, etc

Shielding materials,
antenna, transmission
and storage media,
circuit boards,
photoresist, packaging
materials and so on

Fine
chemical
products

Membrane separation
materials adsorption
materials Ion exchange
resin, water treatment
agent

The biology and

pharmaceutical
industry

The
environmental
protection
industry

Carbon fiber and kevlar fiber reinforced

resin, glass steel, carbon composite
materials for producing missile, aircraft
and so on.

Polymer grouting materials, chemical

building materials (paint, doors, windows, decorative materials, etc)

The architecture industry

The
advanced
energy
sources
industry

The equipments of production for solar energy, nuclear energy and so on.

Organic chemical
raw Materials

Pesticides, fertilizers,
herbicides, etc

Methanol, ethanol,
gasoline and fuel
addictives

The electrical
information industry

The aeronautics and astronautics industry

Figure 1 The relation between petrochemical industry and ten high-tech industries

Like phosphorous petrochemical industry in Yichang district, the key products in petrochemical
industrial output value of scale-above enterprises in Wuhan city cycle was about 33 billion Yuan, which
the contribution rate of the output value of the petrochemical industry was 36.91%. Figure 2 gives the
proposition of output value for major sectors on petrochemical industry in 2006. It is estimated that the
value of petrochemical industrial output in this district will reach 30 billion Yuan in 2010

3 The Problems in Hubei Petrochemical Industry Cluster and Possible Reasons

3.1 The most of enterprises have not reach the scale of economy
The high return in petrochemical industry is always dependent on their industrial scale. The
production of petrochemical products has remarkable large-scale production effects, the larger the scale

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Chemical mining industry

0.30%
14.50%
1.30%

3.50%
21.40%

8.70%
10.40%
8.20%

28.70%

3.20%

Chemical manufacturing
industry
Chemical fertilizer
industry
Synthesizing materials
indstry
Organic chemistrical
industry
Crude oil and the
processing industry
Pesticide industry
Chemical equipment
manufacturing industry
Special chemical industry
Others

Figure 2 the proposition of output value for major sectors on petrochemical industry in Wuhan city cycle

is, the more obvious the competition advantages of enterprises are. The large-scale enterprises in Hubei
provincial petrochemical industrial cluster are few; most of them cannot reach economics of scale, so
the competitiveness is relatively weak.
For example, the refining ability of Gehua group Ltd ranks in 398th in petrochemical industry in
China and 8th in the mid-region, the output of polypropylene ranks high in the whole country, account
for 2.12% of the national total output, but the competitiveness is still not stronger than other
petrochemical enterprises, like China petrochemical corporation, Qihua group Ltd and so on. At present,
the large devices of the integration project of oil refining and chemical industry are being constructed,
that have not been put into operation, so they are unable to realize the large-scale production.
3.2 There are not regional characteristics of the petrochemical industry cluster in Hubei
The industrial cluster should have specialized characteristics. However, Hubei petrochemical
industrial cluster obviously doesnt have specialized characteristic. The main reasons are as follows,
Firstly, there are large of mid or small petrochemical enterprises, but the cooperation of these
corporations is not close in the regional petrochemical industry cluster. Because there are not differential
on their products, so they are always rivals not partiers.
Secondly, the petrochemical industrial cluster lacks the affiliated enterprises and supported
enterprises, especially being devoid of services for petrochemical industry. For example, although the
contribution of petrochemical industry to GDP has reached 20%, there are not good equipment suppliers
for the petrochemical industry in Yichang area.
Thirdly, the petrochemical industrial cluster lacks the effective organization to support the industry
development. The clusters lack effective human resources and organizations which can offer education,
information, research and technical support for the development of petrochemical industry, such as the
technological institute of petrochemical industry, job training organization, the R&D centre, etc. Service
agencies such as the assets assessment agency, lawyer familiar with foreign affairs, accountant and
estate management are few.
3.3 Weakness in the consciousness of technological innovation
According to some famous research reports[4-5], the technology level of Hubei petrochemical
industrial cluster is very low, the technological innovation system has not been formed, and the
enterprises technological innovation consciousness is weak.
The ability of enterprise's technological innovation can not compete with the east enterprise in
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related field. For example, in 2005, Yichang district has five comparatively large-scale science and
technology industrial enterprise, only two of them carried out the scientific and technological activities;
there are 33 scientific and technological projects one year, but Yihua Ltd and Xingfa Ltd take 20 of
them, which indicated that the situation of petrochemical enterprise participating in technological
innovation has not taken shape. The gross expenditure of the scientific and technological activities was
less than 70 million Yuan r; the expenditure of R&D (research and development) is 18 million Yuan,
only accounts for 0.004%of the GDP in the whole district, which represents that the foundation of the
outside environment that support the clusters technological innovation ability was not mature.

