Rebirth in Hong Kong: From Dessert Shop to Industrial Empire

Chapter 149 Getting to the Root of the Problem (Seeking monthly votes, recommendations, and continued reading)

“Then let’s go with Baoyuan. Let’s try to establish our long position in raw sugar within a day or two,” Chen Bingwen decided.

Since Baoyuan is the strongest, there's no reason not to choose it.

"What are the specific strategies and scale for building positions?" Fang Wenshan took out his notebook.

After a moment's thought, Chen Bingwen quickly calculated based on his memory of the timing of the price surge and his risk tolerance, and then decided:

"First, establish a basic position, and then complete the purchase of 500 lots of raw sugar futures contracts for December within the next 3-5 trading days."

The average entry price is controlled within a range of 0.5 cents above and below the current market price.

“500 lots.” Fang Wenshan quickly calculated the margin and risk exposure. “Based on the current price and a 10% margin, it would require approximately $63 in margin.”

The company's current cash flow is fully covered, and the risks are manageable.

"Yes, one lot of raw sugar futures contract is 50.8 tons, and 500 lots is 2.54 tons, which is enough to hedge against the increased costs caused by the rise in raw sugar prices."

Chen Bingwen explained with a smile.

Besides the 2 tons of syrup supplied by Thailand's Golden Elephant to Chen Kee, Chen Kee also needs to purchase nearly 2 tons of raw sugar from the market.

The 2.54-ton raw sugar futures contract is enough to sustain Chenji until sugar prices fall next year.

If we were to purchase and stockpile 2.54 tons of raw sugar based on the market price to mitigate the risk of price increases, we would need to spend US$630 million, or nearly HK$3000 million.

This not only locks up a large amount of working capital, but also incurs warehousing, loss, and management costs.

By purchasing raw sugar futures contracts, one only needs to pay a margin of $63 to lock in an order for 2.54 tons of raw sugar.

The saved $560 million in cash can be immediately invested in more critical market expansion and capacity building!

Chen Ji is a major buyer of raw sugar. Rising sugar prices will inevitably lead to increased costs, which in turn will reduce profits.

By purchasing 500 lots of raw sugar futures contracts, you are essentially locking in a future purchase price in advance.

If sugar prices do surge in the future, the extra costs incurred from buying sugar in the spot market can be offset by profits earned through futures contracts.

Conversely, sugar prices unexpectedly fell.

You might lose money on futures contracts, but you can buy sugar at a cheaper price in the spot market!

The money saved on spot trading can also offset the losses in futures trading.

In this way, regardless of whether prices rise or fall, the overall cost is kept within an acceptable range.

This is also a common way for large physical enterprises in the 21st century to maintain production costs.

This allows businesses to remain resilient amidst fluctuations in raw material prices and avoid being dragged down by high raw material costs.

Over the next three days, following Chen Bingwen's instructions, Fang Wenshan established a long position of 500 lots of international raw sugar December futures contracts in Baoyuan under the name of Chen Ji Foods.

In addition, a long position of 600 lots of international raw sugar December futures contracts was established in the name of Sugar Heart Capital.

Since Sugar Heart Capital is an offshore company, Baoyuan Trading Company can set the margin ratio for such offshore accounts at 5%, which is equivalent to a leverage of 20 times.

The funds required to establish these 600 long positions have plummeted from approximately $63 based on a 10% margin to just about $31.5!
Similarly, a leverage of 20 times means that for every 5% reverse fluctuation in sugar prices, the $31.5 margin will be wiped out.

Therefore, when Chen Bingwen instructed Fang Wenshan to do this, Fang Wenshan was indeed a little confused.

As the CFO, he has an instinctive vigilance towards risk.

A 20x leverage means amplifying the risk 20 times; it's like dancing on a knife's edge.

He opened his mouth, but ultimately couldn't hold back and tentatively asked:
"Mr. Chen, I understand the necessity of hedging. The 500 lots of Chenji Foods are a very reasonable position."

However, Sugar Heart Capital's 600 lots, using a maximum leverage of 20 times, is pure speculation.

"If—and I mean if—the judgment is wrong, and sugar prices don't surge or even correct, this $31.5 margin could be wiped out instantly."

Chen Bingwen looked at Fang Wenshan's undisguised worry, but he wasn't angry. Instead, he appreciated Fang's caution.

He said with certainty:
"Director Fang, your concerns are normal; it shows that you are fulfilling your responsibilities."

But if you look at this from a strategic perspective...

Now you know why I did that!

