____________________________________________________________________________________________

This case was prepared by Research Assistant Hong Zhang under the supervision of Professor F. Warren
McFarlan of Harvard Business School, Professor Donghong Li of Tsinghua University School of Economics and
Management and Professor Lei Li of the Party School of Central Committee of CPC as the basis for class
discussion rather than to illustrate either effective or ineffective of an administrative situation.
Copyright Tsinghua University School of Economics and Management. To order copies or request
permission for class use, call +86 10 62789786, or visit China Business Case Center website
http://www.ecase.edu.cn. No part of this publication may be duplicated, transmitted or used in any form or by any
means without the permission of Tsinghua University School of Economics and Management.


ChemChina

CASE: TU0028
DATE: 11/08/2012

ChemChina


Introduction
By 2011, seven years after incorporation, ChemChina`s total assets had increased by 10.8
times, revenues by 11.3 times, total profit by 10.7 times, due to organic growth and a series of
M&As. Today, ChemChina is China`s largest chemical manufacturing firm. It is No.9 among the
world`s Chemical 100, and No.402 in the Fortune 500 in 2012.
Recalling the last twenty-seven years, as BlueStar, now one of the two pillar subsidiaries of
ChemChina, grew up from nothing, President Ren Jianxin notes ChemChina is not yet a powerful
corporation. Although a strategic path has been worked out, much work is needed to make it
globally competitive. Today, ChemChina confronts the tasks of internal integration and dealing
with financial stringency. New opportunities exist, particularly as Blackstone has became a
strategic partner of BlueStar.
I. The King of Industrial Cleaning from Remote Western China (1984-1996)
When he set up BlueStar in 1984, Ren was a 26-year-old committee secretary of the Chinese
Communist Youth League (CCYL) at the Lanzhou Institute of Chemical Machinery. The institute
was an important R&D organization in Lanzhou, then a petrochemical city, under the former
Ministry of Chemical Industry of China. It had moved to the remote west of China from Beijing in
1965 in a nationwide westward shift of economic and military foci.
Born in the city of Lanzhou in 1958 as a second-generation immigrant from inland to western
China, Ren received enlightenment education from his mother, a teacher. After graduation from
high school, he was sent to work on barren farmland 1,000 km further westward, before being
recommended to work at the aforementioned institute two years later.
Ren stayed at the institute for nine years, during which time he finished a part-time
undergraduate study in mechanical engineering. During this period, China`s political atmosphere
totally changed. The new economic reforms encouraged all research institutes to make money
from the market rather than just living on government sponsorship. Most research people, however,
were still hesitating. Ren found a patent for 'a nitric acid agent for cleaning water scale and
anti-corrosion that had been on the shelf for five years. Learning how much coal was wasted on
industrial boilers because of water scale on their walls, Ren saw an opportunity. He purchased the
patent for 250 yuan, borrowed 10,000 yuan from the institute using all his belongings as collateral,
and established a small company, BlueStar Cleaning, in 1984 with another seven Youth League
Purchased by David Costa (dean@college.ch) on February 01, 2013


- 2 -


ChemChina
members.
Ren started by providing free services to clean teapots for neighboring households. The first
deal was made with an old lady, who, astonished by the 'brand new teapot, insisted on paying 0.2
yuan to Ren.
The teapot story was heard by the head of a nearby coal mine, who asked Ren to try on an
aged boiler with thick water scale. He would scrap the boiler if the cleaning was unsuccessful. Ren
and his companions worked day and night, bringing the aged boiler back to life, earning 1,900
yuan and building a reputation at the same time. They, however, often had to sell their services
below cost. That forced them to squeeze their costs by technical innovations. Ren`s company
made a net profit of 240,000 yuan in the first year of business, a significant amount for their host
institute in that year.
In the following years, BlueStar expanded nationally undertaking the pre-operation cleaning
work for almost all the large-scale chemical equipment imported in 1985-1995. Ren, however, was
not interested in becoming a monopoly in the cleaning market, even given its huge size, partly
because of the difficulty in getting the annual recruitment approval from the government. Rather,
he distributed his technology together with the chemical agent produced by BlueStar to 400
associated cleaning companies across the country, receiving royalties in return. This gave rise to
the new trade of large-scale facility cleaning in China once dominated by foreign companies. As
industry leader, BlueStar became skewed to large-scale, difficult projects, including the imported
300 thousand ton synthetic ammonia facility in Shanxi Province, the Yangtze 300 thousand ton
ethylene facilities in Jiangsu Province, etc., and extending abroad to countries such as Japan, the
U.S.A., Indonesia and Ukraine. Claiming to be able to clean everything from teapots to nuclear
reactors, BlueStar got the nickname of 'world king of cleaning.
The first business shift of BlueStar, in the late 1980s, was from industrial service to
manufacturing. Recognizing the seasonality and market limits of the cleaning business and
wanting to quickly expand the company, BlueStar produced and sold various chemical products
for industrial and household uses. It hoped to enter the fine chemicals market, by renting
workshops in the beginning and acquiring a small factory later. They considered anti-freeze liquid,
kitchen cleaning agents, glues, and even alcohol relievers. The core businesses in this first phase
of company development finally converged on industrial cleaning services, production of agents
such as anti-freeze liquid, and water treatment projects.
Evolving into BlueStar Chemical Cleaning General Corporation in the late 1980s, BlueStar`s
affiliation to its former host institute was moved to an entity directly under the Ministry of
Chemical Industry. By 1996, BlueStar`s sales revenue surpassed 500 million yuan, its net assets
reached 200 million yuan, and its employment size was over 1,000. That year, BlueStar`s major
manufacturing body, BlueStar Cleaning Co., Ltd., completed an IPO and was listed on the
Shenzhen Stock Exchange. BlueStar raised 140 million yuan from the IPO, which provided a
strong base for its subsequent development. In 1994, Ren also completed his part-time graduate
study at Lanzhou University, and got his masters degree in economics.
Today the cleaning business is just a tiny portion (less than 1% of total revenue) of
ChemChina though still the leader in the trade.

