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On December 20, reporters learned from the Judgments Online platform that the Intermediate People’s Court of Yinchuan in the Ningxia Hui Autonomous Region issued an execution ruling with the reference number (2019) Ning 01 Exec 301-1 in September this year. According to this ruling, Baota Petrochemical Group Co., Ltd. is about to enter bankruptcy proceedings, and Baota Petrochemical Group Finance Co., Ltd. and other entities no longer have any assets available for enforcement. Case No. (2019) Ning 01 Execution 301-1 is a dispute regarding the right of recourse for negotiable instruments, involving the applicant Huo in contrast to the defendants Ningxia Baota Energy Chemical Co., Ltd., Ningxia Lingwu Baota Dagu Storage and Transportation Co., Ltd., and Baota Petrochemical Group Finance Co., Ltd. The court stated that after accepting the case in April of this year, it issued a enforcement notice to the person subject to enforcement, in accordance with the legally binding civil judgment document No. (2018) E0703 Min Chu 937 issued by the Huarong District People’s Court of Ezhou City, Hubei Province, ordering said person to fulfill the obligations specified in the legally effective judgment. The defendants, Ningxia Baota Energy Chemical Co., Ltd., Ningxia Lingwu Baota Dagu Storage and Transportation Co., Ltd., and Baota Petrochemical Group Finance Co., Ltd., are required to pay the applicant Hua a sum of 200,000 yuan in the form of bills, as well as interest amounting to 5,945 yuan on that amount from July 3, 2018, until the judgment takes effect. They must also cover the case acceptance fee of 4,300 yuan and pay 3,036 yuan as enforcement fees to the court. During the enforcement process, the court seized, in accordance with the law, the property owned by the debtor, Ningxia Baota Energy Chemical Co., Ltd., located in XX Town, Lingwu City, as well as the state-owned land use rights with registration numbers Ling Guo Yong (2009) 0462 and 0463. Since these were seizures on a waiting list basis, the court did not take any judicial action regarding these seized assets. Since the companies subject to enforcement in this case are currently shut down, and their parent company, Baota Petrochemical Group Co., Ltd., is also about to enter bankruptcy proceedings, the court checked with banks, securities firms, internet banks, industrial and commercial registration authorities, as well as vehicle registration offices, and found no other assets available for enforcement belonging to the defendants Ningxia Baota Energy Chemical Co., Ltd., Ningxia Lingwu Baota Dagu Storage and Transportation Co., Ltd., and Baota Petrochemical Group Finance Co., Ltd. After discussing the matter with the applicant for enforcement, it became clear that they could not provide the court with any additional information regarding assets that could be seized. Therefore, they agreed to let the court terminate this current enforcement process. In early November 2018, Sun Hengchao, the actual controller of Baota, said in a speech that due to profound changes in the international economic environment, as well as domestic economic transformation and structural adjustments, private enterprises faced numerous difficulties in their development. Baota was no exception to this situation. Moreover, the company’s management capabilities were not commensurate with its rapid growth, and various hidden problems gradually emerged, becoming major obstacles to the company’s development. The combined effect of international, domestic, and internal factors poses severe challenges to Baota’s current development. In November 2018, Baota Industry, a listed company under Baota Petrochemical Group, announced that at a high-level leadership meeting of the group held on November 16 in the multi-functional hall on the 4th floor of the Ningxia Baota Petrochemical Building, the police authorities informed the company that its actual controller, Sun Hengchao, was suspected of committing criminal offenses. This marks the public exposure of Baota Group’s bill issues. In December 2018, the Yinchuan police announced that they had launched an investigation into Baota Petrochemical Group for suspected bill fraud. In addition, on December 18, the Yinchuan Procuratorate decided to approve the arrest of 8 suspects involved in the case, including Sun Hengchao. Sun Hengchao, the chairman of Baota Petrochemical Group, is suspected of bill fraud. On December 19, 2018, the Yinchuan police arrested the aforementioned individuals. According to the financial statements for the first three quarters of 2018 released by Baota Petrochemical Group on the China Money Network, the company’s liabilities amounted to 34.056 billion yuan, of which 16.4 billion yuan was in the form of notes payable. This was the last financial report released by Baota Petrochemical Group in recent times; its annual