How BASF Localized Semiconductor in China: Case Study

How BASF Localized Semiconductor in China: Case Study

BASF SE, the world’s largest chemical company by revenue and a cornerstone of German industry, has pursued one of the most ambitious localization strategies in China’s semiconductor supply chain. While BASF is predominantly known as a chemical conglomerate, its Electronic Materials division plays an indispensable role in the semiconductor manufacturing ecosystem. From photoresists used in photolithography to high-purity solvents, chemical mechanical planarization (CMP) slurries, and electronic-grade gases, BASF’s products are critical inputs at nearly every stage of wafer fabrication. This case study examines how BASF navigated China’s complex regulatory environment to localize the production of semiconductor-grade chemicals — anchored by its landmark $10 billion Zhanjiang Verbund site in Guangdong province — and what foreign investors can learn from its approach.

The strategic importance of this localization cannot be overstated. As of 2025, China has over 40 new semiconductor wafer fabs under construction, according to industry estimates from SEMI and the China Semiconductor Industry Association (CSIA). These fabs require enormous volumes of ultra-high-purity chemicals that historically have been imported from Japan, South Korea, Germany, and the United States. The Chinese government’s push for supply chain self-sufficiency, coupled with export controls imposed by the U.S. and its allies on advanced semiconductor inputs, has created both urgency and opportunity for foreign chemical companies willing to produce electronic-grade materials inside China.

BASF’s response — to build the world-class Zhanjiang Verbund site with dedicated electronic materials production lines, expand its existing Nanjing Verbund site, and deepen its R&D presence at the Shanghai Pudong Innovation Campus — represents a multi-decade bet on China’s semiconductor ecosystem. The company began planning its Zhanjiang investment in 2018, secured preliminary approval from China’s National Development and Reform Commission (NDRC) in 2019, navigated environmental permitting through the Ministry of Ecology and Environment (MEE), and began phased production in 2022, with full completion expected by 2030.

Background: BASF’s Electronic Materials Strategy in China

BASF entered the China market in 1885 when it began selling textile dyes in Shanghai. Over the subsequent 140 years, the company built a sprawling network of production sites, joint ventures, and research facilities across the country. However, its serious push into semiconductor-grade electronic materials is a more recent development, accelerated by two converging trends: the explosive growth of China’s semiconductor fabrication capacity and the increasing technological complexity of chip manufacturing requiring ever-purer chemical inputs.

BASF’s electronic materials portfolio relevant to semiconductor manufacturing includes several critical product categories. Its advanced photoresists and photoresist ancillaries are used in the photolithography process to transfer circuit patterns onto silicon wafers. Its high-purity solvents — including isopropyl alcohol (IPA), acetone, and N-methylpyrrolidone (NMP) — are essential for wafer cleaning and residue removal. BASF’s CMP slurries enable the planarization of wafer surfaces between deposition layers, a process that has become more demanding as transistor nodes shrink to 7nm, 5nm, and below. Electronic-grade acids and etchants, including hydrofluoric acid (HF) and hydrogen peroxide, are used in etching and cleaning steps. The company also supplies gas delivery systems and ultra-pure chemical handling infrastructure for wafer fabs.

In China, BASF’s electronic materials strategy rests on three pillars. First, the Zhanjiang Verbund site in Guangdong province, announced in July 2018, is the company’s single largest investment globally at $10 billion. While Zhanjiang primarily produces basic chemicals, engineering plastics, and coatings, BASF has dedicated a significant portion of the site to electronic materials production, including a plant for high-purity solvents and active electronic components. Second, the existing Nanjing Verbund site — a joint venture with Sinopec (BASF-YPC Company Limited) — has been retrofitted to produce select electronic-grade chemicals for the Yangtze River Delta semiconductor cluster. Third, the Shanghai Pudong Innovation Campus serves as BASF’s Asia-Pacific R&D hub for electronic materials, developing formulations tailored to the specific requirements of Chinese wafer fabs.

This three-pronged approach gives BASF what few foreign competitors have achieved: a fully localized value chain for semiconductor chemicals — from raw material sourcing and synthesis through formulation, quality certification, and just-in-time delivery to fabs — all within Chinese territory. For China’s fab operators, this reduces supply chain vulnerability to geopolitical disruptions and shortens delivery lead times from weeks to hours.

