Emperor Xuanzong was not impressed. The seventh and longest reigning ruler of the Tang Dynasty had rejected three successive envoys bearing horses as tribute from a neighbouring ruler.
Getting desperate, the Turkic leader wrote the emperor a letter asking why he kept sending the animals back. He was told they did not meet the required standards.
The Chinese emperor proclaimed he was not prepared to accept inferior mounts from a vassal state, because the gifts might open him to ridicule at court.
(An alternative explanation, posit historians, is that the parsimonious monarch felt he had enough horses and did not want to incur further feeding and stabling costs.)
Fast forward to present day China, and there’s a similar feeling of rejection among executives at Yunnan Yingding Bioenergy – in this case at the hands of the country’s dominant oil refiner Sinopec.
Despite encouragement from the government’s energy bureau, Sinopec has rebuffed every single request by Yingding to include its biofuel in Yunnan’s sales and distribution network, says Southern Weekend.
A first request letter in 2010 came to nothing. A second letter in 2011 had the same result. Yingding’s lawyer Chen Weibiao tells the newspaper that the two sides did meet a couple of times, but this also came to nothing. (Sinopec’s local staff claim the parties were unable to reach agreement on the purchase price for Yingding’s biodiesel.)
By this point the Yunnan firm was starting to run into operational difficulties. The company had built up its biodiesel production capacity to 15,000 metric tonnes per year, but had storage tanks for no more than four thousand tonnes. Offloading the fuel elsewhere proved a problem. In Yunnan Sinopec was the key customer because the state giant owns 70% of the province’s petrol stations. If the main refiners won’t buy the biodiesel, producers have to sell it to middlemen who mix the fuel or try to sell it directly to end-customers.
The situation should have been more straightforward – since a law passed in 2006 had mandated that the big oil companies should accept biofuels that meet industry standards. Southern Weekend cites four successive reports from Yunnan government bodies all certifying Yingding’s biofuel did adhere to the correct standard.
In despair, Yingding launched legal action in 2013 and won a significant victory late last year with a favourable ruling. China’s press has been hailing it as the first anti-monopoly case in the oil industry.
The oil giant says it is appealing. “This is not about conflict between state and private companies,” it has insisted on the issue. “It’s about being responsible to our consumers to make sure they get quality oil products. We have a right to choose our distributors and separate the good from the bad.”
China Daily argues that the dominance of the state oil groups means the country has been slow to develop biofuels. (Because they continue to derive big profits from more traditional fuels, the majors have fewer incentives to offer cleaner versions, it reckons.)
Zhang Ping, executive vice president of the Renewable Industry Association says there are now fewer than 30 biodiesel companies left, down from 300 in China a few years ago. And he claims that many of the survivors are so strapped for cash they couldn’t even afford to come to his association’s annual conference in January.
Biodiesel is made from oil-rich crops, animal fats and cooking oil waste. Globally, output rose to 24.6 billion litres between 2006 to 2013 (at an annual growth rate of 20.9%). But China is now producing only 1.13 billion litres of biodiesel, less than 1% of its liquid fuel production.
In late November, the National Energy Administration issued its first nationwide regulations specifically about biodiesel. Once again, it stressed that oil companies should buy products that meet industry standards. But so far it hasn’t said how the state firms will be forced to comply.
For Sinopec’s bosses, the example of Xuanzong may offer pause for thought. Did the emperor say no one too many times? In 755 he was overthrown by one of his own generals.
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.