report for 2018 and the quarterly reports for 2019 were not submitted on time thereafter. Baota Petrochemical Group stated in its announcement that the company is facing significant uncertainties due to the fact that Sun Hengchao, the actual controller of the company, is under investigation by the public security authorities on suspicion of criminal offenses. Currently, both bonds issued by Baota Petrochemical Group, namely “14 Ningbaota MTN001” and “14 Ningbaota MTN002”, have fallen into material default due to the failure to repay the principal and interest on time in full. On November 29, Baota Petrochemical Group issued a statement regarding the progress related to the breach of contract, stating that the company would continue to carry out various tasks under the guidance of the **working group, while maintaining close communication with the lead underwriter, various investors, and relevant authorities. Founded in 1997 as a small chemical plant in Xixia District, within just 20 years Baota Petrochemical Group has grown into a large-scale enterprise that operates in key regions such as the Northwest, North China, Southwest China, and the Pearl River Delta. It owns more than 200 gas and fuel stations across the country, and has also expanded its operations overseas. With total assets of 56.6 billion yuan, the group has successfully made it onto the list of China’s Top 500 Enterprises. Times have changed, which is quite regrettable. Below are the reports published by the media about Baota Petrochemical in 2017. What exactly has happened to Baota Petrochemical in just two years? Sun Hengchao was born in March 1960 in Zhongwei, Ningxia. He graduated from the Law Department of Northwest University of Political Science and Law, holding a bachelor’s degree. He is a professor and an expert entitled to special allowances from the State Council. He once served as the chairman of the board of directors and president of Baota Petrochemical Group, as well as the president of Yinchuan University. It ranked 626th on Hurun’s 2016 list of China’s richest people. Crises and hardships: “Give me some time; I will repay the debt in its entirety.” ” 24 years ago, after his first business venture failed and he was owed 1 million in debts, Sun Hengchao sat alone in his office and said this to the creditors who came to collect the money. Three years later, he paid off all his debts. In 2018, as the chairman of Baota Petrochemical Group (hereinafter referred to as Baota Petrochemical), Sun Hengchao faced another difficult period: the company he founded himself was burdened with debts of over 34 billion yuan. At 3 p.m. on November 16 of that year, at a high-level leadership meeting of the group held in the multi-functional hall on the 4th floor of the Ningxia Pagoda Petrochemical Building, the public security authorities informed the meeting that Sun Hengchao, the actual controller of the company, was suspected of committing criminal offenses. In 1997, Sun Hengchao acquired a small oil refinery. Refining equipment includes many towers, which is why the company is named Baota. This is how the name Baota Petrochemical came about. This year marks the 20th anniversary of the establishment of Baota Petrochemical. Since starting his business in 1997, Sun Hengchao’s company has been operating smoothly, with sufficient cash flow that allows it to develop on its own through profits. In Sun Hengchao’s memory, around the year 2000, loans were hardly needed at all. It was not until 2002, when Baota Petrochemical began to expand rapidly, that it obtained some loans, yet it never faced any repayment pressure. However, by 2008, the situation seemed to have reversed. Inventory can’t be sold. Before the financial crisis, Baota Petrochemical did not have a clear funding plan; it had sufficient funds, was able to obtain loans easily, and repaid them on time. In 2008, as oil prices plummeted, Baota Petrochemical suffered severe losses. Later, a 4-trillion stimulus plan was introduced, but the situation at Baota Petrochemical did not improve significantly. From that point on, amid difficulties, Baota Petrochemical underwent a round of structural adjustments. From 2008 to 2013, Sun Hengchao accelerated its strategic planning and quickly established Baota’s manufacturing facilities in Zhuhai, Inner Mongolia, and Xinjiang. However, under a cross-regional architecture, rapid development has also encountered problems. On the one hand, there is a shortage of talent reserves, and management cannot keep up. On the other hand, the demand for funds is increasing rapidly. During that period, Sun Hengchao also did not have access to high-quality financial instruments, and he had to raise funds on his own to move the project forward. The turning point came in 2012, as cross-regional projects in Xinjiang, Zhuhai, Ningxia and other places advanced rapidly, putting significant financial pressure on Baota