Multinational companies are attracted by the vast potential in China's chemical industry and plan to increase investments in this sector, according to two KPMG reports released on Wednesday.

Despite global economic woes, China's chemical industry is expected to expand. A majority of global respondents in the KPMG reports said that the country is their top investment target.

"We see continuing opportunities for China's chemicals market, despite the global economic slowdown. The output of chemicals in emerging markets is expected to outpace production in developed countries," said Norbert Meyring, partner at KPMG China, in a news release.

According to the company's survey, titled "2012 Chemicals and Performance Technologies Industry Outlook", of 156 senior chemical executives surveyed in the United States, Europe and across the Asia Pacific, 63 percent plan to increase capital spending over the next year.

The report also said 90 percent of executives said their companies will likely be involved in a merger or acquisition in the next two years, up from 83 percent in the company's 2011 survey.

The highest priority investment areas are new products or services, and the acquisition of a business. US executives indicated that they plan to be much more aggressive investing in these respective areas than their Asia-Pacific and European peers, said the report.

"Overall, chemical executives are telling us that they intend to put their money to work and boost investment in key areas. With the struggling global economy, organic growth is a challenge and input prices continue to affect production costs. All of these factors have set the stage for aggressive M&As and product development strategies as companies look to gain an edge," said Mike Shannon, global leader of KPMG's chemicals and performance technologies practice and a partner in the US firm.

Global chemical executives cite China, the US, and Europe as focuses of investment with China remaining a favored investment target for executives among all three regions, said the report.

Meyring said China's ambition to reduce carbon emissions and improve the quality and structure of industrial products will help develop its chemical industry.

According to another report by KPMG titled "China Chemical Industry Enters New Era with Sustainability", the China Petroleum and Chemical Industry Federation estimates that the oil and chemical industries' total output may reach 12.73 trillion yuan ($ 2 trillion) this year, a 14.5 percent increase from the previous year. The industries' profits are likely to amount to 860 billion yuan in 2012, a 5 percent increase from a year ago.

The federation also predicts that the combined production value of China's petrochemical and chemical industries will maintain an annual growth of 13 percent during the 12th Five-Year Plan (2011-15) period.

Meyring said an opportunity for the chemical industry in China lies in the nation's increased urbanization, which is driving investment toward fixed assets, such as new factories and infrastructure.

"Fixed asset investment is considered the strongest force to drive the country's economic growth," Meyring said.

Other opportunities in China include tapping into existing shale gas reserves, which it claims is the world's largest.

"While China has not yet started commercial production of shale gas, we see a growing sense of urgency to encourage the development of unconventional energy sources. This will have huge implications for the chemicals industry. Shale gas remains an integral part of the overall strategy in China," Meyring said.

Nevertheless, China's chemicals market will face challenges as China shifts from a large industrial country to an environmentally sustainable one.

Zhu Yijie, an analyst with Beijing-based Zero2IPO Group, pointed out in the process of China's economic transformation, which focuses more on sustainability, chemical companies are faced with increasing pressure to protect the environment.

huhaiyan@chinadaily.com.cn