Notice & update:Â IAM Magazine, one of my favorite sources for information on intellectual property, just issued a blog post on the use of IP in lending in China: “Chinese companies have secured over $10 billion in patent-backed loans since 2008” by Jeff Wild, March 4, 2014. The news I share below (cross-posted at InnovationFatigue.com) definitely supports their article. Great timing! Further, responding to the news that I first broke to English speakers on the Innovation Fatigue Blog, IAM Magazine has written a blog post about this story (kindly citing my announcement), wherein they observe just how big of a deal this is. I agree, though I also think it’s fair to wonder how much of the transaction actually depended on IP and how much was due to guanxi and other factors. I have not yet evaluated the IP and if I do look at it in more detail, do not plan on sharing my analysis publicly, but may still offer further updates on this story here. IAM’s post includes a translation of the Chinese article behind this story. My independent translation (prepared before I saw the IAM translation) is at the end of this post. If there are significant differences in meaning, I’ll defer to them since my Chinese is still rough.
March 6, 2014: I just learned of breaking news from the Province of Shandong in northern China. A Chinese paper company, Quanlin Paper (also called “Tralin Paper”) has successfully used its portfolio of patents and trademarks to secure a huge loan of 7.9 billion RMB (about $1.3 billion). Potentially significant story for those tracking IP and innovation in China. The story was just reported on March 3, 2014 at China Paper (the story is in Mandarin). This is quite a big deal and may be a record for China in terms of how much value IP brought in seeking a corporate loan. To emphasize the significance of this development, the normally dry China Paper publication begins with a somewhat flowery statement based on an interview with the Chairman, who expresses surprise and delight at how much money they were able to obtain with their IP. Here’s my loose translation, followed by the actual Chinese:
“I never thought that intellectual property could have such a big effect in obtaining this loan. IP was a big part of it,” according to Quanlin Paper Company’s Chairman of the Board, President Li Hongfa, speaking today to a reporter about the 7.9 billion yuan from bank lenders that began this week. He said that this money will help them rapidly expand and seize market opportunities. Money has been tight for business, and this new addition is welcomed just as the mist-covered earth rejoices in the spring rains from the night before.
æ ¸å¿ƒæ示:“没想到知识产æƒèƒ½åœ¨è¿™æ¬¡è´·æ¬¾ä¸èµ·è¿™ä¹ˆå¤§ä½œç”¨,å 这么大比é‡!â€æ³‰æž—纸业有é™è´£ä»»å…¬å¸è‘£äº‹é•¿ã€æ€»ç»ç†æŽæ´ªæ³•ä»Šå¤©å¯¹è®°è€…说,79亿元的银团贷款本周已开始放款,这笔资金对æ£åœ¨å¿«é€Ÿæ‰©å¼ ã€æŠ¢æŠ“市场机é‡ä½†ä¸€ç›´èµ„金紧绷的ä¼ä¸šæ¥è¯´,å°±åƒé›¾éœ¾é‡é‡çš„大地喜迎昨夜的春雨。
OK, a bit flowery, but again, this is big news for China and things get flowery when the big news is good. This development shows that IP in China can be valuable (though the portfolio includes some international patents, it is mostly Chinese IP). It also shows that Chinese companies, even in seemingly dull industries like the paper industry, can be innovative and create valuable IP. I haven’t reviewed their IP to assess its value, but I understand they have over 100 Chinese patents in areas such as technology for using straw and other renewable or recycled materials for making paper, with alleged benefits of enhanced environmental friendliness and cost effectiveness. Shandong Province’s IP Office has also created some publicity about Quanlin’s IP estate (see the Chinese article here), though this was before the news of the massive loan secured with the help of IP. Expect more publicity from them shortly.
Further background comes from Baidu’s wiki-like entry on Quanlin Paper.
When nations develop strong IP systems, companies can use their IP to protect their innovations. This also motivates them to take the risk and spend the money need to drive further innovation, and gives investors courage to fund growth and innovation. In this case, it helped give a lending partner (a Chinese financial organization) the courage to loan a giant sum of money to help Tralin grow. Tralin has been pursuing IP not just for tax breaks it seems but also for strategic purposes, and information coming out about this story shows that they have been developing expertise in their staff to develop their IP estate. Sure looks like that has paid off for them.
