Pow­er­ing ahead via di­ver­si­fi­ca­tion

Zhong­sheng Group morphs from an equip­ment maker to world player in in­dus­trial parks, coal, nickel and ports

China Daily (USA) - - BUSINESS - By LYUCHANG in Bei­jing and XIECHUANJIAO in Qiang­dao lvchang@chi­nadaily.com.cn

When Qing­dao Heng­shun Zhong­sheng Group Co Ltd, a firm fo­cus­ing on elec­tric projects and equip­ment, listed on the Shen­zhen stock mar­ket in 2011, it at­tracted in­vestors’ at­ten­tion straight away. Its more than 20 per­cent year-on-year growth since its found­ing in March 1998 was al­ready a talk­ing point in the State-reg­u­lated power trans­mis­sion in­dus­try.

On­line con­tent cat­e­go­rizes the com­pany as a maker and seller of “high-volt­age re­ac­tive power equip­ment, com­pen­sa­tion de­vices and fil­ter­ing de­vices. Its prod­ucts in­clude ca­pac­i­tors, re­ac­tors and coil dis­charg­ers”.

When a do­mes­tic glut in power trans­mis­sion and con­trol equip­ment, cou­pled with an eco­nomic slow­down, hit the com­pany hard in 2012, Heng­shun Zhong­sheng for­ayed into other busi­nesses and ven­tured over­seas the same year. It be­gan by build­ing in­dus­trial parks and power plants.

All those for­ward-look­ing, al­most vi­sion­ary-like ini­tia­tives are be­gin­ning to bear fruit now, it seems. Prof­its are ro­bust and its fi­nan­cials sound. In­vestors are chasing the com­pany’s stock again.

The com­pany, which is based in the east­ern port city ofQing­dao, calls it “the strong head wind in the cold win­ter”.

The com­pany’s profit rose from 109.5 mil­lion yuan in 2014 to 338.6 mil­lion yuan in 2015, a 209.2 per­cent in­crease year-on-year.

Jia Xiaoyu, pres­i­dent of Heng­shun Zhong­sheng, at­trib­uted the growth to the com­pany’s de­ci­sion to di­ver­sify its core busi­nesses and build it­self into an over­seas de­vel­oper of in­dus­trial parks, coal mines, power plants and ports.

“How do you de­fine an ‘owner’ of a pro­ject? I think the one that can bring you the profit is the owner, re­gard­less of which in­dus­try it comes from,” Jia told re­porters two years ago. He was re­fer­ring to a se­ries of deals the com­pany had struck in re­cent years.

Their range­wasas imag­i­na­tive as it was wide, Jia said. The deal­swere­for in­vest­ing in nickel ore in In­done­sia and build­ing in­dus­trial parks in Africa – all seem­ingly un­re­lated but ca­pa­ble of fun­nel­ing gold into the com­pany’s cof­fers.

Per­haps, that kind of bold ex­pan­sion could not have been pos­si­ble with­out the fore­sight of Jia. He pre­dicted sev­eral years ago that China’s State-con­trolled util­i­ties would face over­sup­ply sooner or later as a se­vere and pro­longed re­ces­sion in the con­struc­tion sec­tor put im­mense pres­sure on the in­fra­struc­ture con­struc­tion sec­tor.

“We started to think of go­ing global in 2011 even though our profit rose more than 20 per­cent that year,” Jia said. “Be­cause that’s when I started to feel that the power in­dus­try has less room for growth.”

In 2014, Jia was look­ing at op­por­tu­ni­ties in In­done­sia when the coun­try banned ex­ports of min­eral ore in or­der to de­velop its own ore­pro­cess­ing tech­nolo­gies.

He de­cided to stock nickel ore re­serves and de­velop a fer­ronickel in­dus­trial park, as the ex­port ban was ex­pected to drive up huge de­mand for nickel ore in China, a ma­jor im­porter of In­done­sia’s nickel ore.

But the com­pany took a big leap on the back of China’s “Belt and Road Ini­tia­tives”, which opened up new op­por­tu­ni­ties in South and Cen­tral Asia, the Mid­dle East and Europe.

As Bei­jing strength­ened bi­lat­eral co­op­er­a­tion with Jakarta, Heng­shun and two other Chi­nese com­pa­nies teamed up to build a fer­ronickel in­dus­trial park in In­done­sia, ex­ploit­ing their col­lec­tive ex­pe­ri­ence in nickel ex­plo­ration and in­ven­tory.

This also helped the com­pa­nies build fac­to­ries and cap­tive power plants in in­dus­trial parks in In­done­sia.

Last year, Heng­shun struck a deal to build a Spe­cial Eco­nomic Zone and an in­dus­trial park in Zim­babwe to fur­ther stim­u­late the coun­try’s eco­nomic de­vel­op­ment and trans­for­ma­tion.

The pro­ject is be­ing jointly de­vel­oped with China Rail­way Eryuan Engi­neer­ing Group Co Ltd and Qing­dao City Con­struc­tion In­vest­ment Group.

What at­tracted Heng­shun was that for­eign in­vestors in Zim­babwe’s SEZ were ac­corded sev­eral pref­er­en­tial poli­cies and al­lowed to build in­dus­trial parks and fac­tory shells to rent out to other com­pa­nies.

“We started in­vest­ing in the over­seas mar­ket in 2011. Over the years, we’ve gath­ered much ex­pe­ri­ence in in­dus­trial park in­vest­ment, de­vel­op­ment, at­tract­ing busi­ness and op­er­a­tions,” said Jia.

The com­pany is now plan­ning to use this busi­ness model in South Africa, Laos and Thai­land.

In Novem­ber 2015, Heng­shun inked an agree­ment worth $114 mil­lion with Coal of Africa Lim­ited, a lead­ing miner in South Africa. Its Makhado coal pro­ject, lo­cated in Lim­popo, South Africa’s north­ern­most prov­ince, has a gross re­serve of 790 mil­lion tons and a re­cov­er­able re­serve of 340 mil­lion tons. The pro­ject is ex­pected to kick off next year, and will likely yield 12.6 mil­lion tons of raw coal a year, ac­cord­ing to Heng­shun.

Lin Bo­qiang, head of the China Cen­ter for En­ergy Eco­nomic Re­search, which is un­der the aegis of Xi­a­men Univer­sity, said that many in­dus­tries in China are fac­ing pres­sure from over­sup­ply, while coun­tries like In­done­sia and Zim­babwe are in huge de­mand of en­ergy and in­fra­struc­ture con­struc­tion.

“In terms of ‘go­ing global’, most com­pa­nies would take the merg­ers-and-ac­qui­si­tions route to mar­ket share, or (they would) lever­age their core busi­nesses. But, some­times, we need to think out­side the box and look at what we are good at and what they can pro­vide,” Lin said.

col­leagues in the com­pany's in­dus­trial park in In­done­sia.


A Qing­dao Heng­shun Zhong­sheng Group Co Ltd ex­ec­u­tive (cen­ter, ges­tic­u­lat­ing with his hands) in­tro­duces his com­pany's over­seas strat­egy to a group of Zim­babwe gov­ern­ment of­fi­cials at the com­pany's head­quar­ters in Qing­dao, Shan­dong prov­ince.


Qing­dao Heng­shun Zhong­sheng Group's Chi­nese em­ploy­ees work to­gether with their In­done­sian

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