4 The Solutions to the Improve of Hubei Petrochemical Industrial Cluster

Based on the experience of development of the domestic and international relevant industrial
cluster, and the reality of Hubei Province, the writers believed that, Hubei Petrochemical Industry
clusters should have the different emphasis point in different stages of development. In earlier stage,
make effort to construct the complete petrochemical industry chain, play the product card well. In
intermediate stage, make effort to set up the intelligence advantage, play the talent card well. In later
stage, make effort to improve the environment of the cluster, develop circular economy, and play
green card well. These cards are essential to the development of the petrochemical industrial cluster.
4.1Construct the product chain, optimize the product structure
The powerful industry chain is set up on the basis of complete product chain. The complete industry
chain will improve the degree of specialization, and strengthen the externalism of cluster, and the cluster
should be good at utilizing the industry chain to promote trade and investment. The petrochemical
products are in large quantity and variety, so the groundwork of optimizing the product structure of the
cluster is to make the petrochemical products meet the changeable market demand both on quantity,
variety, and quality, which requires enterprises in the cluster to carry on products innovation constantly
base on market, and build a complete product chain with high benefit and strong adaptability.
On one hand, the enterprises need to introduce, absorb and digest the new technology and new
techniques that can improve the quality of original product, thus improve the competitiveness of the
leading products further. On the other hand, the R&D resources should be combined, enterprises should
develop the key technology, common technology (such as new separate technology, new catalysis
technology, new synthetic technology, biochemical industry, etc.), and strengthen the research and
development of new products, promote the product renewal speed, enhance the properties of product
from common to excellence, add product value from low to high, enlarge product market capacity from
small to large, then forming the unique competitive product, namely products with synthesis
competition advantage. In addition, the cluster also depend on the existing scientific and technological
resources, to offer an effective support for the product innovation, make great efforts to improve the
scientific and technological content of the petrochemical products.
4.2Create an ecological cluster and walk on the green industrialized path
The petrochemical project with dated technique, high consumption and heavy pollution should be
restrained to enter the cluster and the dated products and technology should be eliminated progressively.
As to some existing dated products and technology with serious pollution, the measure of elimination,
cutting down and limiting should be adapted separately. As to those enterprises that have no advantage
of resource, region and technology, also can not reach the economic scale, and their pollution control
can't be up to standard, the cluster should implement the policy of closing, stopping, merging and
shifting firmly.
The other thing is implementing the green technology and management. In order to expected goals,
enterprises should establish the ideology of green management, through intensive scientific management,
so that various kinds of physical resources that enterprises need are utilized most effectively, and make

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the output of unit resources reach biggest and optimum. Secondly, enterprises must produce green
products that meet market demand. According to market demand, develop the petrochemical product
that is pollution-free to the environment, and safe, high-quality to consumers. Thirdly, minimize offal in
the producing process through implementing the environmental management which include following
measures such as preventing and the whole process control, carry out cleaner production with great
effort, In addition, the ISO14000 environmental authentication and getting green to pass through
system should be carried out actively to provide safeguard for the clusters green industrialization.
4.3 Develop a recycling economy and ecological industrial economy
In fact, because the petrochemical industry products are various in style, the industry chain is
correlated with high degree and frequent cross, it will be the best choice to adopt the circular economy
mode, carry out the closing ring of feed-backing type circulation of resources-products-regenerated
resources through building the ecological industry network, then get the greatest development benefit
with the cost of environment and resource as little as possible, at last help petrochemical cluster achieve
a win-win situation for economic development and environmental protection.
Firstly, it needs to follow the principle of reduction, reusing, recycling, set up and perfect the
material and energy recycling network in the cluster. According the characteristics of the chemical
industry chain which are thin and long, the cluster should arrange the project rationally, and link
different enterprises. At the same time, according to principle of industrial ecology, the material flow,
energy flow and information flow between enterprises must be integrated, thus the endogenous relation
will form in the cluster.
Secondly, it should promote the cluster to make the transition from shallow ecology to deep
ecology. The shallow ecology is the embodiment of human centre doctrine, which advocates that
simply depend on the way of improving technology to solve the ecological environment crisis. But the
deep ecology regard mankind and nature as an entity, the mankind is the component of this system. We
believe that mankind must establish new cultural values, new consumption modes, new life styles, new
society and politic mechanisms between mankind and nature to overcome the eco-crisis fundamentally.
Thirdly, we should make great efforts to carry out intensive recycling. Intensive recycling is a kind
of high-efficiency circulation and it exists in the tertiary ecosystem. In this ecosystem, numerous
circulations can go on independently by drawing support from the solar energy, can exchange materials
in an interconnected way too. The material flow among each system is far more than the material flow
comes in and goes out the ecosystem.

5 Conclusions
As to the petrochemical industry cluster, in order to realize intensive recycling, the cluster in the
certain region should lengthen the petrochemical product chain. At the same time, enterprises should
keep improving and develop intensively in such aspects as technology, craft, personnel, management,
products, so as to ensure the high quality of product, the high efficiency of production, the low exhaust
of energy and raw materials, low pollution and high benefit. How to help related corporations and local
government realizing those goals is also our next research direction for project group.

Acknowledge

2004D001

This paper is sponsored by NSFC(70473047) and Hubei provincial department of education

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