Journey 1995:Non-Stop

Chapter 318 The Problem of Land

Leaving the leader's side, Yan Hui felt somewhat triumphant.

All his assets combined now amount to several million. For Yan Hui, he had already reached that level of several million long ago; he had two or three million in cash back in 1999.

It's 2005 now, and five million now probably isn't even worth as much as three million back then, so he's "indifferent" to the million-dollar mark.

However, tens of millions is a different story. You have to understand that there is a world of difference between 1000 million and 3000 million!

Back at his own steel formwork rental company, Yan Hui found a chair, made himself a cup of tea, and began to carefully review the materials his supervisor had given him.

As Zhou Ping was looking at the documents, he ran back and immediately said to Yan Hui, "President Yan, I just heard something that I need to tell you."

"Hmm? Go ahead." Yan Hui noticed Zhou Ping's slight anxiety and became more serious as well.

“We hadn’t paid attention to this before. The policy has changed, and now land can no longer be transferred through negotiation. We can only participate in bidding!” Zhou Ping said somewhat urgently.

"What do you mean?" Yan Hui hadn't really been paying attention to policies lately.

“The ‘Document No. 71’ issued last year stipulates that from August 31, 2004, industrial land can no longer be transferred through agreements. In other words, before September last year, we could sign an agreement with the government, or even mortgage the land first and only pay the government a portion of the money. Now that’s not possible; now we have to participate in bidding and auction! But we don’t have that much money!” Zhou Ping explained quickly.

"How much will the land we're planning cost? Don't worry, we'll find a solution slowly," Yan Hui said calmly.

As the boss, Zhou Ping and the others don't need to worry about money.

“Right now, industrial land here costs about 15 to 20 yuan per mu. If we want to consider long-term development, we need at least 60 to 100 mu. Including taxes, it will cost more than 1000 million yuan! And this is just the land, not including the cost of building a factory.” Zhou Ping became more and more worried as he spoke.

Things are different now. When Zhou Ping's uncle built his factory, he could use it by signing an agreement with the village and town governments, but Yan Hui's chemical plant can't do that.

The chemical industry is a sector heavily regulated by the state. Although some small workshops have previously engaged in illegal land use, Yan Hui now has to follow the proper procedures if he wants to make big money.

"So, does that mean we have to prepare 1000 million in cash for the land?" Yan Hui asked rhetorically.

“At least.” Zhou Ping nodded.

“Explain the specific steps,” Yan Hui asked. “We need to listen to last year’s new policies, but now it’s a transition period. The government also hopes we can build a factory, so there will be some support.”

“Yes, our project proposal and feasibility report have already been approved during the initial project approval process, so there shouldn’t be any obstacles later. Next, we need to obtain the ‘Construction Land Planning Permit,’ which shouldn’t be too difficult. At this point, we need to pay attention to the announcements from the Land and Resources Bureau. I went to check today, and the suitable plots for us are all around 1000 million yuan. The specific steps are all manageable; the key issue is the money,” Zhou Ping explained.

The land auction process, from paying the deposit to providing a series of documents to participate in the bidding, is complicated, but none of that matters now. What matters is the money. Industrial land typically has a 50-year usage right, which is a long time—enough for two generations of a company to work hard. Only by owning their own land and their own factory can a company have a future.

"I'll ask someone about this." Yan Hui's biggest headache was the experimental problem, but he didn't feel as much pressure about the land issue as Zhou Ping did.

Experimentation is a bottomless pit, but now it's all finite.

Although Zhou Ping was in finance, he didn't understand the boss's perspective on financial matters.

Once we acquire this land, we can immediately secure a loan.

Let's assume Yan Hui spends 1200 million yuan to acquire a piece of land (this refers to the land use rights, which will not be elaborated upon further), and the land is indeed worth 1200 million yuan. Then the bank could provide at least 600 million yuan in loans. This is an extremely conservative estimate. In reality, given current national policies that encourage lending, this land could potentially secure a loan of 900-1000 million yuan. (Back in 2005, industrial land was eligible for loans; taxes and fees are not considered here.)

In other words, even if Yan Hui borrows money to auction off the land, he can quickly repay the loan. This is why many companies need to borrow money. Simply put, they borrow money through personal and corporate credit within their social circles, then use the borrowed money to buy a highly leveraged asset, and finally use that asset as collateral for a loan to repay the loan.

Almost all companies do this; using high leverage in business is a problem that every company has to face.

"Then I'll wait for your news." Zhou Ping went back to doing the accounts.

Actually, the profits from the steel formwork company and plywood business are already quite impressive, easily reaching two to three million yuan annually. If it weren't for Yan Hui's large-scale investment in chemical experiments, Zhou Ping wouldn't have known just how successful the steel formwork company could be.

Now, chemical plants are considering building new plants, but funding is a huge problem.

Land costs 1000 million, factory buildings at least 500 million, and equipment at least 500 million. This is the most basic investment, and factory buildings and equipment are not easy to finance. In addition, chemical plants have a construction period, during which huge loan interest payments are incurred every day.

After leaving Zhou Ping's place, Yan Hui went to find President Han.

Now that Yan Hui has nothing to do, he basically doesn't need to contact General Manager Han anymore. The previously agreed-upon 50% profit split with General Manager Han has been largely handled by Yan Hui through the timber processing plant's dividends. The processing plant has been doing quite well in recent years due to the rapid growth of the plywood business; Yan Hui has even been supplying veneer to the plant manager. However, the processing plant itself hasn't generated much profit, with most of it going to Dai Zhongwei.

Even Mr. Han never expected that the person he helped casually five years ago would create such great value for him over the past few years.

After arriving at President Han's place, Yan Hui took the initiative to explain everything and asked for advice regarding the land purchase.

"Indeed, you missed the good timing. If it were this time last year, I could have helped you inquire; things wouldn't be so difficult. But now, you have to go through these procedures, and the management is very strict. However, it's not as complicated as you think. Now that you're a high-tech enterprise, the government's attention makes things easier. You go and talk to the government, sign an agreement, and then wait for the land to be listed. Once it's listed, the land can be mortgaged in advance, but you won't get the certificate yet. You'll have to pay the difference in loan amount when you apply for the certificate, and only then will the land be yours. But, if you want to buy 1000 million yuan worth of land, you'll need to prepare at least 500 million yuan yourself. Taxes and fees alone will amount to over 100 million yuan, which can't be included in the mortgage amount," Mr. Han offered his opinion.

(End of this chapter)