I ask you, what is our ultimate goal?

"It's about backdoor listing, mergers and acquisitions, and achieving leapfrog development," Fang Wenshan replied.

“That’s right!” Chen Bingwen nodded emphatically. “What is needed to achieve this goal?”

"A huge amount of money is needed."

"So where did the money come from?" Chen Bingwen pressed, but before Fang Wenshan could answer, he answered his own question:

"Accumulating profits?"

Too slow!

Relying on bank loans?
Limited quotas and high costs!

Moreover, we still owe Wing Lung Bank a loan that we haven't repaid.

The best way is to get it from the capital market!
However, going public and raising funds takes time, and the current sugar price storm presents an excellent opportunity for us to quickly acquire our first large sum of money outside the capital market!

Moreover, Chen Bingwen did this in order to increase the financial strength of Sugar Heart Capital and prepare for the subsequent listing of Chen Ji and the implementation of an offshore holding structure.

Furthermore, if this money is earned, it won't be just a few million, but at least tens of millions of Hong Kong dollars!

This can provide ample confidence for subsequent backdoor listings and mergers and acquisitions.

Even in the worst-case scenario, if the sugar price moves in the opposite direction by 5%, the entire $31.5 will be lost.

With Chen Ji's current cash flow and profitability, it is entirely within its acceptable range and will not cause any serious damage.

Therefore, for Chen Bingwen, this was a very worthwhile deal!

After establishing a long position in international raw sugar futures, Fang Wenshan focused his attention on finding clean shell companies.

Shell companies that meet Chen Bingwen's requirements were selected from among the listed companies on the Far Eastern Stock Exchange and the Gold and Silver Exchange.

During this period, Gu Yongxian, who was in charge of investigating the counterfeit Chenji bottled sugar water, came to report his findings to Chen Bingwen.

"Mr. Chen, the investigation into the counterfeit desserts has yielded results."

Gu Yongxian placed a detailed investigation report on Chen Bingwen's desk.

"Okay, go ahead and speak." Chen Bingwen gestured for him to sit down as well, and picked up the report to read it.

“There were three workshops in total, hidden in village houses in Yuen Long and Tuen Mun in the New Territories. They were all very small, with two or three simple filling machines and a few cheap laborers to start operations.”

Gu Yongxian succinctly explained the situation: "The bottles are either recycled from our old bottles or inferior glass bottles made by small factories."

The label was poorly printed; the characters for "Chen Ji" were even printed crookedly.

The syrup inside is made by mixing saccharin, flavoring, and coloring, plus some canned mixed fruits and sago pearls that won't cook through. The cost is shockingly low.

They mainly transported goods through familiar parallel traders to poorly managed small grocery stores and street stalls in Kowloon and the New Territories.

"Who's behind this?" Chen Bingwen asked the core question directly.

Compared to that, he was more concerned about this issue.

Because having someone behind you or not makes a completely different difference.

“Three small business owners who have no connection to each other and no background. They just saw that our profits are high and wanted to make a quick buck,” Gu Yongxian said with a hint of disdain. “One used to work as a helper in a dessert shop, one does some small-scale smuggling, and the other runs a family workshop.”

Seeing that our business was doing well and our profits were high, they colluded to try and make a quick buck.

They distributed their goods to grocery stores and herbal tea shops near Kowloon Walled City and in Sham Shui Po through acquaintances who frequented smuggled goods and minibus drivers traveling to and from the New Territories. They dared not enter large department stores or chain stores.

"Is the evidence conclusive?" Chen Bingwen pressed.

"The evidence has been secured. We've uncovered the production process, accounting books, and sales channels." Gu Yongxian nodded affirmatively. "Our people posed as wholesalers and made contact with them, obtaining their handwritten delivery slips, which show the quantities and amounts."

They also secretly took photos of them during the production process.

Friends from the Trade and Industry Department and the Commercial Crime Bureau of the Police Force have already given instructions; they can arrest people and shut down shops at any time.

Chen Bingwen nodded. "What's your opinion? How should we proceed?"

A cold glint flashed in Gu Yongxian's eyes; he already had the plan in mind:

"First, we should take official channels and get straight to the heart of the matter."

I gathered the evidence and submitted it directly to the Industry and Commerce Bureau and the Commercial Crime Investigation Division, requesting a joint operation to raid and shut down these three counterfeit factories and arrest the people involved.

"Second, we must seize all counterfeit goods and counterfeiting tools to fundamentally crush them." "Second, we must completely shut them down and leave them no chance to recover."

