"...China aims to consume 2 million metric tons of biodiesel annually by 2020. Additionally, in December 2010, the Ministry of Finance of the People's Republic of China (PRC) and the State Administration of Taxation of the PRC announced an elimination of the consumption tax on vegetable oil and animal fat-based biodiesel. This tax exemption retroactively applies to any purchases made after January 1, 2009 and the Chinese Government will issue refunds for taxes already paid. According to the Finance Ministry, the goals of the initiative are, "boosting the renewable resources sector, easing demand for petroleum and protecting the ecological environment." Chinese biodiesel companies, like China-Bio Energy, stand to benefit considerably from the Chinese government's support.
In an effort to position itself for long-term success, the Company made a strategic decision to obtain its own supply source. China Bio-Energy acquired the land use rights of an approximately 165 acre Sapindus tree plantation located in Zhejiang Province in 2010. The core of the Sapindus tree can be used as a raw material for producing biodiesel. China Bio-Energy considers the seeds of its 50,000 Sapindus "mother trees" found on the plantation to be the best Sapindus seeds available. The Company expects to use the plantation as the foundation for its intended expansion to an approximately 165,000 acre Sapindus forest in the next 3-5 years, which, if successful, is expected to provide one-third of the total raw materials required for its biodiesel production beginning in 2013."
Wow. Non-food biodiesel in two years, with full government support. Sounds too good to be true.
Turns out China Bio-Energy is a holding company for China Integrated Energy, a company that purports to be making bio-diesel from species such as Chinese prickly-ash and Chinese pistache.
But are there more smoke and mirrors involved here to exaggerate growing Chinese prosperity and environmental consciousness? Perhaps. A veteran Chinese investing consultant published an open letter to the board of the company accusing them of intentionally misleading the investment community. He has posted time-lapse video and a detailed report describing not only the apparent lack of production at the facility but evidence that the company has falsified financial reports in an attempt to defraud investors. The reference in the above article to retroactive tax exemptions appears to be an attempt by the Chinese government to help the company out by refunding the 25% taxes the company paid but never reported to investors in their financial statements. As a result, the company's stock has plunged 56% in the past week.
Too bad. What appeared at first glance to be a sign that the Chinese housing bubble was just an anomaly in financial ventures in the country, now seems to be hinting at more systematic weakness in the country's economy. Not good.
P.S. China Integrated Energy has denied the allegations and announced a third-party investigation. I'll follow it and report back...