2. China Agriculture Investment Express
Vol.1 Issue 01.11
Contents
Editor's Note I
Headlines of China Agriculture Investment Express 1101 II
Policy & Legislation 1
8 measures promoting China agricultural products logistics 1
Policies on foreign investment in China stricter 1
Laws and regulations on food safety accelerate M&A in food industry 2
Industry dynamic 3
Phosphorus ore resource draws wide attention 3
M&A to continue in feed industry 4
M&A in global agricultural industry increasing 5
Two listed pesticide companies transformed into mining corp. 5
Major domestic M&A in pesticide industry 6
Company dynamic 8
Shandong Kingenda seeks M&A 8
COFCO further strengthens and expands wine market 9
Bright Food shows ambition in domestic and overseas M&A 10
Longping High-Tech: road to industry consolidation 11
China BlueChemical to strengthen profitability through acquisition 12
Price update 13
Agricultural products 13
Agrochemical 14
Food 15
Editor's Note
Welcome to the first issue of China Agriculture Investment Express.
Agriculture is important for China, which draws Chinese Central Government's close attention.
With the industrial modernization, Chinese agricultural industry is to develop to be more
environmentally friendly, hi-tech-oriented and less resource-dependent.
However, agrichemical industries, such as fertilizer and pesticide industries, are facing
overcapacity; feed industry requires upgrading and food industry witnesses security crisis. Hence,
the government has restricted the chaotic expansion by implementing stricter requirements, such
as industrial entry criteria. To maintain long-term development and to develop with stronger
competitiveness, companies have to expand their capacities, enrich product portfolios and extend
value chain through mergers and acquisitions (M&A) in the coming years.
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3. China Agriculture Investment Express
Vol.1 Issue 01.11
Headlines of China Agriculture Investment Express 1101
• New policies on logistics will improve agricultural products logistics in China.
• The safety review policies on foreign enterprises will be stricter, with some effects on the
industry.
• Laws and regulations on food safety will accelerate the process of M&A to some extent.
• Phosphorus ore resource draws phosphate fertilizer producers' wide attention.
• M&A in China's feed industry will continue in the near future.
• Global agricultural giants' merger and acquisition(M&A) benefits global agricultural industry.
• Huayang Technology and Shandong Dacheng would be transferred into mining companies.
• In recent years, M&As in domestic pesticide industry are frequently, and they are having
different purposes.
• Shandong Kingenda seeks M&A opportunities for long term development.
• COFCO actively launches M&A in wine industry to further strengthen its superiority in grape
wine sector and develop new fields to improve industrial chain.
• Bright Food's serial M&A launched from 2010 show its ambition to expand business, though
the results are not satisfactory.
• Longping High-Tech is on the road to achieve industry consolidation.
• China BlueChemical is to strengthen profitability through acquisition.
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4. China Agriculture Investment Express
Vol.1 Issue 01.11
Policy & Legislation
Policies on foreign investment in China stricter
I n 2010, China absorbs foreign investment of USD106 billion (RMB701.72 billion), but the investment
in merger and acquisition (M&A) is only 3%, while a total of USD1,122 billion(RMB7,427.64 billion)
has been recorded in foreign direct investment in the world, and M&A investment is as high as 70%. This
data shows that China's foreign direct investment has been on the rise, but the proportion of the M&A
inverstment is relatively low. But there is still a trend that investment in M&A will be larger in China's
foreign capital absorption in the near future. In 2010, China has been cautious in auditing M&A initiated by
foreign enterprises, making the proportion of foreign M&A investment reduce to about 3% of the country's
total.
In recent years, deal in foreign M&A has increased with the growing laws and regulations of M&A China
issued. The Notice of the General Office of the State Council on the Establishment of the Security Review
System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the Notice) was released
by the State Council of China on February 3, 2011, and the Notice covers agricultural products.
The main purpose of the Notice is to FIGURE 1: China's foreign direct investment, 2006-2010
improve China's foreign policies and
regulations system, enhance transparency
and promote development of M&A
enterprises. Implementing safety review
has some effects on China's agricultural
products. First, it is effective to prevent
the foreign enterprises' monopolistic
conduct in agricultural products and
processing industry of agricultural
products. Second, it is helpful to stabilize
prices of agricultural products. Third,
it is effective to promote independent
innovation capability of China agricultural
enterprises. Then, it is beneficial for
resonable utilization of foreign capital
concerning agriculture. Fourth, it will
better ensure the development of domestic
Source: CCM International
agricultural enterprises.
