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Chemical Noodles: This Chinese State-Owned Enterprise’s Recipe For Success

Joel on November 23, 2008 - 4:26 pm in Archive, wsj

In China it is commonly thought that northerners tend to eat more noodles while their southern counterparts prefer to eat more rice. I happen to be a 东北人 (from the northeast of the U.S) so one of my favorite dishes in China is beef noodle soup. Picture a steaming bowl of dark red spicy soup filled with thin white noodles, various crunchy green vegetables and braised beef, all topped off by a fried egg. I know it sounds like an awful lot of variety in just one soup bowl, but the end result is simply delicious.

Last week for lunch I tried Malan Noodle, the number one domestic fast food chain in China. Malan Noodle, founded in 1995, currently has over 500 restaurants throughout China, with additional restaurants in America and Singapore. I must say, the noodles were pretty good, but I was more interested in what I discovered after the meal.

Malan Noodle is owned by China National Bluestar Group Corp (BlueStar), which is a subsidiary of China‘s top state-owned chemical manufacturer, China National Chemical Corp (ChemChina). By now you are probably just as confused as I was when I first found out this piece of information. What business does a chemical firm have delving into restauranteering?

I came across this July 2008 interview with ChemChina’s president, Ren Jianxin, and this is his answer:

“I believe a business executive does two basic things: create value for the shareholders and create jobs for society. Ten years ago, China‘s chemical industry had 30 times as many employees per unit of revenues as its counterparts overseas did. There are still 10 times more today. That was the context of most of my M&A transactions. Given that, laying off redundant workers was inevitable.

On the other hand, as a responsible entrepreneur I have to try as hard as I can to create jobs for the unfortunate. Creating a service business like Malan Noodle was one of the solutions I came up with. Malan has become the number-one fast-food chain in the country, with more than 500 outlets nationwide. It has taken on more than 10,000 workers who used to be employees of our acquired chemical companies.”

Brief Answer: Ren Jianxin needed a channel to provide employment opportunities to redundant chemical company workers, thus he established Malan Noodle.

Lastly, let’s step back for a moment and take a quick look at Malan Noodle‘s direct owner: BlueStar. In October 2008 BlackStone completed a deal to inject 600 million US dollars worth of strategic investment into BlueStar. In doing so, Blackstone transformed this one time fully state-owned enterprise into a joint-venture, with Blackstone taking a 20% stake in the venture.

What began as a lunchtime quest to get my beef noodle fix became an experience that has given me (and now you) insight into three unique interconnected Chinese companies: Malan Noodle, Bluestar and ChemChina.

What do you think about Ren Jianxin’s decision to establish Malan Noodle to support his employees? Do you think there are any other state-owned enterprises that we should observe? Please leave a comment and start the conversation.

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  • November 23, 2008

    A very cool piece of research Joel. Sounds like Ren Jianxin is not a typical SOE CEO. I wonder how many Malan employees really are ex chemical industry employees – i.e. is this just a great PR piece or a very novel outplacement service? I would think that hiring employees from the general labor market would be more efficient, but who knows? Another question is whether these employees retain their former SOE level of iron rice bowl benefits (housing/health care/lifelong employment etc.) or whether those are sufficient to retain employees over the long term (somehow working in a fast food noodle making kitchen seems to be a job for the young). Without further research, I also am assuming that Malan’s chain is widespread geographically and may not match up all that well with acquired and or downsized chemical operations. hmmmm.. the more I think this through… PR Fluff…

  • November 23, 2008

    I think this is a brilliant and creative method of providing the jobs he seems committed to offering. I admire his goals of “create value for the shareholders and create jobs for society.”. The first is, of course, very common. To be expected in an executive but the second… wow! I really respect such a humanitarian motive. That he is able to actuate that motive with a viable business is make makes it truly amazing. I hope we see more of this sort of integration and progressive thinking on the part of “the suits”.

    That noodle dish just about made me drool on my keyboard. As a 北方人 myself (Ohio) I find frequently find noodles to be just the thing。 A big bowl of beef noodles is my chinese comfort food.

    Love your blog, by the way. Simon Elegant pointed the way and I now subscribe.

  • November 27, 2008

    It really comes down to whether one believes in the conglomerate or the focused company. As owner of a small, niche, law firm, I have always believed focus is better.

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