The lawsuit launched by Yun- nan Yingding Bio-Energy Co.， Ltd （Yingding Bio-Energy） against state-owned petroleum giants “monopolization” and“unreasonable rejection of deals” was only the tip of the iceberg for the harsh situation for the bio-diesel enterprises.

Behind the case is the still staggering bio-diesel industry after a decades development. The current difficulties are attributed by some experts to the unclear governmental policies， but actually， there are a lot of policies targeting the bio-energy. The real problem is that the two largest state-owned oil companies – China National Petroleum Corporation （CNPC） and China Petrochemical Corporation （Sinopec） – do not allow the bio-diesel into their national largest sales network.

The hope still exists though. With the acceleration in the reform of mixed ownership of these large oil companies， the sales company might introduce the private capital. If the privately-run biodiesel companies could join in the banquet first， this might be a turning point for the bio-diesel industry.

The bio-diesel is growing very fast in the world， but it is still in the initial period in China despite ten years development. The double force of unstable production and the stagnant distribution channels have pushed the bio-diesel industry into a crisis of marginalization.

In August， China Bio-Diesel Group was founded in Beijing after three months preparation. The China Association of Renewable Energy （CARE） plans to unite with a group of domestic bio-diesel enterprises to build up a complete industrial chain for bio-diesel.

However， a corporate director joining in the setup of this group admits that the bio-diesel enterprises are usually haunted by the tense capital chain and thus it is very difficult to improve the industrial chain with the industrys own force.

The Chinese government has already issued many policies for the de-velopment of bio-diesel industry， ranging from financial support to industrial planning， from technological standards to the promotion. However， compared with the development pattern in foreign countries， the bio-diesel industry in China involves too many vested interest groups， leading to the complex situation in the industry.

An Unlikely Enclosed Circle

The bio-diesel enterprises in China are mostly private companies scattered in different places and having no impressive competitive power. “Disunity”is the best word to describe the industrial situation. This May， the CARE began to prepare for the unity of leading bio-diesel enterprises. China Bio-Diesel Group was the first product of their efforts. The industry is trying to form a united force to break down the longexisting situation with staggering and marginalized industry.

In mid-May， the first meeting of“China Bio-Diesel Group” was held in Beijing. A dozen of companies from Beijing， Henan， Hebei and Anhui sent their representatives there to make use of the “hard-won” opportunity. Simultaneously， in Kunming， Yunnan which is 2000 kilometers away from Beijing， Yingding Bio-Energy is challenging state-owned oil giants to protest over their refusal to sell bio-diesel.

At the beginning of August， China Bio-Diesel Group was officially founded. Several representatives were present in the ceremony. Zhang Ping， executive president of CARE， said that China Bio-Diesel Group needs to fix its strategic positioning and complete the design of the industrial chain. With the guidance of the government and coordination of the industrial association， China Bio-Diesel Group is going to be responsible for the collection， processing and management of “swill-cooked dirty oil” and formulating relevant standards.

Lu Xinuo， board chairman of Beijing Qingyanlihua Petro-Chemistry Co.， Ltd， was present in the ceremony as well. His company is responsible for the processing of 40% of “swill-cooked dirty oil” in Beijing. He was not excited about the foundation of this company. There are mature conditions and opportunities for the foundation of a united force， but this might not be enough to build up an enclosed industrial chain.

The small private bio-diesel enterprises scattered all over the country have different targets and appeals. It is hard to make them work together for one goal and put them under the unified management. The supply of “swillcooked dirty oil”， which is with major raw material for the bio-diesel， has ap-parent regional exclusiveness， neutralizing the possibility to build a nationwide network of purchasing raw materials and selling products.

Therefore， even Lu Xinuo is a member of the newly-founded company， he does not think highly of its outlook. “A lot of money is needed to support the operation of this group. Right now we cannot find enough channels. If the outside force is introduced， we might have the chance to succeed. It is very unrealistic to raise the money just by us，” he says.

The hard situation in the entire biodiesel industry deprived the enterprises of the high profit margin. Even the leading bio-diesel enterprises have no big capital flows. If they are required to take out a portion of money from their not-so-big safes， their own operation and development might be affected. In addition， if China Bio-Diesel Group is growing bigger， the industrial risks might be augmented， leading to the structural problems.

Zhang Ping seems to be ready for this. He admits that “a lot of difficulties are awaiting the development of the new company since it is related to the renewal of concepts and change of interests and rights. If this attempt failed， it would mean we need improvements and modifications in several aspects”.

Size Restrained by Capital

In Lu Xinuos opinion， China BioDiesel Group could not realize the industrial integration unless it introduces powerful investors. But the truth is that very few investors lay eyes on the bio-diesel industry in these years.