At present, foreign enterprises continue to control the Chinese key agricultural enterprises, trade and
processing enterprises in China agricultural products industry. China agricultural products and market have
been brought into global markets by foreign enterprises, then these foreign enterprises form absolute control
and pricing. For example, in soybean industry about nearly 60% enterprises are with overseas background,
which captures 85% of the Chinese market. In the long run, if foreign enterprises control more on Chinese
agricultural industry or establish monopoly, small and medium-sized enterprises in China will be likely to be
washed out from the market, and it even threats the supply of agricultural products. And what's worse, it will
8 measures promoting China agricultural products logistics
O n June 15, 2011, the State Council promulgated eight measures on promoting the development of
logistics industry. These measures are specifically to put forward the development of agricultural
products logistics and improve policies on added value tax of agricultural products.
Specific measures include: to greatly develop agricultural supermarkets; break the connection between
agriculture schools and agricultural enterprises; strictly implement the policies related to fresh agricultural
products distribution channels; to speed up development of modern logistics concerning food and cotton. At
present, the underdeveloped of agricultural products logistics has blocked the development of agriculture in
China.
The measures have a great influence on logistics industry of agricultural products and that is good for China's
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5. China Agriculture Investment Express
Vol.1 Issue 01.11
seriously impact the national economic foundation.
resource integration in logistics industry of agricultural products, encourage small and medium-sized agricultural
enterprises to strengthen cooperation and improve the inefficient logistics service.
The measures benefits the logistics industry related to agricultural products a lot. First of all, they are favorable for
solving the problems of packing difficulty, storage and transport difficulty in agricultural products logistics industry
at present. Secondly, they are expected to help reduce the cost of manufacturers of agricultural products logistics
and improve the profitability of enterprises. Then, the measures will promote the reduction in prices of agricultural
products, stablize the prices of agricultural commodities and guarantee security of food. Moreover, they are helpful
to reduce tax of agricultural products enterprises.
At present, if the difficulties of agricultual products logistics transport are settled, it will enhance enthusiasm of
farmers to plant and increase the income of farmers, promoting the development of China's agriculture. Data show
that fruits and vegetable lose 25% to 30% during picking, transportation and storage in China. Based on this, there
are 100 million tonnes of fruits and vegetable rotting in China each year, while the loss rate of fruits and vegetable
is controlled under 5% by developed countries, especially for the US whose rate maintains 1% to 2%. What worth
mentioning as well is that the loss rate for grain accounts for 12% to 14.8% of total output.
Expert said that, low efficiency of the agricultural products logistics hinders the development of Chinese agricultural
industry. In the long run, this measures promulgated by Chinese government are beneficial to strengthen the
international competitiveness of domestic agricultural enterprises, improve the products and services of agricultural
products in China, increase the investment in logistics industry related to agricultural products and improve the
logistics network of agricultural products.
Laws and regulations on food safety accelerate M&A
in food industry
A series of laws and regulations on food safety
have been released in recent years, which may
with small production scale, chaotic management
and dispersed distribution difficult for supervision. In
accelerate the M&A process in China's food industry. order to strengthen the supervision of food industry,
They are Food Safety Law of the People's Republic of the government raises the market access threshold by
China released in 2009, Notice of the General Office implementing the license system. It's reported that
of the State Council on Rigorously Cracking Down there are only more than 100 thousand food enterprises
on Illegal Adding of Food Additives on 21 April 2011 having the ability to get the license, which means a large
and the latest Standards for Uses of Food Additives part of enterprises have to withdraw from the market.
(GB2760-2011) coming into force on 20 June 2011 This is a great time for large food enterprises to expand
and so on. The promulgation of them is triggered by bushiness through M&A. Take the dairy industry for
successive food safety incidents, such as the 2008 example, General Administration of Quality Supervision,
melamine scandal, milk tainted by leather protein, Inspection and Quarantine issued an announcement in
clenbuterol-tainted pork and steamed buns containing December 2010, requesting all of the dairy enterprises to
illegal yellow coloring. These laws and regulations not reapply for the production license. As of 31 March 2011,
only restrain food producers from illegally using food only 643 among 1,176 dairy enterprises have passed the
additives to ensure civilians' health, but also create reexamination, with a passing rate of no more than 55%.
the best time for M&A in food industry.
