Ren Jianxin worked as a farmer in Dunhuang County, Gansu Province, during China’s Cultural Revolution. The hard life there, Ren explains, taught him “how to persistently pursue my goals,” along with other important lessons that have carried over into his business career.

In 1984, Ren borrowed money from his employer by using personal assets as collateral and, with seven colleagues, founded China BlueStar Chemical Cleaning, China’s first industrial-cleaning company. It started modestly by cleaning teapots and boilers but grew quickly and undertook increasingly difficult jobs. On the way to capturing 90 percent of the domestic industrial-cleaning market, BlueStar pushed its Japanese and German competitors out of China. Today, it claims to be the world’s biggest industrial-cleaning company.

Since 1990, Ren has acquired more than 100 state-owned enterprises. Above all, he brokered the 2004 merger between BlueStar and other companies affiliated with the former Ministry of Chemical Industry—a merger that created the China National Chemical Corporation (ChemChina), the nation’s largest chemical conglomerate, of which he is now president. In 2006, Ren began a global-expansion program, buying assets in France and Australia. A year later, BlueStar came under the international business spotlight when it received a $600 million investment from the prominent private-equity firm Blackstone.

Organic growth, domestic consolidation, and international acquisitions have pushed ChemChina’s assets and annual revenue up to $17.4 billion (121.8 billion renminbi) each. During a recent interview in Beijing with Tomas Koch and Oliver Ramsbottom, a McKinsey director and associate principal, respectively, Ren discussed his state-owned company’s approach to M&A, its global ambitions, and his dual role of creating both shareholder value and jobs.

Ren Jianxin

Vital Statistics

Born January 9, 1958, in Lanzhou, Gansu Province

Education

Graduated with MA in economics in 1984 from Lanzhou University

Career highlights

China National Chemical Corporation (2004–present)

• President

China National BlueStar (2001–04)

• President

China BlueStar Chemical Cleaning (1984–2001)

• President (1989–2001)
• General manager (1984–89)

Fast Facts

• Received CCTV “Magnificent Ten of the Chinese Economy” award (2007)
• Won China Entrepreneur Association’s “Most Influential Businessman” medal (2006)
• Earned China’s National Model Worker award (1993)
• Won “Outstanding Young Entrepreneur of China” medal (1988)

The Quarterly: How did you build the company?

Ren Jianxin: In 1984, I found out by accident that eight million tons of coal a year were wasted because of boiler incrustation. This reminded me of a study by my employer, the Chemical Engineering Institute of the Ministry of Chemical Industry, dealing with a particular acid cleaning agent. That seemed to be the right solution to the boiler problem, but the study was left on the shelves without being put to practical use. So I borrowed 10,000 renminbi from my employer and, together with seven colleagues, founded China’s first industrial-cleaning company—and that was the origin of today’s BlueStar.

Using this cleaning technology, we extended BlueStar’s business from household teapots to commercial pipes to the petroleum pipelines between Qinghai and Golmud to the launching facility for China’s first spaceship. BlueStar also got almost all of the cleaning jobs at China’s ethylene and large chemical-fertilizer plants.

In the following ten years, BlueStar expanded quickly by acquiring 107 state-owned enterprises located in a dozen provinces, with total assets of 15 billion renminbi and 30,000 employees. Most of these companies were in financial difficulty, and we helped improve their competitiveness. As a result, BlueStar made itself one of China’s leading players in new chemical materials, industrial cleaning, and the membrane and water-treatment fields.

The Quarterly: What were the drivers behind your global strategy?

Ren Jianxin: Our thinking was driven by the need to find new avenues of growth for our company, as well as by China’s increasing demand for chemicals. China’s chemical industry has long been bottlenecked by a lack of technology, insufficient funding, and a low industrial level. For example, China has a huge market for methionine, an animal-feed additive, but did not have sufficiently mature technology to produce enough to meet the demand.

On the other hand, global manufacturing has been shifting to emerging markets, and the Asia-Pacific region, including China, has become the hot spot for investment in the chemical industry. By some estimates, Asia will account for 38 percent of world demand for chemicals and more than 20 percent of production by 2010.

Our M&A strategy aims to capture the opportunities from the global chemical industry’s shift to China by obtaining advanced technology, management expertise, capital, and access to markets and by maximizing the synergies with our domestic companies. We position ourselves as a latecomer and follower in the international chemical industry while viewing global M&A as a shortcut for us to catch up with the world leaders.

The Quarterly: What prompted the acquisitions of Adisseo, Qenos, and Rhodia’s silicone business?

Ren Jianxin: We tried to be selective. The guideline we used was that any acquisition should have synergies for both parties—adding value and maintaining a competitive edge. We don’t do M&A simply for the sake of scale. We have leveraged China’s competitive edge in labor and some raw materials to reduce costs at the acquired companies overseas and to increase their profit margins as well.

We first contacted the French company Adisseo in 2003, with the intention of buying its technology in order to rebuild a big plant in Tianjin so that it could produce methionine, the main additive for animal feed. Our request was rejected. In addition, BlueStar had close ties with Rhodia, a French chemical manufacturer, as a joint-venture partner. For years, we closely monitored the growth of these companies and gained a good understanding of their capacity, technology, markets, potential, and corporate culture and history.

In January 2006, BlueStar acquired 100 percent of Adisseo. This transaction was China’s largest direct investment in France to date. Later that year, BlueStar bought Rhodia’s silicones business. With these two purchases, BlueStar enabled China to produce large quantities of methionine for the first time, making the country a world-class manufacturing base in this specialty, while China raised its silicon monomer production capacity to 250,000 tons a year, which made it the third-biggest producer in the world. BlueStar also obtained hundreds of patented technologies from Adisseo and Rhodia, enabling us to solve a series of technical problems in the methionine and organosilicon fields.