China’s Regulatory Framework for Electronic Chemicals

Foreign companies seeking to produce and sell semiconductor-grade chemicals in China face a multi-layered regulatory framework that is among the most demanding in the world. Navigating this framework was central to BASF’s localization strategy and offers a template for other foreign investors.

At the foundational level, the Foreign Investment Law (FIL), which took effect on January 1, 2020, replaced the previous three separate foreign investment laws and established a unified legal framework. The FIL enshrines the principle of national treatment — foreign-invested enterprises (FIEs) are to be treated no less favorably than domestic companies during establishment and operation — except in sectors listed on the Negative List. Electronic chemicals for semiconductor manufacturing are not on the Negative List, meaning 100% foreign ownership is permitted. This was a critical precondition for BASF’s Zhanjiang project, which is wholly owned by BASF.

However, the FIL also introduced a security review system for foreign investments that could affect national security, administered jointly by the NDRC and the Ministry of Commerce (MOFCOM). While BASF’s electronic chemicals investment did not trigger a formal security review, the company had to demonstrate that its technology transfers and supply arrangements complied with China’s evolving data security and export control regime.

The most operationally significant regulatory hurdle is the chemical registration and environmental permitting system administered by the Ministry of Ecology and Environment (MEE). Under the Provisions on the Environmental Administration of New Chemical Substances (MEE Order No. 12, effective January 2021), any new chemical substance not already listed on China’s Inventory of Existing Chemical Substances (IECSC) must undergo a registration process that includes:

The EIA process is particularly critical for a project of Zhanjiang’s scale. China’s Environmental Impact Assessment Law requires all construction projects to submit an EIA report before construction can begin. For BASF’s Zhanjiang site — a greenfield integrated chemical complex — the EIA covered emissions to air and water, solid waste management, soil and groundwater protection, noise control, ecological impact on the surrounding mangrove ecosystem in Guangdong, and a comprehensive environmental risk assessment including chemical spill scenarios. The MEE approved BASF’s EIA for the first phase of Zhanjiang in May 2020, a milestone that allowed construction to commence.

Beyond these domestic requirements, BASF also had to consider compliance with international frameworks. As a German company with operations subject to EU chemical regulations (REACH), BASF had to reconcile the diverging data requirements of China’s MEE registration system and the EU’s REACH regime, often conducting additional ecotoxicological studies to satisfy both jurisdictions.

Navigating the Process: BASF’s Zhanjiang and Localization Strategy

BASF’s localization of semiconductor-grade chemical production in China unfolded through a carefully sequenced process that spanned regulatory approvals, site selection, infrastructure development, and capacity ramp-up. Understanding this sequence offers valuable insights for any foreign company planning a large-scale chemical investment in China.

Phase 1 — Strategic Planning and Site Selection (2017–2018): BASF began exploring a new integrated Verbund site in China in 2017, evaluating multiple coastal locations. The company selected Zhanjiang in Guangdong province for several strategic reasons: proximity to the Greater Bay Area semiconductor cluster (including fabs in Shenzhen, Guangzhou, and Dongguan), access to a deep-water port for raw material imports and product exports, availability of land for a large-scale chemical complex, and strong support from the Guangdong provincial government, which offered incentives including tax breaks and infrastructure support.

Phase 2 — Regulatory Approvals and Permitting (2018–2020): BASF signed a Memorandum of Understanding (MoU) with the Guangdong provincial government in July 2018 for the Zhanjiang Verbund site. In January 2019, the project was included in China’s list of major foreign investment projects, which provided expedited review pathways. BASF submitted a project application report to the NDRC, which reviewed the project’s compliance with industrial policy, energy efficiency standards, and national security considerations. The NDRC granted approval in early 2019, classifying Zhanjiang as a “Significant Foreign-Invested Project.”

The SAMR review focused on BASF’s business scope and shareholder structure. Since Zhanjiang is a wholly foreign-owned enterprise (WFOE), the approval process was relatively straightforward, though SAMR paid close attention to the business scope description to ensure it covered all planned chemical production activities. Concurrently, BASF engaged with MEE on the EIA process, conducting extensive environmental baseline studies and engaging with local communities as required by Chinese law.

