Ma Zhi Qing, founder of Shandong Qingyuan explains how he transformed a tractor business into an international oil refinery

Were it not for China’s economic reforms, Ma Zhi Qing would still be running his farm in Linzi, but thanks to a light bulb moment on a tractor in the 1980s, he leads a multi-billion dollar petrochemical corporate. He talks to Trade Finance TV about his remarkable journey from farm to industrial giant, with Deutsche Bank’s Frank Wu providing Mandarin interpretation and the financing perspective.

Today the group is the largest privately owned producer of base oil in China with a processing capacity of 8.6 million tonnes per annum (mtpa) and a production capacity of 1.9mtpa of API-I, API-II and API-III base oil types, accounting for around 35% of China’s overall capacity of high quality API-II and API-III base oils.

Certified with the ISO 9001 quality label it is one of 27 API certified companies in China. In addition, Qingyuan has moved further up the value chain with its own sales of finished lubricating oil, transformer oil, other specialist oil products and aviation kerosene. In 2016, the group became the only domestic producer of white oil with a production capacity of 0.1mtpa, the highest quality base oil that is widely used in pharmaceutical and medicinal applications, cosmetics and food industries.  

To take advantage of the crude import licence quotas, Shandong Qingyuan needed settle crude purchases in US dollars. In addition, rising oil prices and increased working capital requirements meant that facilities from only Chinese banks were no longer enough. The refining business relies on availability of funding and it is a capital-intensive business. Ma and Wu explain how prepayment finance with Western banks such as Deutsche Bank has helped the company build its export revenue streams.

Note that the questions asked by the presenters have Mandarin subtitles and that Wu translates the questions for Ma into Mandarin and Ma’s responses from Mandarin to English.

Transcript of interview:

Clarissa Dann Good afternoon and welcome to Trade Finance TV on location here in lovely Amsterdam. I’m Clarissa Dann, your presenter, and it gives me very great pleasure to welcome again Ma Zhi Qing from Shandong Qingyuan and Frank Wu from Deutsche Bank. They’re going to talk to us about a very special form of oil that we see everywhere. Now, Mr. Ma, I’m going to ask you, first of all, you had this idea for this business back in 1991, didn’t you? Tell us about your light bulb moment.

Frank Wu (translating for Ma Zhi Qing) The development of Qingyuan and the founding of the Qingyuan Group is all thanks to the open door policy of China, and Qingyuan basically leveraged the opening door policy and then we started from a rural area of Shandong.

Clarissa Dann I remember going there and I was so impressed at the beautiful machinery and the sheer scale of what you’re doing. How long did it take you to get to that size?

Frank Wu (translating for Ma Zhi Qing) It took us 38 years to start from nothing to today’s scale. And if it was not the opening of Chinese economy, I wouldn’t have this opportunity. I would have been, you know, in a rural area, probably be a farmer, but then I could realize my dreams to fund a business and also turn it into a big industrial scale.

Clarissa Dann That’s amazing. Now, let’s hear a bit more about this very special oil you buy and the crude oil and you turn it into something that is part of everyday life. It’s in our medicines, it’s in baby nappies, in cars. Tell us more.

Frank Wu (translating for Ma Zhi Qing) When I first started building a business from a rural area, what I did was basically transportation with a tractor, right? So naturally, we have to fuel the tractors and then from tractors we moved on to look at the products that is required to lubricate tractors. And then step by step, we have developed our fantastic special oil business.

Clarissa Dann You can drink it.

Frank Wu (translating for Ma Zhi Qing) We are in the petroleum refinery business. And the only way to stay ahead of the game is to continue extending our value chain. So we’re not like stopping at some basic products. We want it to be innovative. And then we wanted to go into downstream industries with our the latest technology and with the newest products.

Clarissa Dann Let’s hear a bit more about how your financing has changed as your company has grown. And we’ve heard about the prepayment finance that you’d be doing. How has that helped expand your business? And could you also tell us a bit more about preparation for export.

Frank Wu (translating for Ma Zhi Qing) So development of a refining business has to rely on the availability of the funding. And it’s a capital intensive business. And in the past, China basically only allowed the big state owned companies, the ones like the state owned oil majors to have the full license, but then the government started to open up the licenses to the private owned enterprises, the POEs. And then we then also came into the game and we were looking for funding sources to support our growth.

Clarissa Dann OK. And to conclude, it’s been very interesting hearing about how this change happened over these three, nearly four decades. But how do you see the future? What’s the next stage of innovation growth? It would be very good to hear that.

Frank Wu (translating for Ma Zhi Qing) I firmly believe the market will continue to be open for us and the reform of the Chinese economy will continue, just like in the past decade. As a POE, we were granted import licenses which really enable us to started to cooperate and then source crude oil directly from international traders. And then with the support from international banks, it has enabled us to grow in scale and then also, you know, allow us to make a good profit, which is then reinvested into R&D and then which turned us into a very powerful producer of special oil in China. So we do believe and we are very confident that this trend will continue. And a we continue, we’ll continue to work with international banks.

Clarissa Dann And Frank, from your point of view as a financier, how do you see this relationship blossoming and evolvingeven further?

Frank Wu Well, the relationship with Qingyuan has really been a very rewarding and a fruitful one. We started our cooperation about three or four years ago, and we closed our first big syndication in 2017. And then last year, we closed two more new deals. And we’re working towards supporting Qingyuan for the future financings. At the same time, I echo what Mr. Ma says. I do believe the market will continue to open and not only the import of crude oil. At some point, I believe it will also be a chance for Qingyuan to export their products to the international market, and they’ve already started to work with major international trading houses. And then you’re in the majors in these areas. And Deutsche Bank will definitely be firmly sitting/standing next to our valued customer and provide the support that they require to move to the next level.

Clarissa Dann Gentlemen, thank you very much for coming into the studio. It’s been lovely to talk to you.

Published on July 22, 2019

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