Gushan Environmental Energy is a Chinese biodiesel producer that creates biodiesel and by-products of biodiesel production, such as glycerine, plant asphalt, erucic acid and erucic amide. The company makes money by selling its products in China to direct users such as marine vessel operators and chemical companies, in addition to petroleum wholesalers and individual retail gas stations. In recent years, Chinese government regulation have introduced consumption taxes levied on diesel products, putting downward pressure on consumer demand of these products. Further, a string of accounting fraud scandals for Chinese based companies listed publicly abroad have brought increasing scrutiny to companies like Gushan.
Gushan has only one operating segment as all its operations and customers are based within PRC. In recent, Gushan has begun to diversify its business knowing that its products are relatively niche compared to petroleum industries. As a result, it has begun to rely on other types of businesses such as its recycled copper product business.
Government policies such as taxation regulations on consumption tax rates levied on diesel products add downward pressure to GU's sales volume. During times when consumption tax is uncertain, GU has simply stopped producing, such as when the company chose not to commence production at their Chongqing and Hunan production facilities. Further, road maintenance may halt operations, such as when the Fuzhou municipal government chose to commit road maintenance forcing the suspension of operations at GU's Fujian Gushan Biodiesel Energy Co., Ltd.
Following several accounting fraud cases from Chinese companies listed publicly abroad, such as China Electric Motor (CELM), Advanced Battery Technologies Inc (ABAT), and China Intelligent Lighting (CIL), scrutiny for accounting fraud for Chinese companies has intensified. GU is poised to become a likely target due to the cyclical and high capital expenditure nature of its business. For example, when its Fujian Gushan was suspended in operations, its utilization rate decreased to 27.8% from 99.0%. These large discrepancies make it easier to trigger doubt into a company's accounting and financial reporting standards.
GU competes with other Chinese bio-diesel producers, as well as other basic material industries through its diversified bio-diesel byproduct manufactures, including:
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