And some provisions indirectly increase the production
Food Safety Law of of the People's Republic of China cost of food enterprises, making those small players'
and Standards for Uses of Food Additives (GB2760-2011) operation hard to continue and thus providing a great
stipulate the process of food production and operation chance for large players to carry out M&A. The Food
and the application of food additives, helping eliminate Safety Law stipulates that food producers and operators
the hidden danger of food safety in the aspects of man- must possess production equipment in accordance with
made pollution and overuse of food additive. Some the food variety and production volume; it also requires
of the provisions will accelerate the M&A directly or food producers to check the license and certification of
indirectly. suppliers of food raw materials, food additives and other
food-related products. Meanwhile, Standards for Uses
In the Food Safety Law, the government requires of Food Additives (GB2760-2011) clearly formulates
food producers to implement the license system of the application range and application amount of
production and operation. At present, there are more food additive. According to the data from National
than 400 thousand food enterprises in China, almost Bureau of Statistics of China, there are more than
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6. China Agriculture Investment Express
Vol.1 Issue 01.11
2,000 dairy companies in China, but only 1,176 reapply for production license—about 1,000 voluntarily give up the
reexamination. One of the reasons is that they can't afford the huge funds needed in production process to meet the
requirements of reexamination.
In the Food Safety Law, Chinese government requires local governments to encourage large-scale food production,
which is beneficial for large enterprises to get policy support and integrate resources of food production. Therefore,
launching M&A is one of the effective ways to realize the goal. Henan Province launched a series of positive policies
to support the scale development of food enterprises in 2009, such as reducing the tax of leading enterprises, setting
up exclusive funds for the upgrade of food enterprises, increasing the amount of funds invested in food-related
enterprises to promote scale development from multi-channel.
According to the research done by Zero2IPO Researcher Center, one of the most professional and authoritative
research institutes in China, totally 52 M&A cases happened in China's food and beverage industry from 2009 to Q1
2011; 10 have been finished in Q1 2011, which is half of the whole cases in 2010. It's estimated that the number of
future M&A will increase rapidly, promoted by the laws and regulations on food industry.
Industry dynamic
Phosphorus ore resource draws wide attention
W ith the exhausting phosphorus ore resource,
phosphate fertilizer producers are to acquire
phosphorus ore resource is essential for factory removal
and new entrants.
phosphorus ore resource to sustain long-term
development, driven by the strict entry criteria for On March 25, 2011, Ministry of Industry and
phosphate and ammonium production. Information Technology (MIIT) promulgated the
exposure draft of the Entry Criteria for Phosphate and
China is the second largest phosphorus ore reserves Ammonium Production (the Entry Criteria) which
country in the world, only next to Morocco. Among the requires that the factories to remove and new entrants
proven phosphorus ore reserves of 16.786 billion tonnes, should have their own phosphorus ore and sulfur ore
only about 4.1 billion tonnes with actual economic value resources.
can be exploited technically in China, capturing 24%
of the total reserves. In addition, only 52% of China's According to the Entry Criteria, in principle, the factories
phosphorus ore reserves with actual economic value can to remove and new entrants are not allowed to build new
be exploited under current technology. wet process phosphoric acid (WPA), monoammonium
phosphate (MAP) and diammonium phosphate (DAP)
China exploited 68.07
FIGURE 2: Price of phosphorus ore, 2008-2010
million tonnes of
phosphorus ore in 2010,
increasing by 18.5% over
last year, but China totally
consumed 67.17 million
tonnes of phosphorus ore
in the same year, soaring by
17.2% year on year.
Driven by the soaring
demand and exhausting
resource, phosphorus
ore price has seen an
uptrend with fluctuation
during 2008 to 2010,
which brought many risks Source: CCM International
to phosphate fertilizer
producers. And only the phosphate fertilizer producers projects or expansions within three years. Besides, if
holding ample phosphorus ore resource can avoid the the existing compound fertilizer production plants are
risk of phosphorus ore price fluctuation. located in county-level ecological protection areas, scenic
areas, nature reserves, cultural heritage protection areas,
Besides being beneficial for long-term development, etc., they have to relocate.
