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Speech by Board Chairman Ye Jianming at CEFC China Strategic Seminar for 2016

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On February 2, CEFC China Strategic Seminar for 2016 was held at its headquarters in Shanghai. Board Chairman Ye Jianming attended the seminar and rolled out his overall strategic planning. Executive directors, independent directors, heads of the Strategic Decision Committee and senior staff from each executing team also attended the seminar. In his speech, Chairman Ye announced his message for the company in 2016: “Probing into the Intrinsic Leads to Success”. He indicated that 2016 was a significant year for CEFC China, during which the strategic planning should be put in place. To this end, the company should integrate all its resources and gather strength from all staff members to work towards this common goal in an organized and efficient manner.


The full text is as follows:


Ladies and gentlemen, our first meeting in 2016 is not merely held for the Board of Directors, or for general managers, but for the strategic discussion. We can see a number of middle-level managers have joined us here. This echoes my new year’s message- “Probing into the Intrinsic Leads to Success”. Every year I would deliver a message that contains my hopes and expectations for the new year. Last year was a “Prime Year for Innovation”, and I define 2016 as the year to “achieve success by probing into the intrinsic”. To “probe into the intrinsic” requires one to have broad and profound vision as well as determined and untiring endeavor. This concept may yet to be known to many. People familiar with traditional Chinese culture and Wang Yangming, a Chinese philosopher, tend to explain it as the way to search one’s conscience, to form the unity of the heart and the way, thus serving one’s mind. That is Yangmingism, the School of Mind. Scholars of each dynasty have had their own understandings and interpretations, and I myself, after reading the whole original article, found that the profundity of “probing into the intrinsic” lies in discovering the layout among things, or in other words, figuring out relations between one and himself, between us and other people, and between human beings and the society. As the saying goes, everybody’s business is nobody’s business. But how can we mobilize everyone to cooperate with each other for everybody’s business? To solve this problem, we need to find the right layout of cooperation by probing into the intrinsic of the matter. This is not easy. An arrow barely flies without the space created by stretching the bow. The layout between the arrow and the bow is the key we need to find to success by probing into the intrinsic.


In my opinion, our management team above deputy general managers is consistent in thinking and well aware of our strategic direction with a broader vision. Even so, there are still unresolved problems. That is because the implementation of the planning layout is not quite ready. Senior management has been assigned with specific tasks by the Board of Directors, but their subordinates have no clear understanding of what they are responsible for. Why is that? It’s because each team internally is not united as a whole to strive for the strategic goals. Without the planning down to the basic level, concerted efforts could hardly be made. Therefore, our internal management also needs to find and build its layout by probing into the intrinsic.


As I mentioned before, our company consists of the relationships among three roles, namely professional managers, business managers and business owners. Professional managers are fresh graduates and serve as apprentices to learn new skills. Business managers are those who are dedicated to the company’s undertaking and have already made outstanding contributions. They may become business owners in the future, like partners or shareholders at different entities after the company securitizes its assets. Currently, professional managers and business managers make up the largest part of CEFC China’s management. But the problem is, the business managers have not assigned specific strategic tasks to professional managers. Staff members hold different views on work and life due to their family backgrounds and experience. How can we coordinate the three roles to work for CEFC China’s strategic goals? For those who want to make a fortune here, we let them bear in mind that profits shall be made in a decent way. For those who aim for high status, we provide them with a favorable environment for self-improvement and broader vision. For those with considerable diplomatic skills, we help them cultivate their minds and keep enhancing their capacities.


By naming 2016 the year to “achieve success by probing into the intrinsic”, I mean we are to convert the business layout we have built in the previous decade into the success of our strategic goals. Back in 2004, I proposed the strategy to drive the company’s economy through trade, to attract competent personnel with a dynamic economy and to combine industrial business with financial sector. By 2012, we had completed our business layout by strengthening our economy through international trade. After that, we have readjusted our strategic goals for the following several years based on the context of the energy sector in China. This strategy is meant to build a downstream channel for CEFC China in Europe through targeted terminals. We’d attempted to establish the terminals in China by purchasing gas stations, but we sold them in the end, because they failed to become part of our overall planning.


In 2015, we entered into a strategic acquisition agreement with KMG International (KMGI) at the witness of Chinese Premier and the Prime Minister of Kazakhstan. KMGI owns over 2,000 gas stations in Mediterranean countries including Spain, France and Romania, and conducts an integrated business of storage, transportation, refining and sales. The purpose of the buyout was to more actively obtain the upstream equities and rights. Besides, in our project in Chad, we were able to get 20% of its equities and 50% of its sales profits. Relying upon our advantages in the equities of oil and gas, our financial services can help achieve our strategic goals. Our own banks can provide loans to purchase oil, while our futures, securities and asset management companies provide factoring services to promote liquidity of the equities and increase business revenues. As the oil prices are currently low, we can buy options with low costs, and sell out the options and our equities when the oil prices rise. The risks are thus controllable.


