The bankruptcy of Shandong's local oil refining giant, Huifeng Petrochemical, warns: Winter is Here
In August 2025, Shandong Huifeng Petrochemical Group, once a member of China's Top 500 Enterprises, was ruled bankrupt, marking that the crisis in China's local refinery industry has spread from marginal players to the core cohort. Founded in 1992 and recognized as one of the "Top Five Local Refineries in Shandong", the group had an annual revenue exceeding 50 billion yuan at its peak; its collapse lays bare the systemic challenges confronting the entire industry.
Squeezed by Dual Pressures of Policy and Market
A drastic shift in the policy environment is the direct trigger. The adjustment to crude oil import quotas in 2021 forced local refineries to switch to high-sulfur and high-acid feedstocks, leading to a sharp surge in equipment wear and tear. Subsequent changes to consumption tax policies further eroded their profit margins, which in turn triggered a withdrawal of bank credit. More fundamentally, the industry is facing a market structure upheaval: the penetration rate of new energy vehicles in China surpassed 40% in 2023, gasoline consumption peaked ahead of schedule, and the traditional refined oil market is shrinking at a rapid pace.
Disadvantages in Scale and Plight in Transformation
Scale disadvantage is a prevalent issue for local refineries. Enterprises with a production capacity of less than 5 million tons struggle to compete with state-owned refining and chemical giants, whose capacity often hits 20 million tons, in terms of energy consumption costs. Against the backdrop of carbon neutrality, high-emission production capacity has borne the brunt of industry regulation. Transforming to the high-end chemical sector requires huge capital investment, yet amid the industry's downturn cycle, enterprises lack both the funds and the willingness to make such investments. Meanwhile, large-scale projects such as the Yulong Island Refining & Chemical Integration Project have further crowded out the development space for small and medium-sized local refineries.
Chain Risks to Local Fiscal Revenue
Local refineries typically contribute 20% to 30% of local fiscal revenue, and their bankruptcy may trigger employment pressures and local debt crises. Industrial intensification is an inevitable trend for the sector, but the process of mergers and acquisitions is fraught with pains, and not all enterprises can find a way out.
Technological Breakthrough as a Potential Lifeline
Some enterprises have shifted their focus to niche segments such as specialty oils and new chemical materials, yet this requires robust R&D capabilities—an endeavor equivalent to a second entrepreneurship for local refineries that are accustomed to traditional operational models. Amid the tide of the new energy revolution, the golden age of the local refinery industry has come to an end, and enterprises are running out of time for transformation.