In court, I will file civil lawsuits for 'trademark infringement' and 'counterfeit goods,' demanding huge sums of compensation, so large that they can never repay it in their lifetime.

In criminal matters, we will fully cooperate with the prosecutors to demand a severe sentence, at least imprisonment, to serve as a deterrent to others.

We must let the entire industry know that anyone who tries to imitate Chen's products will be prepared to go bankrupt and imprisoned.

"Third, clean up the market and get to the root of the problem."

After the operation is successful, I will contact familiar reporters from Sing Tao Daily and Hong Kong Commercial Daily to release the news, report the results of this crackdown on counterfeits, and emphasize our commitment to quality.

We must make it clear to everyone that counterfeiting Chen Ji's products will result in financial ruin and imprisonment!

Gu Yongxian's plan was ruthless and sophisticated, making full use of his legal expertise to maximize the efficiency of Hong Kong's judiciary and public opinion.

They are the type to either not act at all, or when they do act, they are determined to eliminate all threats and leave no room for future problems!
After listening to Gu Yongxian's proposal, Chen Bingwen showed a satisfied expression.

This is precisely what he admires about Gu Yongxian.

They are ruthless and decisive in their actions, leaving no room for compromise. They are well-versed in laws and regulations and know how to achieve their goals using the most effective means.

“Very good!” Chen Bingwen nodded approvingly. “Let’s proceed according to your plan.”

The action must be swift and ruthless, a single, decisive blow to kill, leaving no chance to breathe.

He paused, then added, "Also, I have something to add regarding the third step."

"In addition to contacting the media to release information and emphasize our commitment to quality, we could try to get the Commerce and Industry Bureau to hold a joint press conference with us."

"We will present this anti-counterfeiting operation as a positive example of Chenji taking the initiative to defend consumer rights and maintain market order."

"Turn the crisis into a promotional opportunity to enhance brand image and public trust!"

Gu Yongxian immediately understood his boss's deeper meaning: "Mr. Chen, your move is brilliant!"
The joint press conference not only demonstrates our determination and achievements in combating counterfeits, but also greatly enhances our brand's credibility and positive image through official endorsement!
I immediately contacted the Industry and Commerce Bureau to try and make this happen!

"Yes, you are fully responsible for following up on this matter," Chen Bingwen emphasized again. "Assign any resources you need directly."

In addition, you can make the decision regarding donations from the Commerce and Industry Department and the Department of Health.

I only want one result: counterfeit products must be completely eradicated!

"Understood! Don't worry, Mr. Chen!" Gu Yongxian nodded. "Within a week, make these three counterfeit workshops disappear, and none of those responsible will escape!"
I will also do my best to secure the joint press conference!

Gu Yongxian accepted the order and left, displaying an air of authority reminiscent of someone preparing to slaughter a lamb.

Chen Bingwen watched Gu Yongxian's departing figure and felt somewhat relieved.

Chinese people have always been clever. Whether now or in the future, as long as there is profit to be made, imitators and followers will emerge in droves, like fish crossing a river.

To achieve a permanent solution, only decisive measures can deter future competitors.

Meanwhile, Jackie Chan's self-directed and self-acted film "The Fearless Hyena" was taken off the screens in Hong Kong.

Although this film, to which he poured a great deal of effort, failed to replicate the box office miracle of "Drunken Master," it still achieved a remarkable HK$544 million, firmly placing it among the top-grossing films of the year and once again proving Jackie Chan's strong market appeal.

However, this huge box office revenue had almost nothing to do with Jackie Chan himself, who was both the director and the lead actor.

The boss, Lo Wei, cited company operations and initial investments as reasons, and only gave him a symbolic second-hand sports car and a reward of HK$6000, which was a drop in the ocean compared to the huge profits brought by the film.

The huge psychological gap and the severe imbalance between effort and reward left Cheng Long feeling extremely depressed. In his low spirits, he subconsciously drove to the Weiye Building.

In Chen Bingwen's office.

"Brother Wen, I'm really upset!" Cheng Long huddled on the sofa, his face full of grievance and resentment, and poured out his grievances about the box office of "The Fearless Hyena" and how Lo Wei only gave him a car and a few thousand dollars.

"I worked my butt off, doing all the fighting and acting, and even coming up with ideas. The box office made millions, but all I got was this little bit. They're treating me like a child!"

Chen Bingwen listened patiently and gave him a bottle of sugar water.

Seeing the frustrated look on the face of this future superstar, Chen Bingwen found it somewhat amusing.