Phase 3 — Construction and Phased Commissioning (2020–2022): Construction of the first phase of Zhanjiang began in May 2020, immediately following EIA approval. This phase included a steam cracker, several downstream chemical plants, and shared infrastructure including a power plant, water treatment facility, and logistics hub. BASF adopted a phased commissioning strategy: rather than waiting for the entire site to be complete, the company brought individual plants online as they were ready. The first plant — producing engineering plastics — started operations in September 2022.

Phase 4 — Electronic Materials Ramp-Up (2022–2030): The electronic materials production lines at Zhanjiang are being rolled out in later phases, with some already operational and others under construction. BASF also expanded its electronic materials portfolio in China through its existing Nanjing Verbund site, where it upgraded production lines to meet semiconductor-grade purity standards. At the Shanghai Pudong Innovation Campus, BASF established dedicated electronic materials application labs where Chinese fab engineers can test and qualify BASF formulations, reducing the qualification cycle from months to weeks.

The strategic logic behind this phased approach is clear: by starting with basic chemicals and engineering plastics — products with shorter qualification cycles and less regulatory complexity — BASF established operational credibility, built relationships with Chinese supply chain partners, and demonstrated its commitment to the region before tackling the more demanding semiconductor-grade chemical market.

Key Challenges and Mitigation

BASF’s path to localizing electronic materials production in China was not without significant obstacles. The company faced — and overcame — a series of challenges that are instructive for any foreign investor in China’s chemical sector.

Challenge 1: Evolving Chemical Regulatory Landscape. China’s chemical regulatory framework has undergone rapid transformation since 2020, with MEE Order No. 12 introducing a more stringent new chemical substance registration process. BASF had to register dozens of new chemical substances for its electronic materials portfolio — each requiring extensive toxicological and ecotoxicological data — while the regulations were still being interpreted and implemented by local MEE bureaus. BASF mitigated this by establishing a dedicated regulatory affairs team in Beijing that maintained direct liaison with MEE officials, participated in public comment periods on draft regulations, and engaged testing laboratories early to build capacity for the required studies.

Challenge 2: Geopolitical Uncertainty and Export Controls. The U.S.-China technology competition has created an unpredictable operating environment for foreign companies supplying China’s semiconductor industry. Export controls imposed by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) on semiconductor equipment and certain chemicals have created compliance complexity. While BASF’s products are largely not subject to direct U.S. export controls, the company has had to implement robust end-use screening to ensure that its chemicals are not diverted to sanctioned entities. BASF addressed this by adopting a global trade compliance framework that exceeds minimum legal requirements, including automated screening of customers against sanctions lists and contractual clauses restricting product diversion.

Challenge 3: Meeting Semiconductor-Grade Purity Standards. Electronic-grade chemicals require purity levels measured in parts per billion (ppb) — far exceeding industrial-grade standards. Achieving this consistently in a new production facility requires specialized equipment, ultraclean production environments, rigorous quality control systems, and extensive operator training. BASF addressed this by transferring proven production technologies from its Ludwigshafen headquarters and other global sites, deploying experienced German and Singaporean process engineers to Zhanjiang for the start-up phase, and implementing a comprehensive quality management system certified to ISO 9001 and IATF 16949 standards.

Challenge 4: Supply Chain Localization for Fab-Specific Formulations. Chinese wafer fabs often require customized chemical formulations optimized for specific process nodes and equipment configurations. This demands close collaboration between the chemical supplier and the fab’s process engineers — collaboration that is difficult to sustain across long international supply chains. BASF’s solution was to colocate its application development labs at the Shanghai Pudong Innovation Campus and, more recently, establish a dedicated semiconductor customer technical center near the Yangtze River Delta fab cluster. This allows BASF application engineers to work alongside fab engineers, accelerating formulation development and qualification.

Challenge 5: Skilled Talent Acquisition and Retention. Operating a world-scale chemical complex producing semiconductor-grade materials requires a workforce with specialized skills — process engineers familiar with ultrapure chemical production, analytical chemists capable of operating inductively coupled plasma mass spectrometry (ICP-MS) and gas chromatography-mass spectrometry (GC-MS) equipment, and environmental safety specialists. China’s rapid industrialization has created intense competition for such talent. BASF addressed this through a multi-year training program that sends Chinese engineers to its Ludwigshafen headquarters for hands-on experience, partnerships with Chinese universities including South China University of Technology and East China University of Science and Technology, and competitive compensation packages benchmarked against both the chemical and semiconductor industries.

