Chinese market stays hot

It is no exaggeration to say that China has always been popular for this kind of foreign investment.

Louis Dreyfus Company began its grain business in China in the 1960s. “In the early days the grain giants were more involved in trading than in establishing processing facilities,” said Huang, adding that their large-scale involvement in the grain business stared during the late 1990s.

ADM launched its operations in the massive Chinese market in 2000. Following its first wholly-owned subsidiary in Dalian, a coastal city in northeast China’s Liaoning Province, the company established plants in Guangdong Province’s Guangzhou and Sichuan Province’s Chengdu.

Currently, ADM's business involves trading in grain, processing flour, and the feed industry, as well as cocoa and other fields. The joint venture with Yihai Group, set up along with Singapore group Wilmar, is one of the most successful examples of activity in the Chinese market.

Next came Bunge. This is a powerful company with more than 450 plants in 32 countries around the world.

Soybean was a logical choice for penetrating China, because at the time the soybean market was dominated by the four grain giants, according to an anonymous businessman.

China, the world’s largest soybean importer, took over one third of the world’s soybean production satisfying the investors’ requirement for a huge and stable market.

The foreign investors adopted two approaches to increasing soybean exports into China. One was promoting the advantages of imported soybeans, and the other was to buy out Chinese soybean companies’ market shares.

“I believe the objective of share buying is not to help Chinese companies to improve, but to induce Chinese companies to import soybean,” said Tian Renli, Manager of Jiusan Oil & Fat Company, who have never sold any of their share to foreign companies.

Among 97 major Chinese oil and fat companies, 64 are controlled by foreign investment. As a result, China became a net importer of soybean as of 1996. By 2007, net imports of soybean had reached over 30 million tons, ten times the 1996 volume.

Through share selling, China’s dependence on soybean imports continues to grow. According to a supply agreement signed with America in June, 2008, China will spend US $3 billion to purchase US soybeans. The National Grain and Oils Information Center has predicted that China's soybean imports will increase to 33 million tons, and dependence on imports will be as high as 71 percent.

However, controlling China’s soybean imports is not the foreign grain giants’ end game. They are eager to diversify their activity into related industries.