Petrochemicals. It was also at this time that Baota Petrochemical began to bring in some private usury funds and bridge loans. The economic situation deteriorated further in 2013, with the financial crisis spreading to the coastal areas*, and policies tightened financing. The bank classified Zhuhai Pagoda as a trading enterprise; Pagoda repaid its loans to the bank one by one, but was unable to obtain new loans from the bank to sustain the development of the company. During this period, the pagoda also paid money to the bank, part of which came from local usury funds. After three years of effort, through cost reduction and efficiency improvement, structural adjustments, and the restructuring of equity in certain industries, Sun Hengchao was able to resolve the funding issues one after another. Difficulties and Comebacks When it comes to the difficulties faced by enterprises, Sun Hengchao can’t help but feel emotional. Policy is not the biggest challenge; the real issues are technology intensity and capital intensity. In the petrochemical industry, these represent barriers that it is nearly impossible for private enterprises to overcome. Once a company grows large, it is difficult to sustain itself in the long term without technical support. To address these technical challenges, over a decade ago, Sun Hengchao initiated the establishment of design institutes and research centers, and hired a group of technical experts to build up expertise over time. Today, the R&D system is already capable of supporting some of Baota’s technical services. Overall, technical support is an important aspect of the petrochemical industry, and companies must pay it attention. Internationally, large companies employ corresponding technical barriers to prevent the leakage of their technologies. For example, the catalysts themselves are covered by multiple patents, and at present, the catalysts used in most high-octane gasoline are still imported from abroad. “Now, it’s more profitable to sell catalysts for a year than to produce oil for a year, because the added value of catalysts is higher. ”However, the manufacturing process is also a factor that cannot be ignored; it is supported by technology. Funding is also a major problem. The amount of investment required for the petrochemical industry is quite large. In the past, 1 billion yuan could be used to build a real estate development project, but for the petrochemical industry, it was only enough to construct one factory complex. In comparison, the real estate sector has a high level of leverage, and financing is relatively easy; **you can buy a piece of land, put it up for auction, obtain a bank loan once you own the land, then have construction teams start work, and the income from selling the buildings will also come in – so funding isn’t a problem when the location is good. However, refineries can only recoup their investment after they come online. Large oil refineries usually take 4-5 years to build ； Medium-sized refineries also need 3-4 years. For Sun Hengchao, it will take at least 2 years, during which time there will be continuous net investment. It will take 2 years before it can start operating and catch up with the favorable market conditions. Even after it begins operations, it will take another 2 to 3 years to recoup the costs; in some cases, it may take 7 to 8 years to do so. Behind the longer investment cycle lies greater financial pressure, as well as various uncertainties and anxieties. “When the scale expands and the funds are ready but there’s no oil available, the workers complain loudly, the factory can’t keep operating – aren’t you anxious? ”Regarding anxiety, Sun Hengchao does not avoid it. From 37 to 57, over a full 20 years, Sun Hengchao dedicated his best years of youth to Baota Petrochemical, which he helped build from scratch. “In our case, refining oil is referred to as the petrochemical industry; when it’s described in a more casual way, it simply means starting with oil refining. **From the very beginning with industrial policy, I joined in 1997, and restrictions were imposed in 1998 – those restrictions continued until crude oil quotas were allocated in 2015. During that time, there were many hardships and difficulties; it was a situation where every choice led to pain. If we had given up, we wouldn’t have what we have today, but by persevering, it’s uncertain whether we would still be here today. ”Sun Hengchao said. After resolving the domestic challenges and seeing the financial issues and economic disputes at Baota Petrochemicals gradually settled, Sun Hengchao began to turn his attention to the international market. 