Purchased by David Costa (dean@college.ch) on February 01, 2013


- 3 -


ChemChina
II. Greeting Beijing and Headed for All-out Chemical Industry (1996-2004)
As BlueStar`s business expanded nationally, Ren wanted to move his headquarter to Beijing.
His application was approved with the help of the Ministry of Chemical Industry in 1996. Grateful
for the support from the Ministry, Ren visited Ms. Gu Xiulian, then the Minister of Chemical
Industry, to see what tasks BlueStar could perform. He identified that three SOEs were in extreme
difficulty. Ren subsequently acquired and restructured them. These acquisitions, following several
earlier M&As, began BlueStar`s systematic M&A policy, giving the firm its nickname of 'King of
M&A.
The first company acquired was Xinghuo Chemical Plant in Jiangxi Province in southern
China. The plant, among other things, started trial production of organosilicon (an important
organic material widely used in almost all high-tech and civil industries) in 1970s. It, however,
failed to make progress in the following 20 years, due to the Iirm`s backward infrastructure, lack
of funds and technology and years of political turmoil. In 1983, the central government invested
intensively in the plant, aiming to break out the western blockade on China in organosilicon
products. It built a trial facility to produce 10 thousand tons of organosilicons per year, the only
one in China of such scale. The following 13 years saw repeated failure with the technology as the
plant generated sustained losses. It was awaiting bankruptcy with 107% liability/asset ratio. The
plant was like a ghost town when Ren`s team saw it. The majority of staff had left for other places.
Having no knowledge about how to run a bigger plant than BlueStar, Ren brought with him a
50-million-yuan check from his IPO fund, to quell the mistrust from the workers and other
stakeholders like banks, debt owners, court, and the power supply company. After a month of
investigations complicated by the uncooperative attitude of the incumbent managers, Ren
identified the source of the primary failure factor of the plant as its lack of understanding of the
core technology. This was complicated by the fact that the physical facilities had been imported
from abroad. He then dispatched people to entice back 500 technicians and engineers who had left
and initiated a campaign of facility overhaul, renovation and reinstallation. Ren also invited over
100 chemical experts from China and abroad to make detailed diagnoses of the plant`s facilities,
technologies and operation processes. He even paid a special visit to the U.S. to survey and study
the advanced technology there. After five months, the first test operation of the revised production
line succeeded with the first batch of finished organosilicon product, to the surprise of Minister Gu
and other ministry leaders. The rebirth of the Xinhuo Plant made China one of six nations capable
of producing organosilicons in large scale after the U.S., Japan, Germany, the U.K., and France.
After renovations, Xinghuo Plant produced 20 thousand tons of organosilicons by the third
year. It forced foreign companies to cut their prices of organosilicons by 30-40% in China. In the
following years, the plant`s output reached 50, 70 and 100 thousand tons. In 2007, after the
acquisition of Rhodia Silicones of France, the No.5 producer in the world, BlueStar became the
No.3 producer of organosilicone in the world. By the time additional equipment with capacity of
400 thousand tons per year is installed in 2012, Xinghuo Plant will be the world`s largest
organosilicon producer.
The successful acquisition of the Xinghuo Plant gave Ren confidence to amalgamate other
chemical enterprises. Similar success stories happened with the other two difficult chemical
industry enterprises under Minister Gu. The Nantong Synthetic Material Plant, China`s largest 10
thousand ton/year production facility of PBT, (one of five major engineering plastics widely used
Purchased by David Costa (dean@college.ch) on February 01, 2013


- 4 -


ChemChina
in electronic and electric appliances, automobile, machineries), was successfully taken over in
1997. Subsequent mergers and integrations of SOEs conducted by Ren include Wuxi
Petrochemical Plant, Lanzhou Daily Chemical Plant, Beijing Chemical Machinery Plant, Tianjin
Petrochemical Plant, Jinan Petrochemical Corporation, Heilongjiang Petrochemical Plant,
Shenyang Chemical Plant, Chenguang Research Institute of Chemical Industry, etc. In total 76
enterprises were acquired. BlueStar Cleaning became BlueStar (Group) Corporation, Ltd., in 2000.
In April, 2000, a new subsidiary company of BlueStar Corporation, BlueStar New Chemical
Materials Co., Ltd., was formed incorporating the assets of the Xinghuo Plant, Nantong Plant and
Wuxi Plant. It did an IPO and was listed on the Shanghai Stock Exchange, bringing in 490 million
yuan.
BlueStar`s appetite was not limited to chemical enterprises. In September, 1997, China
demobilized 500 thousand PLA soldiers, (after the first demobilization of 1 million was done in
1984). More than 200 plants were discharged from the military system. This required big SOEs to
assume their debts and redundant employees while receiving their assets. BlueStar volunteered to
accept 35 of these plants, with more than 30 thousand workers and close to 100 million yuan of
debt. Ren hoped to expand into diversified areas. To digest as many as possible redundant workers
for social stability reasons, various methods were tried, including setting up a chain of 200 vehicle
garages across the country as many military plants were previously involving mechanical repairs.
This turned profitable a year later. Another successful sideline of BlueStar was a chain of fast food
restaurants. The 500 restaurants absorbed more than 10 thousand workers in 15 years.
By 2004, 107 chemical enterprises and research institutes had been incorporated into
BlueStar, with 50 thousand employees. Its total assets were 23 billion yuan, and sales revenue 15.2
billion yuan.
III. ChemChina: A New Fortune 500 Giant (2004-2011)
In May, 2004, approved by the State Council, BlueStar and another big stated-owned
conglomerate, Haohua Chemical (Group) Corporation, merged to form China National Chemical
Corporation (ChemChina), one of the largest chemical industrial enterprises in China, under the
direct governance of the State-owned Assets Supervision and Administration Commission
(SASAC) of the State Council. The total assets of ChemChina in 2005 were 5.9 billion yuan, and
total sales revenue was 40 billion yuan.
Unlike BlueStar, which started from a small, market-oriented company and developed
through numerous mergers as well as organic growth, Haohua had been set up in 1994 by the
former Ministry of Chemical Industry. Several big companies controlled by the Ministry were
combined. It further expanded by incorporating other companies and research institutes when the
Ministry was eliminated in 1998. The top and middle level managers of Haohua were mostly
former government officials.
Different from the other stated-owned conglomerates that were initiated by the central
government or relevant ministries, the idea of establishing ChemChina came from Ren with top
government leaders` support. It embodied his long-term vision of advancing the Chinese chemical
industry. After abolishing the Ministry of Chemical Industry in 1998, China`s chemical industry
was dispersed and lacked cohesive power to compete with the powerful foreign MNCs. Ren wrote
a letter to the top leaders of China in early 2001, proposing ChemChina as the vehicle for doing
that. Two years later, approval was granted by the new government. Even before getting the
Purchased by David Costa (dean@college.ch) on February 01, 2013


