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Japan's top instant noodle maker Nissin Food Products Co will bring China's second-largest instant noodle maker under its wing to win a bigger share of the rapidly growing Chinese market.
Nissin said yesterday it will take a 33.4 percent stake in Hebei Hualong F&N Industry Group Co through a cash injection of about 20 billion yen (US$189 million).
The Hebei company will change its name to Nissin Hualong Foods Co when the terms of the alliance are fulfilled.
The deal will be the largest Chinese investment by a Japanese processed-food manufacturer.
"We aim to obtain the No 1 market share in China within two to three years by overtaking Tingyi Holding Corp, China's top instant-noodle producer," a Nissin spokesman said.
China's instant noodle market, the world's biggest, is still enjoying annual growth of about 20 percent, he said.
Nissin operates four factories in China including one in Shanghai but only has a 2.5 percent market share.
Hualong commands a share of about 20 percent of the local instant noodle market. Hualong has 16 factories and 120 sales offices, with 14,000 workers.
It earned a net profit of about 200 million yuan (US$24.2 million) on sales of roughly 3 billion yuan (US$362 million).
Wang Gexin, a Hualong official, said Hualong will use the money from the stake sale to boost its number of production lines to 140 from 102.
"Hualong will produce higher end instant noodles after the co-operation with Nissin," Wang said.
Nissin will send two executive directors to Hualong. It will also help boost Hualong's competitiveness by providing it with know-how in production technology, quality control, marketing and product development, Nissin spokesman said.
Hualong will help Nissin build a sales network throughout China to increase its sales in the large market.
Analysts say the investment by Nissin is a wise move to increase its market share in China quickly.
Annie Zheng from Huaxia Securities said Hebei Hualong is a perfect match for Nissin.
"Nissin mainly targets consumers in China's urban areas, while Hebei Hualong has a large group of consumers in the rural areas," she said.
Hebei Hualong will help Nissin with its distribution network to compete with Tingyi, the largest instant noodle maker which accounts for 40 percent of the market, Zheng added.
China has about 300 makers of instant noodles, with Tingyi, Taiwan's Uni-President Enterprises Co and Hualong accounting for about 70 percent of the market.
Some 65.25 billion packs of instant noodles were consumed in the world last year, of which 27.7 billion were consumed in China, up 6.55 billion and 4.6 billion from 2002 respectively.
By contrast, Japan's instant noodle market has slowed to an annual growth of just 1 to 2 percent.
Nissin boasts a leading 40 percent share of Japan's instant noodle market.
In October, Nissin cancelled a plan to co-operate with Uni-President Enterprises Corp in instant noodle operations in China due to differences over strategy.
Nissin's Japanese rival Itochu Corp said last month it plans to buy about half of Tingyi's distribution unit to enter China's large market.
Shares in Nissin rose 3.0 percent to 2,710 yen (US$25.67) on the Tokyo Stock Exchange on the news, outperforming the Nikkei 225 Stock Average's 0.7 percent growth.
(China Daily April 14, 2004)
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