20 years before that policy breakthrough, **control over the petrochemical industry was quite strict. At that time, oil refining across the country was entirely dominated by state-owned enterprises, with no presence of private enterprises. True liberalization came in 2015, when some private enterprises grew stronger; **import quotas for oil were made available to these companies, and it was then that firms like Baota obtained the necessary qualifications. In 2015, Baota Petrochemical obtained **crude oil quotas, the right to use crude oil, international trade qualifications, qualifications for wholesaling refined oil, and the authority to act as a crude oil processing agent. Refining companies whose annual production used to be between 10 million tons and 20 million tons are now starting to produce PX and PT chemicals. At the same time, **enterprises of a certain scale are also encouraged to undergo upgrades and renovations. For some projects, **although there is no national approval, local approval has been granted**, and it is not prohibited either. Against this backdrop, **the policies regarding private petrochemical industries are relatively relaxed. At one time, Sun Hengchao never thought that the qualification for crude oil imports would be made available to Baota. Baota has submitted the materials many times, but the outcome is still unknown. Finally, in 2015, Baota obtained the qualification to import crude oil. In the past, when applying for bank loans, there was no compliance requirement and the collateral value for equipment was very low; now the situation has **improved**. In the past, when private enterprises were engaged in oil refining, there was no opposition, and local authorities respected them as well; however, it was not included in the overall plans. Now, it has received recognition and, to a certain extent, has become part of the energy security framework. “We also feel proud to be able to **do things**. ” Against this backdrop, internationalization has also become an option for private petrochemical enterprises like Baota. With **approved quotas, companies have the opportunity to expand overseas. It is not easy for private enterprises to expand overseas, but Sun Hengchao attaches great importance to the opportunities offered by the Belt and Road Initiative, and Baota has gradually gained a voice on the international stage as well. After obtaining the quota, Sun Hengchao headed to Houston in search of crude oil. To his surprise, many potential partners approached him to negotiate, and he was unsure how these suppliers knew that Baota had a quota. “Private enterprises must seize the opportunity to go global. ”Sun Hengchao said that the domestic market is relatively dense and approaching saturation; we have **basically completed the development of the first phase, but many opportunities exist along the Belt and Road routes that have not yet been tapped.** “For energy companies like ours to go global is an important means and approach to overcoming current difficulties, as well as a favorable condition for obtaining **support. ” Along the Belt and Road Initiative, by acquiring oil and gas fields, Baota Petrochemical Group has connected its operations in Kazakhstan, Russia, Uzbekistan, Kyrgyzstan, and other countries. With **’s support, Baota has also connected to the China-Kazakhstan crude oil pipeline, which can transport 5 million tons of crude oil per year once connected. The crude oil purchased by Baota in Russia can also be transported via Kazakhstan. Kazakhstan has abundant oil reserves, but lacks sufficient refineries, and its gasoline is imported from Europe. Against this backdrop, Baota took on a crude oil processing contract worth 1 million tons in Kazakhstan. Through technology transfer, the introduction of resources, as well as the export of markets and equipment, Baota acquired design firms in Kazakhstan, and it also provides services related to oil field construction, the recovery of gases associated with oil fields, and chemical engineering expertise. Subsequently, Baota began to make an impact in overseas oil and gas fields. In addition to expanding in Central Asia and Russia, Sun Hengchao also sees future opportunities for Baota in Africa. To date, Baota has held discussions with Ghana and visited Mozambique; a project worth 5 million tons in Angola is also under progress. The industrial logic behind Baota: After Baota Petrochemical acquired Northwest Bearing, Sun Hengchao considered positioning Baota Industry in the field of high-end equipment manufacturing. For a long time, equipment manufactured in China has been relatively backward in the world. In the global industrial division of labor, China has always occupied a mid-to-low-end position in the field of high-end manufacturing. “We are lagging behind in advanced equipment, while we have an excess of ordinary equipment. ”Sun Hengchao sighed, “Our high-speed railways are so advanced, yet we still rely on imported bearings and have to use components made by other countries.” When we try to carry out M&A deals abroad, it’s not possible – they refuse to sell no matter what we say. ”However, manufacturing equipment and refining are