- 5 -


ChemChina
approval, however, Ren had already started studying the map of the Chinese chemical industry,
begun negotiating with Haohua and other smaller chemical firms, and set up an office within
BlueStar for that purpose. As soon as the proposal was approved, the alliance proceeded quickly.
One reason Haohua agreed to Ren`s proposal was the relative feebleness of both corporations
compared to the other big petroleum and chemical giants in China that had been formed from
former government departments.
Ren took the position of the General Manager of ChemChina and Wang Yinhai, the General
Manager of Haohua, became the Committee Secretary of the CPC. Ren appointed individuals
from external sources to take the chief posts of each function with people from BlueStar and
Haohua taking the relevant two vice posts in each function. The office building of ChemChina was
the originally planned BlueStar Sci-tech building.
For the first three years after its founding, ChemChina witnessed rapid development, both
organic and by M&As. Each year, more than 20 sets of facilities for new chemical materials were
started. These facilities generated half of the corporation`s total profit by the end of 2007.
ChemChina began with more than 100 entities, scattered across the country, producing
numerous products with little cohesion. Some were involved in totally unrelated businesses like
real estate and consumer product items. To integrate these entities and straighten out the business
lines, Ren broke up the original affiliations of the companies to BlueStar or Haohua, and grouped
all the entities into 19 categories based on their business similarities. In 2008, a new six business
segment framework took shape, each headed by a second-level subsidiary under ChemChina. The
numbers of third-level subsidiaries within each second-level subsidiary ranged from several to
dozens. These segments are:
New Chemical Materials and Specialty Chemical Products (BlueStar Co.):
Organo-silicon series; Silicon alloy series; Organo-fluorine series; Polyurethane series;
High performance fiber; Engineering plastics series; General plastics and rubber;
Animal nutrition
Basic Chemicals (Haohua Co.):
Salt chemical industry; Coal chemical industry; Mineral products; Mineral basic
chemicals
Oil Processing & Refining Products (Petrochemical Co.):
Energy products; Petrochemical products
Agrochemicals (Agrichemical Co.):
Chemical fertilizers; Pesticides
Rubber Products (Tire & Rubber Co.):
Auto tire; Non-tire rubber products; Special tire; Latex products
Chemical Equipment (Equipment Co.):
Chemical machinery; Rubber machinery
Purchased by David Costa (dean@college.ch) on February 01, 2013


- 6 -


ChemChina
Born without the monopolistic positions that Sinopec and CNPC had, many of the companies
within ChemChina were weak. With a sizable scale and diversified businesses, it had been felt that
SOEs could better withstand the competitive pressure from the big MNCs after China`s WTO
entry by huddling together for heat. Now the aim of scale expansion for the first phase had been
reached, the second phase involved consolidation.
The motto Ren proposed as ChemChina`s strategy was 'Traditional Chemicals, Advanced
Materials. 'Traditional Chemicals alludes to integrating the former Ministry of Chemical
Industry, companies and plants that produced mainly basic chemicals. 'Advanced Materials
embodies the company`s intended direction of expanding into the high-grade, more complex,
chemical material, areas in which China still lagged behind the advanced countries. ChemChina
had already been taking steps in this direction with projects like Xinghuo Plant and Wuxi Plant.
Within ChemChina, the 'Advanced Materials portion generated around 70% of total profit
utilizing roughly 30% of total capital. The widely recognized new chemical materials include, (1)
all-purposes engineering plastics, e.g., polycarbonate (PC), polyformaldehyde (POM), PBT, PPE,
PA66; (2) organosilicones (including silicone rubber, silicone resin, etc.) and organic fluorine; (3)
specialty engineering plastics; (4) modified polyurethane and modified polyolefin; (5) functional
polymers. They are used in military, astronautic, electronic, machinery, auto manufacturing and
consumer goods.
Before the mid-1990s, China had relied heavily on expensive imported new chemical
materials, and suffered greatly from the technological blockade established by the giant MNCs. In
2012, China still imports more than 80% of the needed raw materials for manufacture of
chemicals and specialty chemicals. In China, production of oil, natural gas, coal, rubber (natural
and composite) which are important inputs for the production of chemical products are highly
centralized into several monopoly SOEs. They mainly allocate their products for the production of
refined oil products and general-purpose composite materials like polyethylene, polypropylene
and composite rubber. The basic organic chemical materials such as ethylene, propylene,
butadiene, benzene, methylbenzene, and xylene key to the production of high value-added new
chemical materials, fine chemical products, crop protection products and specialty fibres are in
short supply and have to be imported. Ren`s eyes were on 'extending the processing lines to
increase value-added and 'cultivating the overseas resources while developing the recycled
production. Ren held a midterm goal for ChemChina to enter the Fortune 500 before 2015
(already realized in 2011) and a long-term vision of becoming one of the top three chemical giants
in the world in 2040, a symbolic marker for 200 years after the First Opium War.
Today, there are totally 106 enterprises within ChemChina, including 10 which had been
listed on the domestic security exchanges before ChemChina was formed, and 6 overseas
companies acquired in recent years. There are another 25 research institutes in ChemChina,
including the institute from which BlueStar was originally born.
Internationalization
To strengthen the corporation, Ren went abroad to get the most advanced technology and to
learn from the world`s best practices. Ren had had early foreign cooperation experience, e.g.,
setting up joint ventures with British companies, although he had no foreign education, and very
limited English fluency. His vision, however, was extremely global, because of his visits, as a
young model entrepreneur in China, to western countries in the 1980s when China had just opened
Purchased by David Costa (dean@college.ch) on February 01, 2013