Lessons for Foreign Investors

BASF’s experience localizing semiconductor-grade chemical production in China offers several actionable lessons for foreign companies considering similar investments. These takeaways are derived from the specific regulatory, operational, and strategic challenges BASF navigated during its decade-long localization journey.

1. Start the regulatory engagement process early — at least 18 to 24 months before the planned groundbreaking. China’s EIA and new chemical substance registration processes are time-consuming and unpredictable, particularly for projects involving hazardous chemicals. Engage with MEE at the provincial and national levels during the feasibility study phase, not after the investment decision is made.
2. Invest in a dedicated China regulatory affairs team with direct access to government stakeholders. BASF’s Beijing-based regulatory team enabled the company to anticipate regulatory changes, participate in policy development, and resolve permitting bottlenecks. Foreign companies that rely solely on external consultants for regulatory navigation are at a significant disadvantage.
3. Adopt a phased investment approach that builds credibility before tackling the most complex products. BASF started with basic chemicals and engineering plastics at Zhanjiang before ramping up electronic materials production. This allowed the company to establish operational performance, develop relationships with local regulators, and demonstrate job creation — all of which smoothed the path for subsequent, more sensitive investments.
4. Localize R&D and application development, not just manufacturing. The semiconductor industry requires intimate customer-supplier collaboration on formulation development and qualification. A manufacturing-only strategy without colocated R&D capability will struggle to compete against domestic Chinese chemical suppliers that offer closer technical support. BASF’s Shanghai Pudong Innovation Campus was critical to its success in winning Chinese fab customers.
5. Build a robust trade compliance framework that anticipates tightening export controls. The geopolitical environment is unlikely to improve in the near term. Foreign companies supplying China’s semiconductor industry must invest in compliance infrastructure that can adapt to rapidly changing sanctions regimes, including automated customer screening, contractual diversion restrictions, and regular compliance audits.
6. Partner with Chinese universities and research institutes to build a talent pipeline. The competition for chemical engineers and analytical chemists with semiconductor industry experience is intense. Proactive talent development through university partnerships, internship programs, and overseas training assignments is essential for scaling operations.
7. Engage proactively with provincial and local governments, not just national regulators. While NDRC and MEE approval at the national level is essential, the day-to-day operational reality is shaped by provincial and municipal government agencies responsible for land use permits, construction approvals, fire safety inspections, and environmental monitoring. BASF’s strong relationship with the Guangdong provincial government was instrumental in accelerating the Zhanjiang project timeline.
8. Anticipate the data requirements for MEE new chemical substance registration early in the product development cycle. Generating the toxicological and ecotoxicological data required for registration can take 12 to 18 months. BASF began generating this data for its electronic materials portfolio years before the planned production start date, avoiding costly delays.

Where to Go From Here

BASF’s successful localization of semiconductor-grade chemical production in China demonstrates that the country’s regulatory environment, while complex, is navigable for foreign investors who invest the necessary resources and adopt a long-term strategic approach. The company’s experience offers a blueprint for other foreign chemical and materials suppliers seeking to participate in China’s semiconductor supply chain localization.

For foreign investors considering similar pathways, the following resources provide additional guidance on specific aspects of the process:

• Guide: Navigating China’s MEE Chemical Registration for Semiconductor Materials — A step-by-step walkthrough of the new chemical substance registration process, including data requirements, timelines, and common pitfalls for foreign companies.
• Comparison: Wholly Foreign-Owned Enterprise vs. Joint Venture for Chemical Manufacturing in China — An analysis of the legal, operational, and regulatory considerations for choosing the optimal investment structure for semiconductor materials production.
• Tool: China Foreign Investment Regulatory Compliance Checklist for Chemical Projects — A practical compliance tool covering NDRC filing, MEE registration, SAMR business registration, EIA requirements, and ongoing operational compliance obligations.

How BASF Localized Semiconductor in China: Case Study — first published on China Gateway 360. Last updated: July 2026.