This is one of many signs that China is becoming serious about IP and innovation, and not just low quality IP, but IP that can provide significant value. For IP to apparently be a crucial part of such a large loan in this challenging economic times is a remarkably positive sign for China, in my opinion.
On the other hand, the loan may be due to politics and guanxi with officials, and the IP is just window dressing. That’s possible. But to even choose IP as the window dressing for publicity and hype is a remarkable thing in it’s own right, and still a sign of China’s rapid transformation in valuing and pursuing intellectual property.
Here is my loose translation of the China Paper article:
泉林纸业知识产æƒè´¨æŠ¼èžèµ„创国内最高
Quanlin Paper Crafts the Nation’s Largest IP-Backed Financing
泉林公å¸ä»¥110件专利ã€34ä»¶æ³¨å†Œå•†æ ‡ç‰è´¨æŠ¼èŽ·å¾—的这笔贷款,2月21日在国家知识产æƒå±€å®Œæˆå¤‡æ¡ˆã€‚ç»çœçŸ¥è¯†äº§æƒå±€æ ¸å®ž,这是迄今为æ¢å›½å†…èžèµ„金é¢æœ€å¤§çš„一笔知识产æƒè´¨æŠ¼è´·æ¬¾ã€‚
On Feb. 21, 2014, Quanlin Paper secured a loan using a pledge of intellectual property. The pledge, recorded with the State Intellectual Property Office (SIPO), includes 110 patents and 34 registered trademarks. The Shandong Province Intellectual Property Office has verified that this is the largest amount ever financed in China using intellectual property.
“这笔资金到ä½,æˆ‘ä»¬çš„å¤§é¡¹ç›®å°±èƒ½åŠ å¿«æŽ¨è¿›,市场机é‡ä¸ç‰äººå•Š!â€æŽæ´ªæ³•è¯´çš„大项目,是一个年处ç†150万å¨ç§¸ç§†çš„åˆ¶æµ†é€ çº¸ç»¼åˆåˆ©ç”¨é¡¹ç›®ã€‚泉林公å¸æ€»éƒ¨ä½äºŽèŠåŸŽå¸‚高å”县,æ˜¯ä¸€å®¶ä»¥æµ†çº¸ä¸šä¸ºæ ¸å¿ƒçš„å¤§åž‹ä¼ä¸š,åˆ©ç”¨ç§¸ç§†åˆ¶é€ â€œæœ¬è‰²â€çº¸å“,å˜åºŸä¸ºå®ã€çŽ¯ä¿å¥åº·,æ”¹å†™äº†äººä»¬å¯¹é€ çº¸ä¸šçš„æ—¢æœ‰å°è±¡,也在改å˜ç€äººä»¬çš„æ¶ˆè´¹ä¹ æƒ¯ã€‚ä¼ä¸šæ出这个大项目åŽ,很快得到环ä¿éƒ¨ã€å›½å®¶å‘改委认å¯ã€ç«‹é¡¹,是全国资æºç»¼åˆåˆ©ç”¨å’Œå¾ªçŽ¯ç»æµŽç¤ºèŒƒå·¥ç¨‹,也是2013å¹´çœé‡ç‚¹å»ºè®¾é¡¹ç›®ã€‚ç›®å‰,项目基本建设已ç»å…¨é¢å±•å¼€,计划年底å‰å»ºæˆ,投产åŽ,预计年å¯å®žçŽ°é”€å”®æ”¶å…¥81.65亿元,销售税金4.89亿元,利润12.4亿元。
“With this funding obtained, we will be able to accelerate our large projects. Market opportunities wait for nobody!†said Chairman Li Hongfa. The primary project Li refers to is a straw-based pulp manufacturing complex for papermaking that will process 1.5 million tons per year of straw. Quanlin company is headquartered in Liaocheng City, Gaotang County (Shandong Province). Quanlin’s core business among their large-scale enterprises is pulp and paper manufacturing using straw to create “natural color†paper. Quanlin turns waste into treasure and promotes a healthy environment, transforming both the impression that people have (of the industry) and their habits of consumption.
After the enterprise brought this large project forward, it rapidly gained approval from the Environmental Bureau and the National Development and Reform Commission. The project is an important program for the nationwide comprehensive utilization of resources and a model project for China’s recycling economy. It was also considered a provincial key construction project in 2013. Currently, capital construction is fully underway and should be complete by year-end. Once production begins, the expected annual sales revenue will be 8.165 billion RMB, with anticipated sales taxes of 489 million RMB and annual profit of 1.24 billion RMB.