- 7 -


ChemChina
its door to the outside world.
Ren`s major actions to internationalize ChemChina included acquisitions of six western
companies in the area of new chemical materials; the introduction of Blackstone Group as a
foreign strategic investor into BlueStar in 2008, and introduction of professional managers into its
high-level management team. These are described below.
(1) Adisseo of France
Adisseo is one of the two biggest manufacturers of nutritional additives in the world, with
current global employment of 1,200. It has unique expertise in methionine, vitamins, enzymes and
other feed additives. It is the only producer to offer methionine, in both powder and liquid form,
accounting for 29% of the world`s methionine market. In China, commercial production of
methionine had been unsuccessful for years even though as the second largest feed producer in the
world, the demand for methionine, the major animal nutritional additive was growing at an annual
rate of 10%.
In October, 2005, BlueStar purchased 100% of the shares of Drakkar Holding S.A., the parent
company of Adisseo, using 400 million euros from China Development Bank. This was China`s
largest acquisition in France to date. By acquiring Adisseo, ChemChina obtained a world-class
technology development system in the field with 794 patents, and directly controlled a famous
feed additive brand and mature world marketing network with significant market shares in
methionine, vitamins A, E and enzymes. Overnight ChemChina became a major producer of these
products and No.2 in the world`s methionine market. One reason that BlueStar got the acquisition
opportunity was the outbreak of bird flu that hurt the French shareholders` confidence in Adisseo,
depressing the value of the company. Its management was also tired of the unstable shareholders
who had little knowledge of the company, and liked the more professional BlueStar who could
help them pursue sustainable development. Adisseo was also attracted by China`s potential market.
The bird flu scare dissipated soon, and Adisseo`s performance quickly turned around. Adisseo`s
sales revenue increased from 452 million euro in 2006 to 1.067 billion euro in 2010, a CAGR of
18%, its EBITDA grew from 60.8 million euro to 357 million euro, a CAGR of 56%, and the
firm`s market value increased by 9 folds in the four years.
(2) Qenos of Australia
Utilizing Australia`s rich natural gas reserves, Qenos is the largest manufacturer of ethylene
and the only one making polyethylene in Australia, with a market share of 65% in the Australian
market and employing around 750 people. It has more than 50 years of experience in developing
its technical expertise and productive relationships, contributing more than $1 billion to the
Australian economy each year. In China, polyolefin had been in short supply for years. In April,
2006, ChemChina acquired 100% of the shares of Qenos at a price of 232.5 million Australian
dollars. ChemChina also benefitted from Qenos` upstream oil and gas resources in Australia.
(3) Rhodia Silicones of France
Rhodia Silicones (now BlueStar Silicones International) was a worldwide known specialty
chemicals company, and one of the foremost fully integrated silicone manufacturers with over 50
years of silicones expertise. At the time of BlueStar`s acquisition, Rhodia`s production capacity of
organosilicones was 220 thousand tons per year, a market share of 6%, ranking the fifth in the
world. It possessed the second strongest research institute in the field and mature marketing
Purchased by David Costa (dean@college.ch) on February 01, 2013


- 8 -


ChemChina
channels. Compared to Rhodia, BlueStar`s Xinghuo Plant was about 5 years behind in monomer
organosilicone technologies and 20 years behind in downstream processing technologies, facing
insurmountable patent barriers. Rhodia currently has about 3,000 employees. Its sales volume was
560 million euros in 2009.
BlueStar and Rhodia formed a global strategic alliance in the organosilicone business in 2004.
In October, 2006, BlueStar acquired 100 oI Rhodia`s organosilicone and sulphide business. The
deal was worth 750 million euros. With the acquisition, ChemChina was able to integrate and
renovate its domestic organosilicone business, and raised its total production capacity of
organosilicone to 820 thousand tons per year by 2012. It was No.2 in the world and starting to
set up downstream production bases.
(4) Elkem of Norway
Elkem is one of the world's leading companies in the production of solar grade silicon, silicon
materials, special alloys for the foundry industry, carbon and microsilica, with 108 years of history.
Elkem has production facilities in Europe, North and South America, Africa and Asia, as well as
an extensive network of sales offices and agents covering the most important markets. Elkem
employs approximately 2,400 people, with operating revenues of NOK 9.3 billion in 2010. In
January, 2011, BlueStar purchased 100% of the shares of Elkem Co., for 1.95 billion USD.
(5) Makhteshim-Agan Industries (MAI) of Israel
In crop protection, although China was already a big producer and exporter, its products were
mostly primary materials needing further processing. MAI is the world's seventh largest pesticide
production and distribution company, with over six decades of history. Its crop protection services
include herbicides, insecticides, fungicides and plant growth regulating series, with the capacity to
produce the active ingredients of more than 120 varieties, and more than 800 agents. MAI sells its
products in 120 countries, through some 50 subsidiaries worldwide. In 2011, MAI generated sales
revenue of 2.68 billion USD. Its global total employment is over 4,000.
In October, 2011, ChemChina Agrochemical Corporation purchased all MAI`s public held
shares worth of 1.44 billion USD, or 60% of its total shares. ChemChina became the largest
pesticide production and distribution company in China and the sixth largest in the world.
(6) Blackstones investment in BlueStar
In October, 2008, Blackstone Group invested 600 million USD and holds 20% of the shares
of BlueStar. The BlueStar Corporation became China BlueStar (Group) Co, Ltd, the first case of
an SOE introducing strategic investment by a non-listing method. At the same time Blackstone
entered BlueStar, several other merger trials by foreign MNCs with Chinese companies were
unsuccessful, such as Carlyle with XCMG and Coca Cola with Huiyuan Juice. Blackstone`s share
in BlueStar was much lower compared to those other cases. Also critical to government approval
were Ren`s low-key attitude in public, and his relentless efforts in dealing with government
departments to reduce their fears that state-owned assets might be diluted.
As a private equity fund, Blackstone`s motivation was to maximize its return on capital and
by benefitting from BlueStar`s value when its shares were ultimately sold. Recognizing China`s
rapid economic growth, BlueStar`s development path and its stance toward future, BlueStar
Purchased by David Costa (dean@college.ch) on February 01, 2013