The Quarterly: How did you respond to the challenges of postmerger integration?

Ren Jianxin: Managing a company well means managing people well. Even during our negotiations with the original owners, we paid a lot of attention to selecting the management team. We knew that it had to share our values. Just as important, we didn’t want to be viewed as conquerors—we knew we had to be sensitive to the employees of the acquired companies. With this kind of mind-set, you can better understand their concerns and worries and be in a better position to help them.

Our purpose was to learn more about international business practices through the acquired companies and to gain experience. We know that we have to learn the rules of today’s market economy and that those rules are not defined by China. Learning from and respecting the cultures of acquired companies and their countries are critical elements of post-merger integration. BlueStar allows the locals to run the business and does not replace the local management with a Chinese team. That was the case for Adisseo—BlueStar clearly stated in the acquisition contract that all of Adisseo’s employees could stay if they chose.

Since the deals were completed, the acquired companies have functioned well, and their revenues and profits have grown to record highs. For example, it has been less than three years since the acquisition of Qenos, the biggest polyethylene manufacturer in Australia, and we have already recovered 80 percent of our investment.

The Quarterly: How did you handle the surprises that came up during the integration of these companies?

Ren Jianxin: Global acquisitions are a new adventure for us. Before we did our deals, other Chinese state-owned companies led the way in going global. Unfortunately, we read more negative reports than good ones about their experiences. As a result, regulators, banks, and our own employees understandably expressed deep concerns about our globalization efforts.

So when we did well, people wondered why. It was far more than just good luck. What I can tell you is that M&A is not new to us. Over the last ten years or so, all the domestic mergers and acquisitions we did were successful, except one. When we acquired state-owned companies, there was something special—almost all the targets were insolvent. Reviving them was as challenging as reviving a dying person. How could such domestic acquisitions not help sharpen BlueStar’s skills? Of course, global M&A is different, but it has some things in common with domestic M&A: making judgments about assets, talent, products, and market potential. My domestic M&A transactions gave me a lot of experience and confidence in handling global cases.

The Quarterly: Can you give us some details about how those deals prepared you for global M&A?

Ren Jianxin: Let me describe my failure. In 1990, BlueStar acquired the Membrane Science and Technology Institute, our first attempt at M&A. The organization had received a lot of public funding and was expected to make technological breakthroughs, but the output was extremely disappointing to the government. BlueStar did not handle the cultural integration well. My decision to remove the director of the institute met with strong opposition from the government, the former management team, and the employees, who rallied to protest the integration effort.

BlueStar finally had to get out of the mess, and we backed out of the acquisition. The biggest lesson for me from this experience was the importance of common values and cultural integration in a successful acquisition.

The Quarterly: Has the fact that you are a Chinese state-owned company created any problems when you try to buy a company?

Ren Jianxin: Not yet. However, we have paid close attention to this issue. For instance, we thought of buying into a foreign restaurant chain to help boost our own Malan Noodle chain, a subsidiary. Given the realities of the situation, we had to give up the plan.

The Quarterly: Why does BlueStar, a chemical company, own a restaurant chain?

Ren Jianxin: I believe a business executive does two basic things: create value for the shareholders and create jobs for society. Ten years ago, China’s chemical industry had 30 times as many employees per unit of revenues as its counterparts overseas did. There are still 10 times more today. That was the context of most of my M&A transactions. Given that, laying off redundant workers was inevitable.

On the other hand, as a responsible entrepreneur I have to try as hard as I can to create jobs for the unfortunate. Creating a service business like Malan Noodle was one of the solutions I came up with. Malan has become the number-one fast-food chain in the country, with more than 500 outlets nationwide. It has taken on more than 10,000 workers who used to be employees of our acquired chemical companies.

The Quarterly: How do you balance organic and inorganic growth?

Ren Jianxin: We are investing a lot in organic growth, although the deal making has gotten a lot of attention. Since ChemChina was founded, we have bought new equipment to expand production capacity, upgraded technology at existing plants, and invested to minimize pollution. Our annual investments to enhance manufacturing capacity and minimize damage to the environment have averaged 8 billion renminbi in the last few years. These investments will help our business grow strongly.

The Quarterly: Why did you open the door to the investment stake from Blackstone?

Ren Jianxin: Blackstone’s participation turned BlueStar, formerly a 100 percent state-owned entity, into a joint venture. We sincerely hope that with Blackstone’s experience behind us, the change in ownership structure will help us transform our corporate governance, our management systems, and our incentives. The joint-venture arrangement offers an opportunity for the company to design a long-term and more effective incentive system for the management team. What’s more, Blackstone’s involvement seems to be helping our decision-making process—I notice that our management seems to be more attentive to the input from other shareholders.

Another reason, of course, is that we got fresh capital. But money is not the most important consideration. A company cannot rely on external investment to stay afloat—I don’t believe in a free ride. Also, the investment of $600 million from Blackstone represented a recognition by the international business community of BlueStar’s value.

Finally, Blackstone has great experience and expertise in the chemical industry worldwide, and this could be very valuable to the execution of our global strategy. For instance, if BlueStar tried to make overseas acquisitions in some parts of the world, it might cause unnecessary misunderstandings and adversely affect the transaction. But with Blackstone’s participation, the path could be smoother.

The Quarterly: What are your plans for the future?

Ren Jianxin: We are currently evaluating our portfolio. We may focus our core business on the areas where we enjoy a competitive edge. ChemChina has six major units, while most big global chemical companies focus on three or four businesses. In the next three to five years, we will try to adjust our business and product structure. We may quit some areas and reinforce our competitiveness in others.