知识产æƒèŽ·èµ„金市场高度认å¯,对科技型ä¼ä¸šæ— 疑是巨大的利好。尽管泉林公å¸æœ¬èº«çš„å‘展就是å—益于在知识产æƒã€æ ¸å¿ƒæŠ€æœ¯ä¸Šçš„ä¸æ–投入——å³ä½¿åœ¨ä¼ä¸šèµ„金最困难的时候,这上é¢ä¹Ÿä»Žæ¥æ²¡æœ‰â€œçŸâ€è¿‡,æŽæ´ªæ³•è¿™æ¬¡è¿˜æ˜¯è¢«æ·±æ·±åœ°è§¦åŠ¨äº†:在这次贷款ä¸,ä¼ä¸šæ‹¥æœ‰çš„专利评估价值达到了60亿元,对贷款顺利达æˆèµ·åˆ°äº†å…³é”®ä½œç”¨ã€‚è¿™æ„味ç€,专利ç‰çŸ¥è¯†äº§æƒä¸ä»…能垄æ–市场ã€ä¸ºä¼ä¸šåˆ›é€ 长期利润;质押èžæ¥çœŸé‡‘白银,更是能够解决科技型ä¼ä¸šæˆé•¿ä¸æœ€å¤´ç–¼çš„资金饥渴,释放å‘展潜力,åŠæ—¶æŠŠæ¡å¸‚场机é‡,让ä¼ä¸šâ€œé•¿å¤§â€ã€‚
For intellectual property to receive this high level of approval from the market is without doubt a giant benefit for technological enterprises in general. Although Quanlin company’s own development has now benefited from their intellectual property, they continue to invest steadily in their core technology—continuing even during the times when investment is most difficult. This is an area where the company has never gone “short.†The result has made a deep impression on Li Hongfa: in the process of obtaining these loans, the appraised value of Quanlin’s patents reached 6 billion RMB and played a key role in successfully obtaining the financing. This means that patents and other IP rights are not just about obtaining a monopoly in the market, but can be used to creating long-term profit for the enterprise. They can be used as collateral for significant financing to resolve one the biggest headaches for high-tech businesses, the hunger for funds to grow, to capture hidden potential, grasp favorable market opportunities, and to let the company “grow up.â€
这一èžèµ„æ–¹å¼ä¹Ÿè®©é“¶è¡Œå¯¹ç§‘技型ä¼ä¸šå¢žæ·»äº†å…´è¶£ã€‚ä¸ä»…国家开å‘银行牵头银团,为泉林公å¸å‘放了这笔79亿元的贷款,交通银行甚至还与çœç§‘技厅ç¾ç½²ä¸“门的战略åˆä½œæ–‡ä»¶,并推出了专门的知识产æƒèžèµ„产å“。交行山东çœåˆ†è¡Œé›¶å”®ä¿¡è´·éƒ¨æ€»ç»ç†å§œé²è£è¯´,知识产æƒçœ‹ä¼¼æ— å½¢,å´ä½“现了ä¼ä¸šä»·å€¼åˆ›é€ å’ŒæŒç»ç»è¥çš„能力,é“¶è¡Œä¸šåŠ¡é£Žé™©æ²¡æœ‰å¢žåŠ ,å´æœ‰å¯èƒ½æŠ¢å 一批优质客户,改善银行客户结构,“就åƒæ³‰æž—å…¬å¸è¿™æ ·â€ã€‚
This financing will stir the interest of banks other technology enterprises. Not only did the China Development Bank and their affiliates issue Quanlin a loan of 7.9 billion RMB, but the Bank of Communications also signed a strategic cooperation document with the Provincial Science and Technology Department, and launched a specialized intellectual property financing product. Jiang Lurong, General Manager of the Retail Credit Department of Shandong Branch Bank, said that while intellectual property seems invisible, it reflects value creation and the ability to continue operations without increasing banking risk, and can help obtain more high-quality customers, improve the system for customers of the bank such as companies like Quanlin.
Kudos, by the way, to Dr. Ian Feng of Goldeast Paper in Zhenjiang, China for alerting me to the story in China Paper.
[…] of the China Paper article, if you are interested. The translation is in the post, “A Sign of China’s Growth in Intellectual Property: Chinese Company Relies on IP to Gain Giant Loan,” where I have cross-posted the breaking news on Tralin […]