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Against the backdrop of energy transformation and carbon reduction actions, the global chemical industry is facing complex problems such as reduced demand and slowing growth. As the world's largest chemical consumer market and leading chemical producer, China's chemical industry also saw a decline in profits and imports and exports in 2023. How to achieve both growth and environmental protection and successfully pass the transition period has become a topic that chemical companies must face.

The first factory established by Cabot in China in 1988 has been in operation for 36 years, and Cabot hopes that it will become a century-old factory in the future. In the complex industry context, how does Cabot view the development opportunities in China? How to balance production capacity and market demand, growth and environmental protection issues, and achieve corporate transformation and long-term sustainable development?

In this issue of "First Voice", we will talk to Zhu Ji, Cabot's global executive vice president, member of the management executive committee, president of global high performance materials business and president of Asia Pacific.

Mr. Zhu Ji has more than 30 years of industry experience and professional achievements based on a global perspective. He has served as the Chairman of the Board of Directors of the Association of International Chemical Manufacturers (AICM) and was named one of the "Top Ten Influential People in China's Petroleum and Chemical Industry in 2019" by the China Petrochemical Federation. He is currently also a special guest director of the Fourth Council of the China Foundation for the Welfare of Disabled Persons. In 2018, he was awarded the "Magnolia" Award by the Shanghai Municipal Government in recognition of his outstanding contributions to the economic, cultural and social development of Shanghai.

The following is the full interview:

First Financial News: What is Cabot’s current plan in China?

Zhu Ji: As a global company, Cabot has about one-third of its business in Europe, the United States and Asia, of which China accounts for two-thirds of its business in Asia, making it a very important market. Thanks to the reform and opening up, Cabot entered China in 1988 and established its first factory in Shanghai. This factory has been in operation for 36 years and is still one of Cabot's best performing factories worldwide. We hope it can become a century-old factory. Starting with the Shanghai factory, Cabot has successively established 9 factories, an Asia-Pacific management center, a global service center, and two R&D centers in China, and has developed very rapidly.

First Financial News: What do you think of the current investment environment in China? What new investment initiatives will Cabot have?

Zhu Ji: In recent years, some foreign-funded enterprises have weakened their investment in China. This is actually caused by many reasons. For example, during the epidemic, the company's global executives could not come to China, and the investment in the past two years will decline to a certain extent. The current investment cases were planned two or three years ago. With the recent return of executives to China, I believe that related investments will rebound to a certain extent by 2025 and 2026. The Chinese market is large in size and there are many investment opportunities, but the profit margins are relatively small. The main purpose of foreign-funded enterprises' investment is to make profits, but the main purpose of local enterprises may be to increase scale and expand market share. The two have different investment directions and should not be confused.

In the future, Cabot will continue to invest in some specific areas, such as battery new energy, sustainable development, and carbon reduction. In addition, Cabot will pay more attention to integrated acquisitions. In the past few years, acquisitions and integrated investments have been the biggest direction of foreign-funded enterprises' investment in China. This is because the market has abundant production capacity, and enterprises need high-performance, high-quality products, and high-value-added production capacity, rather than ordinary production capacity.

In addition, I believe that an important focus of corporate investment is to invest in the company's long-term competitiveness, including R&D and process improvements, sustainable development, energy conservation and emission reduction, circular economy, and investment in employees. These all require long-term persistence and unremitting efforts.

In the past, companies’ investment in employees focused more on their technical capabilities, but now they are increasingly focusing on “diversity of capabilities”. For example, an operator may have both the technical capabilities of an electrician and the ability to be a maintenance worker. From the perspective of “diversity of capabilities”, he should also have some knowledge in finance to avoid the limitations of one-way thinking. Corporate investment cannot ignore the construction of employees’ comprehensive core competitiveness, which is a long-term process. Foreign-funded enterprises are relatively mature in this regard. This is because the European and American markets have not developed and invested so rapidly in the past few decades. Enterprises must first ensure the long-term competitiveness of their employees so that they can constantly adapt to the challenges of new market development. Chinese companies have now reached this era and need to focus on the long-term cultivation of employees’ comprehensive capabilities.

First Financial News: In the chemical industry, topics related to environmental protection have always been the focus of everyone's attention. Cabot has also been committed to responsible management, protecting resources and developing innovative high-performance materials, and has stated that it will achieve the goal of net zero emissions worldwide by 2050. Can you introduce Cabot's specific measures in environmental protection?

Zhu halberd: The chemical industry seems to be a bad industry that is not conducive to environmental protection in the public's impression. I would like to take this opportunity to clarify with you again that without the chemical industry, many of the things we want to do would be difficult to achieve, such as new energy electric vehicles, which also involve chemical solutions. So, it is not that we do not want chemical industry, but we should make it more environmentally friendly.

