Chinese Government to Prop up Domestic Dairy Firms with $4.9 Billion Infusion

According to Chinese media reports, five of the country’s largest milk powder producers—China Mengniu Dairy Co., Inner Mongolia Yili Industrial Group Co., Feihe International Inc., Heilongjiang Wondersun Dairy Co., and Treasure of Plateau Yak Dairy Co.—will soon receive government funds of RMB 30 billion ($4.9 billion), in order to consolidate the domestic milk powder sector and build a “national team” that will be able to compete with international rivals.

Foreign companies have dominated China’s $12.4 billion milk powder industry since 2008, when tainted infant formula sold by domestic companies killed six babies and sickened thousands. Since then, Chinese producers have struggled to keep up with foreign rivals, who now control 70 percent of the fast-growing market.

But foreign companies are now the ones under scrutiny: in September, Chinese state broadcaster CCTV said that Danone SA systematically bribed doctors and nurses to recommend their Dumex milk powder to new mothers. In August, China’s National Development and Reform Commission fined five foreign milk powder producers and one domestic producer $110 million for price fixing.

If the $4.9 billion infusion goes as planned, it will take the form of government loans, direct subsidies, and tax breaks. China’s Ministry of Industry and Information Technology is expected to make an official announcement at the end of September.

(Photo by Paul Watson via Flickr)