China milk makers including Yili, Mengniu to get state support: report

China milk makers including Yili, Mengniu to get state support: report

5:15am EDT

SHANGHAI (Reuters) – Chinese milk powder makers, including Inner Mongolia Yili Industrial Group Co Ltd (600887.SS: QuoteProfileResearchStock Buzz) and China Mengniu Dairy Co Ltd (2319.HK: QuoteProfile,ResearchStock Buzz), are set to get 30 billion yuan ($4.90 billion) in official funds to support sector consolidation, media said. As well as Yili and Mengniu, the first group of firms to benefit would include Feihe International Inc (ADY.BE:QuoteProfileResearchStock Buzz), Heilongjiang Wondersun Dairy Co Ltd and Treasure of Plateau, the official China Business Journal said in its Saturday edition, citing an unidentified source. Authorities have said they want to consolidate the domestic milk powder sector to increase the ability of companies to compete with international rivals who dominate the lucrative premium end of China’s $12.4 billion infant formula market.Officials at Yili, Mengniu and Feihe were not immediately available for comment.

Chinese milk powder firms would gain the support in the form of government subsidies, funds from China Development Bank and favorable tax policies, the China Business Journal said. The total amount would be about 30 billion yuan, it said.

Milk powder is a sensitive topic in China after a 2008 scandal involving milk tainted with melamine led to the deaths of at least six infants and made many thousands ill.

That hit the reputation of domestic dairy firms and boosted the market share of imported brands such as Danone SA (DANO.PA: QuoteProfileResearchStock Buzz), Nestle SA (NESN.VX: QuoteProfile,ResearchStock Buzz), Mead Johnson Nutrition Co (MJN.N: QuoteProfileResearchStock Buzz) and Abbott Laboratories (ABT.N: QuoteProfileResearchStock Buzz).

But international milk powder has recently come under the spotlight, with China temporarily banning some dairy products from New Zealand’s Fonterra Co-operative Group Ltd FCGHA.NZ, after a scare.

Last month, the country’s price regulator handed down record fines to mostly foreign milk powder makers.

Last week, official Chinese television said French food group Danone SA had bribed doctors and nurses to recommend its Dumex milk powder brand at a hospital in northern China, and said the practice was widespread in the sector.

China’s Ministry of Industry and Information Technology has previously released a plan to slash the number of domestic infant formula firms in the highly fragmented market over the next five years to 50 from about 200 now as it looks to create stronger sector leaders.

According to data from market research firm Euromonitor, Yili and Wondersun were the two leading Chinese milk powder producers by retail value in 2012. Feihe and Mengniu were in the top ten. ($1 = 6.1212 Chinese yuan)

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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