As Jackie Chan's fame grew, the conflict between him and Lo Wei over their "mentor-student relationship" rather than market value became irreconcilable.

Lo Wei still clung to the old-fashioned studio mentality, trying to bind this cash cow with gratitude and morality, unaware that market forces would eventually cause this relationship to crumble.

“Ah Long,” Chen Bingwen pushed the sweet soup in front of him and said in a calm tone, “how much do you think you’re worth right now?”

Cheng Long was taken aback, clearly not expecting him to be so direct.

“Luo Wei gave you six thousand yuan because he still sees you as the martial arts performer he used to mentor,” Chen Bingwen said slowly. “But he didn’t understand one thing.”

The success of "Drunken Master" and "The Fearless Fist" was not due to Lo Wei's name, but to your name, Jackie Chan.

The market recognizes you, not him.

This is the biggest conflict between you.

He feels that since he raised you, you should listen to him.

You believe that since you earned the box office revenue through your own hard work, the profits should be distributed fairly.

These two ideas are fundamentally opposed.

Cheng Long listened intently, as if the grievances and confusion he had felt over the past few days had finally found an outlet.

“What you need to do now is not to argue with him,” Chen Bingwen said, changing the subject. “Your contract is still in his hands. If you fall out with him, you’ll be the one who suffers.”

He paused, looked at Cheng Long who was still somewhat sullen, and said, "However, in the current situation, it's not a good idea to keep dwelling on things in Hong Kong."

"Well, I have a suggestion. Why don't you go out for a walk and clear your head, get some fresh air?"

"Relax? Where to?" Cheng Long looked up, somewhat bewildered.

"How about going to South Korea?" Chen Bingwen said casually. "Our sweet soup and 'Pulse' have just entered the South Korean market through Seoul Food Trade, and it's the perfect time to promote them."

You, the 'Drunken Fist Master,' are currently enjoying great popularity in South Korea due to the release of your movie.

If you're willing to go, Chairman Kim would be more than happy to oblige and will arrange a grand fan meeting and promotional events for you.

He added with a smile, "On the one hand, you can temporarily leave this place that makes you unhappy and change your environment to adjust your mood."

On the other hand, it can also be seen as helping Chenji's products gain publicity and boost their reputation.

All travel expenses will naturally be borne by Chen's Restaurant.

"Furthermore, there are plenty of beautiful young women in South Korea who could be your fans!"

With a knowing smile that only men understand, Chen Bingwen added just the right moment.

This sentence was like the finishing touch, instantly striking a chord with Cheng Long.

The gloom on his face vanished, and his eyes suddenly lit up.

She was surrounded and adored by countless enthusiastic and beautiful young female fans in a foreign land.

That sense of accomplishment, vanity, and the satisfaction of being worshipped as a superstar is exactly what he craves most at this moment after suffering so much injustice at Lo Wei's hands.

Having thoroughly experienced the wonders of Singapore and Japan, Cheng Long is now completely defenseless against this situation.

That feeling of being surrounded, screamed, and worshipped by countless enthusiastic fans, especially young and beautiful girls.

Like the finest wine, it intoxicated him and was the best medicine to heal his career setbacks and inner grievances.

The thought of receiving even more enthusiastic support in South Korea than in Japan made Jackie Chan's heart race. All his frustration vanished instantly, and his face lit up with excitement.

"Great idea, Brother Wen! That's fantastic!"

He practically leaped off the sofa, his previous dejection vanishing instantly, and asked impatiently, "When can I set off?"

The sooner the better! "

Seeing Cheng Long's expression instantly brighten, even becoming somewhat excited, Chen Bingwen smiled knowingly.

Sure enough, for Jackie Chan at that moment, spiritual comfort and the vanity of a superstar were far more attractive than a mere six thousand Hong Kong dollars.

"I'll have my secretary contact Chairman Kim Sung-soo in Seoul immediately to make arrangements."

Chen Bingwen said with a smile, "Finalize the itinerary as soon as possible so you can go there and be a glamorous 'Korean superstar' and enjoy the feeling of being the center of attention."

"Thank you so much, Brother Wen! You really understand me!" Cheng Long rubbed his hands together, his face beaming with joy.

After seeing off the refreshed and energetic Cheng Long, Chen Bingwen picked up the internal phone and instructed, "Ali, contact Chairman Kim in Seoul."

Tell him that Mr. Jackie Chan will be visiting South Korea soon for promotional activities, and ask him to make preparations for his reception.

(End of this chapter)