two different things; high-end equipment requires continuous investment of industrial funds to support it, as well as professional technicians to oversee its development. “**Encouragement is also needed to succeed. ”Sun Hengchao said. What is the future path for Baota? This is a question that Sun Heng often contemplates: traditional industries have their own foundations; it’s not possible to completely break away from them, but sticking rigidly to them either isn’t an option. Industrial upgrading is an unavoidable topic. “The upgrading of traditional industries has its limitations; it is impossible to achieve improvement merely by building on the traditional foundation. ”Sun Hengchao said. In his plan, traditional oil refining should move towards fine chemicals and also expand overseas. In addition, Baota is also attempting to enter the field of clean energy; its LNG project in Penglai, Shandong, has been included in the **13th Five-Year Plan of the National Development and Reform Commission, and its implementation has already begun successfully. At the same time, it is also necessary to integrate industry and finance; by combining the two, financial instruments can be used to support the real economy. Based on these arrangements, Sun Hengchao also intends to continue contributing to the field of education. In 1999, Sun Hengchao initiated the establishment of Yinchuan University, and over the past 18 years, he has invested nearly 2 billion yuan in it. It currently has 15,000 students enrolled and 18,000 registered students, and is an undergraduate institution recognized by the Ministry of Education. For ten consecutive years, the employment rate at Yinchuan University has been above 95%, and Baota Petrochemical also provides some job opportunities. However, Sun Hengchao’s approach to his son’s education and upbringing became the turning point in his life. Baota Finance Company was established in April 2016 with a registered capital of 2 billion yuan. Approved for establishment by the China Banking Regulatory Commission, it began operating officially; it is the first corporate finance company in Ningxia, serving primarily to provide financing for Baota Petrochemical’s internal operations. Sun Peihua, the chairman of Baota Finance Company, is the son of Sun Hengchao. Born in October 1986, he holds a bachelor’s degree from the School of Business Administration at China University of Petroleum. I started working at Baota Petrochemical at the age of 23. By integrating Baota Petrochemical’s resources in the south and abroad, he established Guangdong Southern Baota Investment Holding Co., Ltd. In two years, he increased the company’s asset value from 2 billion yuan to 8 billion yuan, with annual tax payments of nearly 200 million yuan. At the age of 29, Sun Peihua, known as the \"Young Marshal of Baota\", took less than a year to establish Baota Petrochemical Financial Holding Group (hereinafter referred to as Baota Financial Holdings), serving as its chairman and general manager. BaoTa Financial Holdings owns companies such as BaoTa Finance Company, BaoTa Industry, and Shihua Financial Leasing (Shanghai) Co., Ltd., with the aim of providing financial support to help BaoTa Petrochemical achieve strategic transformation and enhance its overall strength. According to Baota Petrochemical’s official information, after the establishment of Baota Finance Company, the rate of capital consolidation within the group increased by more than 20 percentage points within nine months. ”Like many second-generation entrepreneurs from private families, Sun Peihua also hopes to make a significant impact in the financial sector and turn it into a new source of growth for Baota Petrochemical. Sun Peihua established a \"three-step\" strategy for Pagoda Finance Holdings. The first step is to focus on the internal capital flow within Baota Petrochemical, and to study and identify financial assets ； In the second step, an internal capital market should be established within Baota, while the acquisition of other financial licenses should be planned in a rational and orderly manner. In the third step, the scope of financial services offered by Baota should be expanded, so that Baota Financial Holdings can serve as a platform for the future development of Baota Petrochemical. The grand plans had not yet been realized due to the debt crisis at Baota Finance Company. It was found that as of the end of November, Baota Finance Company still had unpaid bank electronic acceptance bills worth over 17 billion yuan, with additional bills due for settlement amounting to over 5 billion yuan. Sun Peihua has also been declared suspected of a criminal offense, and compulsory measures have been taken against him. Now, with Sun Hengchao arrested on charges of check fraud, Baota Petrochemical has failed to move in the direction it had set out for... Visit China Petrochemical Network for more updates