Cover story, issue 410 March 16 2009
Translasted by Zhang Junting

Original article: [Chinese]

Long a staunch opponent of foreign investment in China's soybean industry, Jiusan Group, China's largest domestically-owned soybean presser, is signaling that it would be open to internationalization--with conditions.

Jiusan president Tian Renli has always been an icon of economic nationalism in the industry. But last week he told EO that internationalization would be the company's development path, that and it's likely that Jiusan would cooperate with foreign investors.

But despite the softened tone, Tian refuted rumors that his firm had been negotiating with Yihai kerry Investment Group (YHK Group), the Singapore-based agribusiness, over a possible acquisition by the latter.

China's soybean pressing businesses were buckling under double pressure from market fluctuations and government intervention in the trade. Industry experts told the EO they feared that the "internationalization" of Jiusan would herald the beginning of another industry reshuffle for China's soybean businesses.

Five of Jiusan's pressing factories in Heilongjiang province have already halted production, leaving only three others in coastal areas still operating.

It was likely this harsh business reality that has forced Jiusan to step back from its long-held stance against foreign investment.

"If any foreign companies would like to cooperate with us, we will actively consider the opportunity," said Tian. But he also made it clear that such cooperation must be premised on maintaining a controlling stake by Chinese, and that the firm would not accept "any unfair additional terms" imposed by foreign enterprises.

Tian was referring to cases in which foreign firms who had acquired a Chinese soybean presser would then have it adopt preferencial purchasing for imported, genetically-modified soybeans. He said these kinds of policies were squeezing the survival space of domestic, non-genetically-modified soybean producers.

Tian emphasized to the EO that if foreign companies don't agree with him on this, he would rather build a global sales and purchasing network by himself, and complete the company's internationalization process independently.

"Up to now, no foreign company has given us a satisfactory answer," he said.

The soybean futures market entered a volatile period during March and April 2004, with domestic soybean processing companies ultimately the worst hit. A slew of enterprises saw their cash flows disrupted and were left to lean on foreign capital for restructuring.

At that time, many foreign agribusinesses such as YHK Group, ADM and Bunge Group dove into the Chinese soybean industry, and as a result, even industry leaders like China Oil and Food Corporation (COFCO) and Luhua Group became targets of foreign investment.

This became known as the first round of reshuffling in China's soybean industry, during which Tian Renli and his Jiusan Group emerged the only purely Chinese soybean processing firm left. In 2007, rumors surfaced about a foreign acquisition of 49% of Jiusan's stock, but such a deal never materialized.

Then, another harsh winter struck. Dozens of soybean processing companies in Heilongjiang Province have been running in the red since the second half of last year, with the majority stopping production or closing factories. Last December was the industry's darkest hour, with 95% of production having been halted.

If market fluctuations knocked the wind out of the industry, government intervention in it dealt the mortal wound, and brought on production halts. Many soybean processing companies complained that the government controls pushed domestic soybean prices nearly one thousand yuan higher than imported soybean and as such, companies which process domestic soybean were facing an unprecedented crisis.

Soybean was the first agricultural market China opened up, and has since become the most import-oriented one. China was a net exporter of soybeans before 1996, but the very next year China's imports of it reached 2.79 million tons.

From then on, China continued on the treadmill of increasing soybean imports, and in 2000 became the biggest soybean importer with 10 million tons, overtaking the European Union.

On one hand, the huge soar in imports has contributed to a rise in China's consumption of soybean oil; on the other, since the domestic soybean industry has been mired by low per-unit yield and oil production rates and unable to keep up with the flood of cheap genetically-modified soybean imports, both domestic production and cultivation started shrinking.

Some domestic players in the industry, including Tian Renli, blame the current crisis on China opening the market too quickly.

"This is how it's been ever since 2005, with foreign companies controling 80% of China's soybean processing, and having a grip on 80% of soybean export channels. China's edible oil security has already been snatched up!" said one industry expert from the State Administration of Grain.

Criticism against foreign oil and food enterprises reached its climax last year. Though foreign companies put up a strong defense, the Chinese government bowed to domestic pressure and took measures to restrict their expansion.