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7. China Agriculture Investment Express
Vol.1 Issue 01.11
By the end of 2010, there were 466 phosphate fertilizer producers in China, with the total production capacity of
over 21.00 million tonnes per year and the output of 17.01 million tonnes (100%P2O5) in 2010; while the apparent
consumption volume was only 14.75 million tonnes (100%P2O5). That is to say, China's phosphate fertilizer
industry is facing overcapacity.
The most important is that many phosphate fertilizer producers that have to relocate their plants have no
phosphorus ore resource of their own. To sustain long-term development, phosphate fertilizer producers will pay
more attention to phosphorus ore resource.
M&A to continue in feed industry
I n February 2011, the leading feed enterprise in
the world Nutreco Group purchased 100% shares
funds, so they were squeezed out of the market. As
predicted, the number of feed enterprises in China will
of Zhuhai Shihai Feed Co., Ltd. (Zhuhai Shihai)— decline continuously in the future. And it will reduce the
a leading aquaculture feed company in China— cost of M&A for large feed enterprises. Thus, it's a great
at a fancy price, attracting much attention in feed time for the expansion of large enterprises and the
industry. Some other M&A cases also happened integration in feed industry.
during 2010-2011. It's estimated that this M&A trend
will continue in China's feed industry. Besides the current situation of feed industry in China,
some of government regulations are favorable to
Currently, China is the second largest feed production large feed enterprises' expansion. Measures for the
country in the world. And feed industry plays an Examination of Feed Production Enterprises, issued on
important role in the development of national economy. 1 May 2007 by the Ministry of Agriculture, emphasizes
However, the degree of feed enterprises' scale is much and standardizes the feed production to protect the
lower than the US, the largest feed production country product quality. The regulation puts some pressure
around the world. As of 2006, there have been more on feed enterprises; unqualified enterprises have to
than 10,000 small-scale feed enterprises in China, but withdraw from the market. Small feed enterprises are on
only five have an annual output exceeding one million a sticky wicket due to lack of sufficient funds to meet the
tonnes. The total output of top ten feed enterprises just requirements, while the raised threshold is beneficial for
accounts for 22% of the nation's total. large feed enterprises.
Through the M&A wave during 2005-2007, the number Moreover, feed industry's development depends on the
of small feed enterprises declined apparently. In 2007, development of breeding industry. In breeding industry,
there were 15,400 feed enterprises in the whole nation, small-scale enterprises and farmers are gradually
but the figure reduced to 13,600 in 2008—almost 2,000 quitting due to the high production cost, while large-
feed enterprises disappeared. scale breeding enterprises are forming, which will
further intensify in the coming few years. At the same
Since 2008, the cost of raw materials and labor has time, the strong demand for meat, eggs, and dairy
risen dramatically. The high production cost and products will drive the expansion of breeding industry.
economic crisis in 2008 exerted great pressure on the All these are beneficial for large feed enterprises to
development of feed industry, especially those small develop and enlarge scale.
enterprises who couldn't afford the high cost and lacked
TABLE 1: M&A cases in China's feed industry, 2005-2011
Source: CCM International
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8. China Agriculture Investment Express
Vol.1 Issue 01.11
Because the feed industry is easily impacted by market fluctuation and meager profit, feed enterprises have
to extend industrial chain to reduce the risk. Thus, feed enterprises would choose to acquire some breeding
enterprises.
However, there is a strange situation in China's feed industry. It's reported that some foreign-owned enterprises
attempted to enter the breeding industry through investing in feed industry, because it's difficult for them to pass
the certification auditing in breeding industry under the protection of Chinese government.
Amidst M&A cases in China's feed industry, it's not difficult to see that foreign-owned enterprises' direct
acquisition of domestic enterprises is rare: only three cases during 2005-2011. High acquisition costs but low profit
are the reasons. It's estimated that foreign-owned enterprises will take over some large feed enterprises when
China's feed industry develops to a better stage. But joint investment together with domestic feed enterprises in
feed industry is a common cooperation method.
Therefore, M&A will still happen among domestic feed enterprises. And the M&A will continue in domestic feed
industry in the future to further promote the industrial integration.
