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Business

How a Chinese company Czechs out Europe

By investing in a single region but across industries, then jumping

BEIJING -- One of China's leading private oil companies is on a novel diversification path in Europe.

In 2014, CEFC China Energy acquired a 30% stake in the Czech Republic's J&T Banka for 643 million euros ($679 million). Today that stake is 50%. In the intervening years, the company has made a series of other investments in the republic, including one in Invia.cz, an online travel booking site operator. It has also poured money into SK Slavia Praha, one of the country's most storied professional soccer clubs. In addition, it has bought stakes in a brewery, an airline, a media company and a steelmaker, among other businesses.

There's more: CEFC China, along with China General Nuclear Power, a major state-owned nuclear plant builder, has agreed with an energy consortium that includes a leading Czech company to cooperate in the nuclear energy business. Through this deal, CEFC will financially support power plant construction in Europe.

It has also cut an agreement with the Czech health ministry, big hospitals in the country and hospitals in its home country specializing in Chinese medicine to improve health standards in the Czech Republic.

CEFC China is focusing on the Czech Republic because it believes Chinese President Xi Jinping's "One Belt, One Road" economic and development initiative will boost business within Europe.

CEFC China's LPG rail transportation hub in Kazakhstan has been run in partnership with the China Railway since January.

The company uses the word "holistic" to describe its strategy of concentrating investments in a single area but over myriad businesses. The idea is to get the companies it invests in to cooperate with one another and to form close government ties. These efficiencies are meant to increase revenue.

CEFC China is also using its presence in the Czech Republic to expand elsewhere in Europe. It plans to acquire a German travel site operator in partnership with Rockaway Capital, a Czech investment company, and merge it with Invia.cz. In 2014, it bought the corporate services unit of France's Alcatel-Lucent, a telecommunications company. It is also keen to invest in Georgia.

In its core oil business, CEFC China has been transporting liquefied petroleum gas by rail from Kazakhstan. The process of acquiring KMG International, the overseas operations unit of Kazakh state oil company KazMunayGas, has been completed. By taking control of KMGI, which currently operates gas stations and oil refineries in France, Spain, Romania and elsewhere, CEFC China hopes to accelerate its drive into Europe.

In 2015, the company had 263.1 billion yuan ($38.2 billion) in sales. Owning stakes in oil fields in Kazakhstan, Abu Dhabi and Chad, among other places, the company supplies the black stuff to major state-owned oil companies in China. Currently, 60% of sales come from oil and natural gas operations and 25% or so from financial services.

The company wants to increase the share contributed by financial services. Ye Jianming, chairman of the board of directors of CEFC China, intends to grow the company into a conglomerate, one built around its core energy businesses as well as its financial and online services.

Ye founded CEFC China in 2002. In an industry dominated by China National Petroleum Corp., China Petroleum & Chemical (Sinopec) and other state-owned players, Ye managed to boost sales fivefold in the past five years. By doing so, the 39-year-old originally from Fujian Province turned many heads.

At first, his company mostly dealt in real estate and trade, such as the development of wholesale markets for agricultural products. Ye entered the oil business when he made a successful bid at an auction for a company with a license issued by the province to import oil. This company grew by taking over projects from state companies and foreign oil field operators that had grown wary of dealing with Chinese state-owned enterprises.

Ye describes this process as "energy public diplomacy." He plans to invest 10% to 20% of the company's oil profits to causes like education and environmental protection. He hopes these investments earn him the trust of governments in countries where his company has a presence and wants to diversify away from oil.

His "energy public diplomacy" has even brought him to a meeting between the Czech and Chinese presidents.

Some overseas Chinese-language media have reported that Ye might be close to some members of the People's Liberation Army. Rumors suggest he may be a grandchild of a former Chinese navy commander or might have worked for an organization affiliated with the military. Yet Ye's background remains murky.

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