In terms of environmental protection, first, Cabot's requirements for pollutant emissions will become increasingly stringent, and the company's emission standards will be stricter than national standards. Second, the company will develop innovative emission reduction and energy-saving solutions. Third, the company will also give back to the community. We already have more than 40 factories around the world that have formed a symbiosis with the community. The company will listen to the community's feedback and suggestions and bring their ideas into the company's management and operations.

First Financial News: As an industry expert, what do you think about the current problem of overcapacity in some domestic industries?

Zhu Ji: Overcapacity is not something that has just occurred today. It may have existed more than a decade ago, but people did not pay much attention to this issue at that time. Because the entire market was still growing rapidly at that time, people believed that the capacity would be absorbed to a certain extent. On the other hand, this part of the capacity also affected the core businesses retained in the European and American markets.

Now, the problem of overcapacity is becoming increasingly prominent. The downturn in China's stock market in recent years and the problems exposed in the real estate industry are to some extent related to overcapacity. Real estate companies have built a large number of new buildings in the past few years, but now they are unable to consume these buildings. As a fixed real estate asset, real estate can only rely on local residents to consume production capacity, while other industrial products and consumer goods can consume production capacity through exports. These two solutions are different, but the essence of the overcapacity dilemma is similar.

China accounts for about 19% of the world's GDP. Considering China's industrial capacity and labor productivity, I think it is normal for it to have a 20-25% global production share. However, China accounts for 50% of the world's production capacity in many fields, and its production capacity share in some fields even reaches 80-90%. These production capacities will consume a lot of carbon energy, etc., which is not a long-term and sustainable development plan for China.

First Financial News: Can you give some specific examples from the industry?

Zhu Ji: Take the tire materials produced by Cabot as an example. Currently, China's tire production accounts for 50% of the world's total, while only about 20% of the world's cars are produced in China. Therefore, the only way for the surplus tires is to export. When exporting, companies must find ways to seize the market and compete with foreign brands. Some companies use low prices to grab the market and export excess production capacity. Some companies choose to build factories abroad to avoid the label of Made in China. This is also a common practice in the electric vehicle industry. In my opinion, low-price competition is not a good solution. Companies still need to make good products and establish brand competitiveness. This is a more long-term and sustainable solution. Chinese factories cannot always be low-end. We have the ability to make good products. We need to operate the market patiently and win the market with service, quality and value.

First Financial News: How do you think companies should balance production capacity and market demand?

Zhu Ji: We should first pay attention to how excess capacity is generated. One of the most critical reasons is what I call capital discipline. Cabot has a history of nearly 150 years, and it is still able to develop healthily and steadily today. One of the important reasons is the strong discipline of capital expenditure. No matter how the market changes, the company's capital expenditure every year is strictly anchored to profitability, and it cannot invest and spend beyond the company's ability. Nowadays, many ordinary people are also very disciplined in their spending, and bank savings are still rising. But according to my observation, some companies lack awareness of capital discipline, and operators lack norms in the use of funds, which is also one of the important reasons for overcapacity.

Therefore, in order to solve the problem of overcapacity, we must first strengthen the discipline of capital; another important solution is to shift and tilt the focus, finance, taxation and resources to the consumer end, allowing consumers to decide what should be produced, and let consumption drive production rather than production driving consumption.

First Financial News: You have more than 30 years of international management experience. Do you have any management experience?

Zhu Ji: I moved from Singapore to China to work as a manager in an American company, but I don't incorporate the culture and specific practices of each country into my decision-making process. A good manager must have a big picture view, but if he only has a big picture view and doesn't know how to manage specific details, the company will not succeed. At the same time, it is very important to choose not to do something strategically, rather than to do everything. Generally speaking, choosing not to do something is much more difficult than choosing to do something. I started as a regional manager and moved on to global management. I learned a lot in various countries. If we really apply their (other countries') good things to management, the company's development still has great potential.

About Cabot:

Cabot Corporation was founded in 1882 and is headquartered in Boston, USA. The company's specialty chemicals and high-performance materials are widely used in important parts and production processes in industries such as automobiles, lithium batteries, large aircraft, high-speed rail, ships, chips, photovoltaic energy, wind turbines, and 5G base stations, making the performance of the final products more excellent, safer, and more environmentally friendly. Cabot was listed on the New York Stock Exchange in 1968. The company's Q3 financial report released recently showed that the cumulative revenue in the first three quarters of fiscal year 2024 was US$2.993 billion, a year-on-year increase of 0.91%, and the cumulative net profit was US$278 million, a year-on-year increase of 16.81%. The cumulative basic earnings per share for this fiscal year is US$4.34.