- 9 -


ChemChina
needed more capital for further expansion. Other important benefits BlueStar obtained from
Blackstone, however, were transformation of corporate governance, more overseas channels,
higher management efficiency, and the ownership diversification encouraged by the government.
A standardized modern enterprise system with Blackstone`s participation, was established within
BlueStar (Group) Co., including a board of directors and related committees, e.g., strategy
committee, salary committee, and audit committee, etc. Ren is President of the new BlueStar
(Group) Co. Antony Leung Kam Chung, the former Financial Secretary of the Hong Kong Special
Administrative Region (HKSAR) and now the chairman of Blackstone Group's Asian office in
Hong Kong, is the Vice President.
At the same time, 'introduction of world`s best practices was initiated. McKinsey was
invited to help set up standardized systems of human resource management, financial management,
and provide marketing training to the third-level company managers. In addition to the general
manager, vice managers, new positions of CXOs, or chief officers in certain specialized areas,
were set up, etc. Some of the positions are now filled by people with big chemical MNCs and
experience.
Ren`s decisions about foreign mergers were thoughtful. When asked about the merger he was
most proud of, he recalled a given-up one in 2007, when ChemChina planned to purchase 36% of
the shares of Nufarm, the largest Australian agrochemical producer, together with CIC and
Blackstone. In the evening before signing the contract, Ren couldn`t sleep. He was uneasy about
the contracted price, (thirty million USD more than planned. He thought how much anti-freeze
agent must be sold to get that money back. He gave up the deal having already spent 50 million
yuan brokerage fee already spent, saving billions of RMB in investment.
IV. New Movement: Structural Adjustment and Upgrading (2011-)
(1) ChemChinas recent development
ChemChina`s performance since its formation in 2004 is shown in Exhibit 1, Exhibit 2 and
Exhibit 2. By the end of 2012, ChemChina will reach its goal for 2015 with both total revenue and
total assets surpassing 200 billion yuan. Contrary to the early years, when many subsidiaries were
loss-making, by 2011, 90% of the companies were profitable. The goal of reaching 10 billion yuan
total profit by 2015, however, is still far away.
The six overseas subsidiaries generated revenue of 43.72 billion yuan in 2011, or 24% of
ChemChina`s total. Their profit totaled 3.27 billion yuan in 2011, compared to 2.41 billion yuan in
2010.
ChemChina`s expenses on sci-tech in 2011 reached 4.32 billion yuan, 1.7 billion yuan more
than in 2010. Within the sci-tech expenses, those on research and development in 2011 reached
2.37 billion yuan. Currently, ChemChina possesses 3,182 patents, No.3 among all SOEs. The sales
and proIits oI ChemChina`s six sectors are shown in Exhibit 4.

Purchased by David Costa (dean@college.ch) on February 01, 2013


- 10 -


ChemChina
Exhibit 1
ChemChina's Major Financial Indicators
0
500
1000
1500
2000
2500
3000
1
0
0

m
i
l
l
i
o
n

y
u
a
n
0
5
10
15
20
25
30
1
0
0

m
i
l
l
i
o
n
Total Profit (right,
yuan)
2.3 28.3 14.6 9.1 25.2 24.2
Total Assets 230 590 1100 1237 1569 1676 1796 2485
Revenue 152 400 1000 1075 1219 1135 1402 1724
Export (right, USD) 11.8 7.8 11.1
2004 2005 2006 2007 2008 2009 2010 2011

Exhibit 2
Growth Rates of ChemChina's Major Indicators
-100.0
-50.0
0.0
50.0
100.0
150.0
200.0
%
revenue growth 163.2 150.0 7.5 13.4 -6.9 23.5 23.0
total assets growth 157.0 86.4 12.4 26.9 6.8 7.2 38.4
profit growth -48.4 -37.7 176.9 -4.0
2005 2006 2007 2008 2009 2010 2011

Exhibit 3: ChemChinas Major Indicators (from Fortune 500 data)
100 million yuan 2011 2010 2009
Revenue 1790 1402 1083
Net Profit 6 1 0.2
Total Assets 2542 1845
SharehoIders'
Interest
202 174


Purchased by David Costa (dean@college.ch) on February 01, 2013


- 11 -


ChemChina
Exhibit 4: Revenue and Profit of ChemChinas Six Sectors
Revenue
(100
million
yuan)
BlueStar
Co.
Haohua Co.
Petrochemical
Co.
Tire &
Rubber Co.
Agrichemical
Co.
Equipment
Co.
2009 368.8 228.2 327.2 106.8 66.3 37.7
2010 457.6 247.1 425.8 148.4 81.1 42.0
2011 557.0 285.3 578.8 163.4 93.7 45.8
Profit
(100
million
yuan)
BlueStar
Co.
Haohua Co.
Petrochemical
Co.
Tire &
Rubber Co.
Agrichemical
Co.
Equipment
Co.
2009 7.7 2.5 -4.9 2.7 0.3 0.9
2010 16.8 1.3 4.6 0.8 0.5 1.2
2011 19.7 2.1 5.4 0.8 -5.1 1.3

