China’s provincial governments are stepping in and rescuing companies in danger of defaulting, raising concerns over the debt being held by Chinese banks and the effect these unprofitable companies are having on the country’s economy.
Hong Kong listed Global Bio-Chem, the third largest corn refiner in the world and the largest in Asia had recently shut down production after reaching $1.9 billion in debt to banks and local businesses, and failing to pay farmers for their crops.
It has since been taken over the Modern Agricultural Industry Investment Ltd., which is owned by the Jilin Provincial government and the city of Jilin. Over the past ten years, Jilin Province, the largest corn producing province in the country, has actively encouraged the development of businesses that process corn into starch, feed, corn syrup, and biofuels in order to support its rural economy.
As the Chinese economy rapidly grew, Global Bio-Chem did as well, but when demand from the Chinese livestock and food processing sectors slowed and domestic corn prices climbed under a domestic corn purchasing program, the company faced quickly shrinking margins.
Lynda Kiernan is Editor with HighQuest Group Media and of the Oilseed & Grain News. If you would like to submit a contribution for consideration, please contact Ms. Kiernan at firstname.lastname@example.org.