The best thing about running the Tianjin Liuhong Technology Development Company is that the raw material is virtually free.
The main product at Liuhong Tech is the so-called “True Citrus Coating”, which comes from natural citrus peels. The citrus oil is extracted from the peels and then reacts with other plant extracts, such as linseed oil, tung oil and cannabis resin to produce the coating. It is non-toxic and harmless, and has a similar abrasion resistance, hiding power, adherence and color to the coatings and paints produced by petrochemicals.
Zhang Gang, the chairman of Liuhong Tech, has ventured deep into several major citrus growing regions in China - Hunan, Hubei, Sichuan, Fujian, Guangdong and Guangxi provinces - to� gather information about citrus cultivation, trading and processing. He was pleasantly surprised by the fact that China is not only a large citrus growing country, but also has a huge market potential for citrus processing. At that time, the national annual output of citrus was 14 million tons, 20% of which was low priced citrus peels.
The citrus peels used by Liuhong Tech to produce paints are acquired from canned fruit manufacturers for free. At these factories, the peels are waste and the companies must pay substantial processing fees to local environmental departments to get rid of it, since citrus can produce a corrosive liquid over time. While this is a bother for canned fruit manufacturers, it is good news for detergent producers: the waste from the upstream segment of an industrial chain becomes the raw material for the downstream segment. This means that a company like Liuhong Tech can get raw materials for next to nothing and also help factories avoid costly environmental fees.
The Right Coating at the Right Time
In 2002, a friend of Zhang’s returned from a holiday abroad with lots of stories. One of those stories triggered Zhang’s inspiration. Zhang’s friend told him one of his stories that once, over dinner, he saw a glass of water with citrus peels in it and mistakenly thought it was some sort of drink. It tasted pretty good, in fact. Then someone explained that the water was actually used by locals to wash their hands. After hearing this story, while all the other friends found it amusing, Zhang made a mental note. His training in chemical engineering gave him knowledge about the properties of citrus peels. Later, he heard that overseas researchers were investigating the use of natural plant compounds in paint. Zhang soon realized there was a huge business opportunity.
The logic was simple: back then, the government had already issued standards for the limitations of harmful substances in decorative and paint products. With a rapidly growing real estate market, the standards on harmful substances in decorative products have become stricter. In some major cities like Beijing, the local governments have even issued their own, tougher local standards. The VOC (Volatile Organic Compounds) limitations shocked the paint industry. The experts who supported stricter standards realized there are more real estate development projects in the major cities. This means that even with low levels of harmful substances, large-scale construction projects can accumulate massive amounts of these harmful substances and create serious impacts on the environment.
As the cost of oil continues to climb, the cost of petrochemical products also continues to rise. With the trend to tougher restrictions on harmful substances, large paint makers like Nippon Paint and Dulux from Imperial Chemical Industries, have launched several new products featuring low amounts of VOCs and environmental friendliness. These two large manufacturers now dominate the decorative paint market in China. At the same time, several other large foreign paint makers have penetrated the Chinese market. As major companies like Nippon Paint and Akzo Nobel continue to expand their production capacity and build manufacturing bases in China, smaller companies are finding themselves in technical and financial dilemmas. The 3C certificate for wood paints, for example, has only been handed out to just over 100 companies in the entire country. The new rules have forced many companies out of business.
To manufacture the “True Citrus Coating”, Zhang Gang and his partner, Li Shugui, have done a lot of research. They discovered that ancient Chinese used tung oil to preserve wooden furniture. Theoretically, the citrus oil extracted from citrus peels has the same preservative effect as tung oil. If the oil can form a membrane, it can be used as a paint additive along with other substances. They conducted many experiments to overcome several problems, such as slow drying, poor abrasion resistance, bad coverage, low adherence and inadequate brightness. The result was a completely non-toxic, safe paint that even smells nice.
The “True Citrus Coating” emerged at a time the entire industry was facing tough new standards and alert consumers. Many companies had tried various ways of dealing with the environmental protection requirements, but some of them have claimed their products were environmental friendly when they weren’t. After being lied to for so long, customers were understandably leery about the environmentally friendly concept. This, in turn, made marketing the “True Citrus Coating” very difficult. The lifespan of most of decorative materials is 5 to 10 years. No one wanted to use his or her living rooms as a test platform, and no one was easily convinced by the new brand. So although the “True Citrus Coating” had technical advantages, it initially received the brush-off from consumers. No one trusted the new product.
Zhang had to switch his role from technical expert to marketing director. He and his employees began to lobby decor companies, construction sites and design institutes to try their paints. They also painted showrooms for free in decor stores and participated in various exhibitions to expand their publicity. The efforts attracted some customer feedback and certain awareness. But then several problems began to emerge at major developments that were using the “True Citrus Coating”. The paint had poor film hardness; it was not bright enough and dried slowly, which in turn slowed down construction. Eventually Zhang and his technical group solved the problems and their products were improved.