(2) Ongoing industrial adjustment
In contrast to the old motto designed, 'Traditional Chemicals, Advanced Materials, a new
motto, 'New Science, New Future, has been proposed for the company`s new phase of
development, consistent with the nation`s new development philosophy, 'Scientific
Development.
In view of the world chemical development trend and China`s demand for chemical products,
a new scheme of strategic adjustment over the current six-segment framework has been set up for
the '12
th
Five-year Program period (2011-2015) and beyond as '3+1, i.e., to focus on materials
science, life sciences, and environmental science as the leading businesses, supported by the basic
chemical industry as the business base. While the world chemical giants have already completed
the rapid development of material science, and are now focused on life sciences and
environmental science, ChemChina still needs to put more emphasis on advanced material
science.
However, there are difficulties in completing the strategic adjustment. Some businesses set up
during the company`s fast expansion years must fade away. However, there is possible social
instability caused by layoffs, and the public condemnations on the sale of state assets. So progress
is not easy. The development of some advanced materials is also constrained by ChemChina`s
insufficient access to raw resources like oil, coal and natural rubber. Some institutional barriers
have not yet been broken. Finally, many businesses consistent with the corporation`s future
directions are still not well integrated and work in isolation.
(3) Technology transfer and industry synergy
With its overseas M&As, ChemChina is trying to form several chains of industries to
integrate both the domestic and foreign subsidiaries. For example, the Lanzhou Carbon Fibre
Project is now under construction. By acquiring Rhodia Silicones and Elkem, ChemChina was
able to construct a complete chain of metal silicon-organosilicone-polycrystalline silicon firms and
Purchased by David Costa (dean@college.ch) on February 01, 2013


- 12 -


ChemChina
get the world`s leading edge technology, for producing solar grade silicon. In the organosilicones
market, ChemChina has risen to No.3 in the world after Dow Corning of U.S. and Wacker
Chemicals of Germany. Lanzhou Silicon Materials Co. under BlueStar Co. is now under Elkem`s
management. The entire BlueStar`s organosilicone business is being integrated with Elkem.
The Xinghuo project
Currently, two organosilicone facilities, each 200 thousand tons per year, are under
construction in Xinghuo Plant, Jiangxi Province. When the projects are completed in 2012,
ChemChina (BlueStar) will become the largest producer of organosilicone in the world. At the
same time, a 1.2 billion yuan investment has also been made in the plant for a downstream project,
including 26 production lines with more than 500 products transplanted from Rhodia. This will fill
in huge blanks of China`s manuIacturing capacity. The total investment in these projects amounted
to 5.6 billion yuan.
The Nanjing project
With the technology acquired from Adisseo, BlueStar started construction of a methionine
project in Nanjing, Jiangsu Province, with the production capacity of 140 thousand tons per year,
in 2010. Half of the capacity will be built by the end of 2012. When the whole project is
completed in 2015, China will no longer rely on import of methionine. Additionally, unlike
Adisseo in Europe, which produces its upstream core product and downstream final products
separately in different countries, the Nanjing project puts them together in the same place. This
will reduce the total cost and energy consumption by integrating the whole production processes.
At full capacity, the estimated cost reduction of the Nanjing project will be 20% compared to
Adisseo, which is more cost effective by 20% compared to other players. The Nanjing project,
therefore, will be at 60-70% of the world`s average cost in producing methionine. To implement
the Nanjing project, Adisseo has already sent 16 experts, to be increased to 33 when the project
starts operation. The CEO of the project is from Adisseo. When completed, the management of the
plant will be transferred to Adisseo. Marketing management will also be centralized at Adisseo, as
they`re more experienced in coordinating with other competitors and downstream customers.
(4) Upgrading management control and corporation quality
At the time ChemChina did the M&As and transplanted the acquired technologies into China,
it also upgraded its organization and management control.
Organizational streamlining
Since the founding of ChemChina, it has pushed to flatten the organizational structure. In
2010 and 2011, the number of subsidiaries below the third level were reduced by around 100 each
year. There are now only 352 left. A small number of companies were dissolved or merged.
Corporate headquarters was reduced to 96 people from 156.
Major second-level subsidiaries were created and strengthened by combining previous
third-level companies. Similar sub-businesses were grouped together, and management control
was centralized to reduce staffing costs. For example, BlueStar`s companies are grouped into the
divisions of functional plastics, silicon industries, performance fibres, environment protection,
Shenyang Co., Ltd. (chloral-alkali chemicals, petrochemicals, and new materials), etc. At the same
time, centralization of material procurement, financial affairs, bid issuance, insurance affairs, etc.,
Purchased by David Costa (dean@college.ch) on February 01, 2013


- 13 -


ChemChina
proceeded successfully, greatly reducing costs.ChemChina`s headquarters is focused on
developing strategic management control over the secondary specialized corporations. The
specialized corporations are ideally responsible for operational management control over the
third-level companies. This has not yet been fully implemented. As for the overseas companies,
the parent sub-corporations conduct financial performance control and budget review.
Regularization and informationalization
In recent years, SASAC started using EVA (economic value-added) as a key assessment
measure on SOEs. ChemChina invited the inventor of EVA, Stern Stewart & Co., to construct an
EVA assessment system for each of the six business segments of ChemChina and provide training.
ChemChina`s information system construction was started in 2007 in cooperation with Atos
Consulting UK, an international IT services company. Based on close comparison between
ChemChina`s current financial and production functions and the world`s best chemical practices,
the long-term overall program for the construction was completed.
World-class manufacturing
In 2010, a project called BlueStar World-Class Manufacturing (BWCM) was started, to
implement a standardized system where each worker`s job description is clearly given and
workers initiatives and creativities are fully encouraged, in order to approach the world-class
manufacturing safety, production cost and product quality.
(5) Human Resource Construction
By the end of 2011, ChemChina`s total employment was more than 138,000, down from
156,000 in 2008. ChemChina has just asked an overseas human resource institute to help in the
construction of a personnel career programming and position system.
Varieties of personnel training programs have been implemented. The most prominent is the
one held by the Party School of the Central Committee of CPC that has lasted for ten years, with
close to 200 young executive members attending multiple terms of training. The unique training
model has been endorsed within the party system. In support of the world-class manufacturing
(WCM) campaign and promotion of Six-Sigma management, hundreds of training sessions for
graded executives, technicians and workers have been conducted in ChemChina, starting in
BlueStar. By now, in ChemChina corporation, there are 22 black-sash masters, 150 black-sash
technicians, 80 green-sash executives, 650 green-sash technicians, and close to 18,000 yellow-sash
workers. The total sash-graded personnel now account for more than 20% of ChemChina`s total
employees.A system of executive assessment and selection stressing democratic cooperation and
performance excellence has been established. An instrument of leadership assessment and a 360
assessment method within the system has been applied on 505 executive members in 110
secondary and third-level companies, to help compensation systems.
Ren has recruited professional executive managers, or CXOs (Chief 'X Officers), especially
from abroad. The purposes was twofold. One was to strengthen the company`s international
competitiveness. The other is to prick the domestic rigid atmosphere, a so-called 'catfish effect.
Now ChemChina has 33 externally recruited professional managers, 7 of whom were listed in the
'Thousand Talent People program initiated by the Central Organization Department of the CPC,
the most among SOEs. Ren spent much time on executive recruitment personally. He usually talks
directly with the finalists, even invited them to have a family dinner. One prominent hire was Ross
Purchased by David Costa (dean@college.ch) on February 01, 2013