Gushan Group， the self-claimed bio-diesel manufacturer in China， went public in the New York Stock Exchanges in December 2007. In that year its annual output was about 190 thousand tons and it ambitiously had the plan to build and expand production in many places. However， with the problems emerging in the sectors of raw materials and sales channels， Gushan Group was privatized in 2012， stopped its production and sold its assets in 2013.

A senior director of a Sichuanbased bio-diesel enterprise says that there were many bio-diesel enterprises going public in foreign markets like Gushan Group in 2006 and 2007， but they all shared the same fate with Gushan Group. The continuous failure has worn out the interest and patience of private funds and venture investors in this “concept of new energy”. Most of them just have a look at the list， but few of them choose a name from it and say： “lets put our money there”.

“The capital is one of the biggest factors encumbering the development of bio-diesel industry，” says Lu Xinuo. The small size of private enterprises engaged in this industry offers very limited money， which is not enough to extend the industrial chain covering the collection of raw materials， processing of the materials and selling of the products.

Ning Shoujian， a known bio-diesel expert in China， says that even the enterprises with stable production line have concerns about the capital flow. With the shackle of capital， it is hard for bio-diesel enterprise to grow bigger， along with which is the gradually outdated management and development pattern.

Notably， the bio-diesel industry is thought to be a promising industry because of its relation to food safety， environmental protection and new energy， but none of them is favored by investors or got listed in the domestic stock exchange markets. Many “defects” of bio-diesel enterprises stopped investors from investing into them.

“The raw material of bio-diesel is the notorious ‘swill-cooked dirty oil， which we collect from thousands of restaurants. The deals are finished with cashes and there are no invoices to prove the deal as none of the restaurants would like to do so. For securities dealers and investors， no invoices means no marks of capital flow， which is thought to be quite risky，” says Lu Xinuo. He has talked with many investors with the vain hope of helping his companys development just because of this reason.

This special business pattern not only blurs the financial conditions of bio-diesel enterprises， but also passes the problems to the sales channels， leading to the refusal of sellers.

As Lu Xinuo has introduced， assuming the bio-diesel they produce is sold to the gas station of Sinopec or CNPC， they are usually required to issue the value-added invoice for the recording of data into the latters financial reports， but the value-added invoice means 17% additional cost for the biodiesel enterprises， which could “eat away” all their profits.

Industrial Hardships to Be Solved

Early in 2004， the General Administration of Taxation issued the policy that exempt bio-diesel from the consumer tax. However， this measure was not fixed and took effect in 2010 because of the clash with the management rules for the processed oil products in China. In addition， the bio-diesel takes a very small part in the fuel market of China. The exemption of consumer tax did little good to the development of bio-diesel.

The rules about mixing bio-diesel with diesel and other fuels issued in 2007 and 2011 provided bio-diesel with a legal identity and the standard of mixing it with other fuels， but the less developed technologies in China and the products with different quality standards could hardly attract petroleum or diesel companies to add bio-diesel into their own products.

In 2011， the Chinese government issued several files that have stipulated the subsidies and tax refund of bio-diesel enterprises， but the high qualifications for the subsidies have stopped most of the biodiesel enterprises from enjoying the feat. The VAT refund was also widely criticized by bio-diesel enterprises as they voice that the VAT refund has taken a lot of time and capital the enterprises. The effect is far less satisfactory than the “immediate refund” or “direct exemption of VAT”.

Therefore， Lu Xinuo， on behalf of other players in the bio-diesel industry， calls for a national law to standardize the financial aspect during the deal concerning“swill-cooked dirty oil”.

This is only the first step to boost the development of bio-diesel industry in China. The collection of raw materials， the processing and the selling must all have powerful policy support.

In foreign countries， the bio-diesel industry has every sector of the industrial chain strongly subsidized by the government. The CAP of European Union gives the subsidies of 45 euros to every hectare of crops for energy generation. The U.S. has five acts to develop the bio-fuel. With the governments efforts， the bio-fuel， including bio-diesel， developed quite well in these countries.

In China， the shortage of fertile land means no space for the planting of crops for energy generation. Manioca， pistache， oil palm that can be processed into bio fuel is very costly to plant. Therefore， Chinese bio-diesel enterprises turn to the “used and deserted oil from kitchens and dining tables”， which is more economical than the rap oil in Germany and soy oil in the U.S.

However， the advantage in the cost of raw materials could not save the bio-diesel industry in China from the current depression. For this， there were experts calling for the direct governmental subsidies to the bio-diesel years ago. But in Ning Shoujians opinion， the bio-diesel industry in China developed with the market principles from the very start and the sudden appearance of subsidies is not a good thing.

Though Europeans and Americans are quite generous in the subsidies to biodiesel， but it is the peasants there get the biggest benefits. In China， there are no“peasants serving as the suppliers of raw materials for bio-diesel”. The Chinese government needs have iron-like control over the “swill-cooked dirty oil” instead of letting it go somewhere unknown.