Based on our terminals in Europe, we are also able to acquire the equities and rights of the upstream oil and gas resources. We have also obtained licenses for a full range of financial services to support our business strategies. So we must stay close to our master strategies. Currently, the interest costs are eating up a large portion of Chinese private companies’ profits because of their unstable financial operations. This is partly caused by the lending policies of Chinese commercial banks, which only offer loans for a short credit period. As a result, the factories can only use the loans to ensure liquidity. The loans for international trade are also secured for a relatively short period. These policies have constrained many Chinese private companies. By contrast, European banks combine the industries and finance, and offer companies with both industrial investment and loans. This is why we need to obtain licenses for a full range of financial services. We have so far signed contracts on equities of over 60 million tons of crude oil by 2016, and these contracts are effective for over 10 years. We can imagine what it means when the oil prices rise.


We have acquired J&T Finance Group and will purchase its controlling stakes step by step, which is an addition of RMB 200 billion to the total assets. We are also preparing for the acquisition of several banks in other European countries. One of the main reasons behind this plan is to shift the region of our financial layout. As I mentioned earlier, the loans from Chinese banks are difficult to acquire, unstable and costly. But if we have our own banks, we can better support the trade of futures, equities and rights, and our M&A activities as well. Take international trade loans as an example. In reality, except for the first loan, banks virtually never grant loans with an amount equal to that of the deposit. When we buy oil with loans, only the amount of the first loan is equal to that of the deposit, because we have to pay back the loan within the credit period for the loan, be it 3 months or 6 months, with our own money if the oil is not sold out. That causes many problems in our financial management and significantly increases our costs. By contrast, if our own banks grant loans in central Asian, the Middle East and African countries in exchange for oil with governments’ fiscal guarantee, or grant loans to our clients, our profits can be significantly increased because of the low financing costs in Europe. Let’s say, if our sales in 2016 reach USD 100 billion, about RMB 600 to 700 billion, we will have an additional profit of over RMB 10 billion if all available financial instruments are used, as calculated by our professional teams. And this number does not even include profits from our other profitable business operations, such as commodity exchange between different regions, commodity warehousing and material processing, and the securitization of equities in upstream sectors through listed companies.


As the ancient Chinese philosopher Lao-tzu once said, “Govern a great nation as you would cook a small fish”, dealing with the economy is also like cooking fish, and the key lies in the right time to act. The economy fluctuates in foreseeable cycles, from recession to recovery and to its peak, and all over again. What is crucial is to know how to choose the right time to move forward or retreat. This is also the case with the oil trade, where the most crucial thing is the timing of buying or selling against the fluctuations of oil prices. Many counterparts in charge of operation in the energy sector believe that 2016 is the best opportunity since World War II. They are eager to take immediate actions, believing that an opportunity like this does not come often. That’s also what I’ve had in mind, and that’s why many of them have partnered with us. We have developed a complete overall plan for that partnership, and if we operate that well, we will earn billions, even hundreds of billions, rather than just millions. They’ve come to us because few other companies are capable of such operations, as it is absolutely not a matter of one or two years to be able to accumulate the variety of resources required.


Then why could the European and American financial consortia make a fortune on gas and oil? And why did the oil producing countries suffer a great loss when oil price tumbled? This is because those financial consortia have made the largest profits. There are other reasons, too, like the rebalancing of the global political powers, or adjusted fiscal policies. I am not going to elaborate on it. Anyhow, this is a battle on the pricing of exchange rates, assets and currencies, which has put all oil producers in a tough situation. Since World War II, the U.S. has gained considerable surplus value due to its control over the global oil and gas resources that have brought ever-increasing profits to its economy. I believe this era of rebalancing is a golden opportunity we can take advantage of.


What we need to do now is take the head start, which requires, as I mentioned before, forward-thinking and analysis. Chinese companies are known for rushing into action blindly and eventually swarming out. There’s nothing left to buy when other companies have all rushed in and bought out everything. Currently, the European assets are even more undervalued than RMB-based assets. That’s why we have established our second headquarters in the Czech Republic to shift assets to a new region. The Czech Republic is the heart of the sixteen Central and Eastern European countries, or the center of Europe. It is a bridge between Europe and Asia, so our presence in this country will help us extend our reach in other sixteen Central and Eastern European countries, Western Europe, Central Asia and even Russia. For us, this strategy is very practical and feasible.


So we move forward with two engines: our operations and investment. Operations mean we acquire the upstream equities and rights through our oil terminals, and our full-licensed banks offer loans to purchase oil. We can lower the costs and increase profits using financial instruments including stocks, futures and assets management. The second engine, investment, means we establish CEFC China as an international investment bank. But do understand that the investment bank is intended for the “One Belt, One Road” Initiative. It comes with clear objectives. Some said that we are buying the whole Czech Republic. That is not true, because our investment is not blind but well targeted at three areas: tourism and airlines, equipment manufacturing, and the pharmaceutical industry. The three areas are our top priorities.