- 14 -


ChemChina
Macallister from the Great Britain, former partner and COO of Atos Consulting UK. Ross started
working in Beijing as an adviser to ChemChina in 2006, helping to develop a transformation
program for an overall upgrading of the corporation and becoming acquainted with different
aspects of the company. In 2009, at the invitation of Ren, Ross joined ChemChina as its fulltime
CIO. He is on the earlier mentioned list of the 'Thousand Talent People program. In 2011, at the
closing stage of the MAI acquisition, Ross was appointed as the CEO of ChemChina Agrichemical
Co. to handle the transition of the acquisition.
V. Corporate Culture
The cultural values of the company clearly reflect Ren`s views. Three distinct characteristics
stand out: (1) dedication; (2) courage and fighting spirit; (3) modesty and harmoniousness.
Ren`s dedicated spirit is rare among Chinese entrepreneurs. He had many opportunities to
change his company, BlueStar, into a private one but didn`t, despite the fact that he had quickly
paid back the original loan of 10 thousand yuan from his early institute. He owned not a single
share when BlueStar got publicly listed, nor of any of those of its listed subsidiaries. Among the
giant SOE leaders, Ren`s 220-thousand-yuan yearly salary is unmatched. When the corporation
started stock option incentives for executives, Ren refused any for himself. He will receive only a
small pension after retirement. Ren`s dream has always been to personally build a strong Chinese
chemical industry. He set up the nation`s only Chemical Industry Museum of China within his
corporation, covering the whole history of the Chinese chemical industry, for public education and
heritage preservation. Ren`s dedication inspires many of his subordinates, who joined him not
simply for salaries, but for a dream and the energetic atmosphere he created.
Ren`s is exceptionally hard working. For decades Ren has taken no holidays, except the day
of Chinese New Year. Ren hates playing golf or going to clubs. His only hobby is walking from
home to office.
His fighting spirit greatly affected his subordinates too. One example is Ms. Li Caiping, who
was assigned in 2002 by Ren to complete a large-scale cooling water recycling project for Taiyuan
Steel Plant, in an extreme water shortage area, in eight months with a given amount of money. The
use of ionic membrane method in such a large project with highly polluted industrial waste water
had never been tried in China. If unsuccessful, BlueStar would be kicked out of the water
treatment business and Li resign. She and her team worked day and night. The completed project
reduced the cost of water for the plant from 5 to 1.9 yuan/ton. The technology was then applied to
many other steel plants in China.
Ren`s amiableness, humbleness and integrity were also appreciated by not only the foreign
partners and employees. He always said to the executives of acquired foreign companies, 'We are
students, you are our teachers. The warning he gave to people assigned to work in the foreign
companies is 'Never act like a conqueror, and be humble to learn from those experts. He usually
doesn`t send his people to take over an acquired foreign company, but simply lets the foreign team
manage the company by themselves with great independence, with only occasional adjustments of
positions. The top foreign leaders will be invited to join the parent Chinese corporations as board
members. Before an M&A decision, Ren careful scrutinizes over the working teams` quality and
culture. In order to gain cooperation from the foreign executive teams and trade unions, key
members were invited to visit China to learn about the parent corporations` culture and become
more supportive to the mergers. For foreign experts working in China, every effort is made to have
Purchased by David Costa (dean@college.ch) on February 01, 2013


