Textile Giant Chinatex Leads State-owned Companies into Grain Sector

The Transformation of Chinatex

In 2008, the ten leading vegetable oil processors in China were Yihai Kerry, 93 Oil, COFCO, Cargill Company, Noble Group, Bunge Group, Hebei Huifu Grain and Oil, Shandong Bohai and Louis Dreyfus. Chinatex was not listed.

Yet only one year later, it's managed to become the third largest vegetable oil processor in the country.

According to a high-level executive of Chinatex Oil, Chinatex founded the Chinatex Oil Import and Export Company in 2000. At first the company was merely a soybean trading agency; then it began to operate its own soybean trade business in 2002. Four years later, it bought a vegetable oil firm located in Jiangsu Province and entered the oil processing field. The purchased firm was able to process 15 million tons of soybean daily.

In 2007, Chinatex rented all the workshops and equipment of the Bengbu Huayuan Company located in Anhui Province. "At the time, it (Bengbu Huayuan) was the biggest processor of vegetable oil in the country. It possesed two production lines that could process 12 million tons of vegetable seed per day and 30 million tons per day respectively. It also had another production line which had the capacity to process two million tons of vegetable oil per day. It owned storehouses which could store 200,000 tons of products and tanks capable of accommodating 30,000 tons of oil."

In 2008 and 2009, Chinatex accelerated its expansion into the vegetable oil industry and bought seven vegetable oil processing companies located in Guangdong, Liaoning, Fujian, Sichuan, Zhejiang, etc.

While increasing the speed of its acquisitions, Chinatex obtained the opportunity to cooperate with Sinograin (China Grain Reserves Corporation) and the two co-founded a soybean processing company in Rizhao, Shandong. An internal source from Sinograin stated, "during preliminary processing, Chinatex holds 51 percent of the shares, while Sinograin holds the remaining 49 percent; for refinement processing, Sinagrain holds 51 percent while the Chinatex holds 49 percent.

As of the end of 2009, Chinatex's oil processing was focused in Jiangsu, Guangdong and Shandong, and its business had been extended to trade, processing, storage, logistics and sales of soybeans, vegetable seeds, cooking oil, corn, etc.

In 2009, Chinatex imported over 4.2 million tons of soybeans, making it the largest importer in China and accounting for 10 percent of the total amount of imported soybeans; the vegetable oil processing capacity of its eight subsidiaries reached 220,000 tons per day and six to seven million tons per year, equal to that of COFCO and it has a cooking oil refining factory with a yearly capacity of 1.5 million tons. All of the soybeans Chinatex imports are processed by its own companies.

In 2008, the National Development and Reform Commission released a Regulations on Promoting the Healthy Development of the Soybean Processing Industry which claimed to restrict the capacity of soybean processing. Over the following two years, while many medium-sized and small private soybean processors were edged out of the industry, at least twenty large-scale soybean refineries were brought into operation.

While the actions of COFCO and Sinograin are widely considered as an indicator of "the advancement of state-owned enterprises and the retreat of privately-owned enterprises" in the vegetable oil processing industry, Chinatex went almost unnoticed. That's why when it emerged, all the other players, be they state-owned, privately-owned or foreign-owned, were surprised and astonished.

Financial Strength

Founded in 1951, Chinatex is a state-owned enterprise under the State-owned Asset Administration and Supervision Commission (SAASC). It was previously focused on the traditional business of importing and exporting textiles.

It began to expand the scope of its trade business in the 1990s when it began to trade in bulk agricultural commodities.

A high-level executive of the Chinatex Oil Import and Export Company said the reason Chinatex entered the vegetable oil processing field was the abundant opportunities. He stated: "In the past 30 years, China's vegetable oil consumption per capita has increased by 100 percent. Since entering the 21st Century, the soybean oil processing industry  has been experiencing a rapid period of growth with its import volume skyrocketing every year. These factors encouraged Chinatex to enter the industry."

However, if Chinatex were privately-owned, it would have been impossible for its shift from a traditional trader to a giant oil processor to take place.

The above source with the Chinatex Oil Import and Export Company said, "Chinatex obtained the approval and support of the SASAC, NDRC and SAG before entering the vegetable oil processing field."

Chinatex plans to promote balanced development of both its textile and vegetable oil business in the medium to long term.

Despite its political support, funding, and technology, Chinatex is facing a serious shortage of qualified employees.

The above source with the Chinatex Oil Import and Export Company told the EO reporter: "From 2006 to the end of 2009, Chinatex spent over two billion yuan in buying eight oil processing enterprises; all the capital used was its own." Meanwhile, Chinatex has recruited a large number of employees from the four international grain giants.

Many entrepreneurs and experienced industry professionals have attributed the successful shift of Chinatex to the superior market position it holds as a centrally-owned enterprise. "It's similar to those state-owned enterprises who strive to become a 'land king' (地王, referring to real estate companies who spend record amounts on land purchases), they can manage it as long as they have enough money," one industry source stated.

A CEO of a privately-owned company questioned, if Chinatex were privately-owned, would it have been able to enter the vegetable oil processing industry while the central government was "strictly restricting the processing capacity of soybeans"? If it were a privately-owned, would Sinograin have cooperated with it?

Confronted with such doubts, the above source with the Chinatex Oil Import and Export Company responded: "We received no preferential policies when developing our grain and vegetable oil processing business and received the same distribution subsidy as other enterprises.  Though Chinatex raised its oil processing capacity at a fast rate, it did so through mergers and acquisitions; its growth was entirely within the the realm of the national policy restricting soybean processing capacity.

Links and Sources
http://www.chinatex.com/en/index/index.aspx