For tourism and airlines, we’ve acquired the largest media group and the second largest airline in the Czech Republic. And we’ve also controlled the largest airline in the country and are in charge of the expanding of its airports and the maintenance of its planes. What’s more, we’ve acquired the three best five-star hotels in the Czech Republic as well as a football club. For the 2 football stadiums in the country, the new one was intended to be built as the national stadium, and we can own the old one through displacement and subsequent redevelopment for tourism. In the meantime, we’ve acquired tourist companies and an online payment platform that’s collaborating with ICBC. To sum up, we’re investing in a whole chain of tourism and airline industries that can partner with state-owned enterprises in Shanghai. This partnership is centered in the Czech Republic and can be further extended.


In terms of equipment manufacturing, CEFC Shanghai owns an industrial company licensed to manufacture military supplies. It has invested in the Czech Republic in special aircrafts, vehicles and steels, nuclear power and radars which could be integrated into an industrial group that can include the electric power industry in the future. By introducing foreign advanced management philosophies and technologies to domestic state-owned companies, we can make the best of the domestic and the global markets. Also, we can build new factories in China to upgrade our industries.


The third is the pharmaceutical industry. The Penta Group we’re now cooperating with is the third largest consortium in the Czech Republic and owns over 2,000 pharmacy chain stores, dozens of hospitals and bio-pharmaceutical companies in several countries across Europe. The group is highly capable of managing hospital chains and international hospitals, and has a strong sales system. At the witness of Chinese Premier and the Prime Minister of the Czech Republic, we set up a pharmaceutical company jointly with China’s National Health and Family Planning Commission, Shanghai University of Chinese Medicine and a Czech-based hospital to promote collaboration in traditional Chinese medicine. We have also conducted cooperation with Chinese pharmaceutical companies. The three areas should be planned as a whole, and we need to securitize all of them.


By securitizing the three areas as extended businesses of our international investment bank, we intend to introduce advanced technologies and management concepts from aboard to China’s industrial upgrade endeavor as a result of our foreign investment so that the domestic and global markets can achieve synergy. We’ve made much effort in this regard and done a pretty good job. I fully appreciate the hard work that all the staff members have done.


Today’s seminar should focus on energy and finance. In terms of energy, we identify the sector as upstream and downstream divisions to obtain equities and rights. In the meantime, we should strengthen our financial team to fulfill our strategic goals. We should roll out the strategic business plans for the three areas as soon as possible, all of which will be owned by CEFC Shanghai International. All staff members should grasp this great opportunity and work hard towards the strategic goals of our country and of CEFC China.


As an increasing number of professional managers from second-tier companies of state-owned enterprises will become business elites, we can develop partnership with them. Our internal mechanism that integrates strategies from the headquarters with financial control allows business teams from those companies to become our partners. We must practice lawful operations in compliance with national and CEFC China’s strategies. We should help secure overseas projects for state-owned enterprises, and help enterprises of mixed ownership to expand into the global market and help them securitize the assets with our global resources. We can give shares of the company to the operation team. For example, we give them 20% of the profit and convert that to shares of the company five years later. That is to say, we should inspire the employees with attractive incentives. 


Human beings are naturally and inevitably selfish, but we should contribute all our personal desires to the public good of CEFC China. This is what I mean by saying “we always work to accommodate others’needs first”.. If everyone receives help from others, the national interests can be secured. This is how we identify ourselves. CEFC China effectively allocates its profits according to the “one company, two systems” principle and the three roles I mentioned under the leadership of the Board of Directors. But the allocation plan still needs to be refined, so that we can create a work environment that advocates fair competition through institutions and mechanisms.


No matter how complicated or conflicting our internal relationships are, we should still integrate all resources to work for one goal. So the executing teams should just earnestly implement the plans before trying to figure out why, for the staff members from different departments may have their own understandings of the strategies and tactics in different times, and they may not understand all issues in just one or two days. Strategies and tactics are flexible, so execution is more important than empty talk or vague speculations. Good advice from the leader must be applied to daily work. Action speaks louder than words.


A well-planned strategy must be flexible in the first place. To analyze strategies is to develop a clear understanding of yourself in all aspects including your view on the global situation, and then formulate your strategies based on your own resources. Any sudden incident in any part of the world may influence the global economic development, so a good leader should focus on major problems and handle the incidents well. History is made by numerous incidents, so we should learn to turn the incidents into big opportunities. Leaders or executives differ from other employees in their abilities to handle the incidents, as determined by their personalities. Personality is all about lofty aspirations, strong will, courage and innovative ways of thinking. Your fulfillment of life lies not in wealth, but in your enhanced personality and virtue that prove how valuable you are.


This is all for today. As the Spring Festival is approaching, I wish everyone a happy new year. Thank you!

Next: Abstract of Speeches Delivered by Chairman Ye Jianming in Several Meetings
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