- 15 -


ChemChina
them feel at home, including various cultural activities such as basketball games, beer festivals,
experiencing Chinese revolutionary history, and Christmas Eve parties. Various multiple-language
media, such as corporation websites, internal journals, are also conducive to cultural integration.A
unique way of cultural integration is the summer camp for employees` children, sponsored by the
company. The program is 23 years old. In recent years, foreign employees` children have enjoyed
the opportunity to visit China, climb the Great Wall, attend the 2008 Beijing Olympic Games and
the Shanghai World Expo in 2010, etc. with their Chinese pals. This greatly tightens the relation
between, not only the kids, but also the foreign employees and their parent corporations. The
foreign companies now like to raise the China`s national flag when receiving visitors from
ChemChina.
Ren doesn`t like the sharp way of renovating a company, as advocated by many new bosses
growing up in the reform years. Rather, he prefers 'smiling changes, using soft punishments or
rewards and giving people reasonable time to make adjustments. To rearrange the surplus workers,
for example, no one was simply fired. Every effort was made to find new work for them within the
corporation and if none was available, to help them find other jobs.
After acquiring Adisseo, Ren decided to change Adisseo`s senior CEO because his high
salary was the sum of ChemChina`s 100 people at its Beijing headquarters, Ren invited him to
China to take the position of Ren`s assistant, praising his talent as being too great for Adisseo. He
then quit after recommending his successor, and is still friendly with Ren today.
VI. Vision and Problems
Ren is one of the very few first generation entrepreneurs still incumbent after China`s more
than 30 years of economic reform. He hopes to make his corporation one of the top three in the
world chemical industry, not only in terms of scale, but also in quality. Ren believes that China`s
future economic development and industrial upgrading requires a strong chemical industry, which
puts great responsibility on ChemChina. The support from the government to ChemChina,
especially in terms of capital, is still not comparable to that received by other giant SOEs.
ChemChina has had to mainly rely on debt financing for expansion. As this involved acquisition
of many debt-loaded companies, this has resulted in a debt/asset ratio of over 80%.
Upgrading the structural transformation and organizational integration has not been
completed. Ren believes there are still too many management levels and gaps in management
quality. Some companies are still making a loss. Investment investigation and control has
sometimes been insufficient, resulting in duplicate investment projects with uncertain profitability.
Ren expects to have all subsidiaries below the third level reorganized and the number of third level
subsidiaries reduced to less than 70 by the end of 2015. Some secondary corporations will be
made public and get listed when conditions mature.
For 2012, the near term goals have been set as 210 billion yuan for total revenue, rising up
from 172.4 billion yuan in 2011; 3.5 billion yuan for total profit, from 2.42 billion yuan in 2011;
and a reduction in the debt/assets ratio by three percentage points.




Purchased by David Costa (dean@college.ch) on February 01, 2013


- 16 -


ChemChina
Appendix: Major Chemical Giants in the World
Although bigger than ChemChina, the other three giant corporations in China listed in the
Fortune 500 table (Exhibit 5) are not strictly 'chemical companies. They are classified by Fortune
as either 'petroleum refining (Sinopec and CNPC) or 'trade (Sinochem). The following are the
four world-claimed chemical leaders.
Exhibit 5: Major Chemical Giants in Fortune 500
Rank
(2012)
Rank
(2011)
Rank
(2010)
Company
Revenues
($ millions)
Profits
($ millions)
Employment Country
5 5 7 Sinopec Group 375,214 9,453 1,021,979 China
6 6 10
China National
Petroleum (CNPC)
352,338 16,317 1,668,072 China
62 71 81 BASF 102,194 8,604 111,141 Germany
113 168 203 Sinochem Group 70,990 1,178 50,073 China
156 152 161 Dow Chemical 59,985 2,742 51,705 U.S.
185 207 249
LyondellBasell
Industries
51,035 2,147 14,000 Netherlands
187 178 170 Bayer 50,790 3,434 111,800 Germany
188 210 293 Sabic 50,639 7,798 33,000 Saudi Arabia
252 234 299
Mitsubishi Chemical
Holdings
40,632 449 53,979 Japan
270 285 296 DuPont 38,719 3,474 70,000 U.S.
336 318 -
Ineos Group
Holdings
33,160 523 7,942 Britain
402 475 - ChemChina 27,707 100 138,553 China
446 419 485 Sumitomo Chemical 24,670 71 22,839 Japan
(1) BASF
BASF now has subsidiaries in more than eighty countries, six Verbund sites and close to 370
production sites worldwide, with total employment of more than 111,000 in 2011.
Exhibit 6: BASFs Disaggregate Performance
(2011, million euros)
Segment Sales EBITDA
Chemicals 12,958 3,188
Plastics 10,990 1,678
Performance Products 15,697 2,312
Functional Solutions 11,361 921
Agricultural Solutions 4,165 981
Oil & Gas 12,051 2,616
Regional Shares 100%
Europe 53%
North America 19%
Asia Pacific 20%
South America, Africa,
Middle East
8%

Purchased by David Costa (dean@college.ch) on February 01, 2013


- 17 -


ChemChina
(2) Dow Chemical
Dow employed approximately 52,000 people worldwide in 2011. The Company's more than
5,000 products are manuIactured at 197 sites in 36 countries across the globe. Dow`s expenses on
research and development amounted to 1,646 million USD in 2011.

Exhibit 7: Dow Chemicals Disaggregate Performance (1)

Exhibit 8: Dow Chemicals Disaggregate Performance (2)
Region
% of
Global
Sales
Europe, Middle East & Africa 35
North America 35
Asia Pacific 18
Latin America 12


(3) Bayer
Bayer had an employment of 111,800 and about 300 companies in 2011. Its expenses on
research and development in 2011 were 2.9 billion euros, among which 66.4% were on its health
care area.







Purchased by David Costa (dean@college.ch) on February 01, 2013


- 18 -


ChemChina
Exhibit 9: Bayers Disaggregate Performanc
e (2011, million euros)
Segment Sales EBITDA
Health Care 17,169 4,502
Crop Science 7,255 1,215
Material Science 10,832 1,215
Region
Europe 14,441
North America 8,177
Asia/Pacific 7,842
Latin
America/Africa/Middle
East
6,068

(4) DuPont
DuPont`s total worldwide employment was approximately 70,000 people in 2011. The
company has operations in more than 90 countries worldwide and about 65 percent of
consolidated net sales are made to customers outside the U.S. In 2011, DuPont`s expenses on
research and development amounted to 1,956 million USD, of which agriculture accounted for
approximately 50%.

Exhibit 10: DuPonts Disaggregate Performance
(2011, billion USD)
Segment
Sales
revenue
Total
profit
Agriculture 9.2 1.5
Electronics & Communications 3.2 0.4
Industrial Biosciences 0.7 0.0
Nutrition & Health 2.5 0.0
Performance Chemicals 7.8 1.9
Performance Coatings 4.3 0.3
Performance Materials 6.8 1.0
Safety & Protection 3.9 0.5
Pharmaceuticals - 0.3
Region
U.S. & Canada 14.3
Europe, Middle East & Africa 10.0
Asia Pacific 8.9
Latin America 4.8

Purchased by David Costa (dean@college.ch) on February 01, 2013