M&A in global agricultural According to CCM International's survey, the
enterprises involved in the M&A share some common
industry increasing characteristics. First, some of them are shortage of raw
materials. Second, they have solid financial strength
I n recent years, merger and acquisition (M&A)
activities among global agricultural enterprises
and own rich experiences in the industry. Third, they
conduct M&A with the purpose of expanding industrial
have increased year by year. In 2008, the world's chain.
largest oil producer Bunge acquired the world's
largest corn processor, namely America Corn For the target company in the M&A, advanced
Products International, Inc., which was driven by the production technologies, rich administrative experience
increasing global grain demand and the rising food and capital will be introduced, helping boost technology
price. Moreover, less profit has been gained from level and R&D capability of the target company.
the industry and M&A will absolutely help Bunge to
expand its business. However, in the long run, it will to some extent threaten
grain security of the target country. Take China which
Many reasons are accountable for the increasing M&A has vast land and huge pupulation for example, its
activities in global agricultural enterprises. Nowadays, complex situation makes the Chinese Goverment has
the competition in global agricultural industry becomes to be greatly aware of the grain security and know the
more intense, leading to the reduction of profit and the market well.
increase of risk. M&A will facilitate the enterprises to
expand their market share and enhance their status But on the whole, M&A is of great significance, making
in the global stage. For example, Sinochem corp resource allocation more efficient, optimizing industry
purchased Makhteshim Agan Group with a bid to structrue, and promoting development of global
increase market share in May 2011. agricultural industry.
Two listed pesticide companies transformed into mining corp.
S handong Huayang Technology Co., Ltd. (Huayang Technology) and Shandong Dacheng Pesticide Co., Ltd.
(Shandong Dacheng) have gained profit sources through restructuring with mining enterprises. And then,
they will both be restructured into mining companies.
On 9 Feb. 2011, Huayang Technology revealed the result of its public auction. Zibo Hongda Mining Co., Ltd. (Zibo
Hongda), a big mining company in Shandong Province, has successfully bid for Huayang Technology's 20.38%
equities, totally about 31 million shares. Zibo Hongda has become the largest shareholder of Huayang Technology
after the transaction accomplished successfully. In April 2011, Huayang Technology released a motion about assets
reorganization, according to which it will buy assets of Zibo Hongda through selling its own major assets and issuing
shares, so as to transform from an enterprise suffering from serious deficit to an iron ore mining company.
Huayang Technology is mainly engaged in the production of pesticides and chemical raw materials, power
generation and electricity sale. Zibo Hongda is a large-scale enterprise whose main business is iron ore mining,
selection, mining investment and development of mineral resources. Zibo Hongda's purpose of bidding for Huayang
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9. China Agriculture Investment Express
Vol.1 Issue 01.11
Technology's equities clearly aims at the access to capital Shandong Dacheng's main business will be changed
market financing platform and backdoor listing. to iron mining, production and sale of iron powder.
Shandong Hualian will get backdoor listing after the
The same restructuring has also happened in Shandong reorganization is completed successfully, making access
Dacheng Pesticide Co., Ltd. (Shandong Dacheng). to capital market financing platform.
On 18 Jan. 2011, Shandong Dacheng Pesticide Co., In these two cases, the restructuring companies are
Ltd. (Shandong Dacheng), a listed pesticide company, listed pesticide companies. Because of the significant
said it will launch major assets reorganization. It is decline in pesticides' overall profitability, listed pesticide
not until 25 March 2011 that China National Chemical companies are becoming the objects of some large
Corporation (ChemChina), the biggest shareholder of enterprises' backdoor listing, for accessing the financing
Shandong Dacheng, selected a united transferee body to platform of the capital market. This happens under
purchase Shandong Dacheng's state-owned shares. The certain policy backgrounds.
united transferee body consists of Shandong Yinshan
Investment Co., Ltd. (Yinshan Investment), Dongli Town In recent years, the listed companies have been facing
Collective Assets Management Center (Management many difficulties impacted by the international financial
Center) and Beijing Huiquan International Investment crisis, the cyclical adjustment of pesticide and chemical
Co., Ltd. (Huiquan International). On 31 March industry, the rising raw material price and the weak
2011, Shandong Dacheng announced a major assets profitability. In August 2010, the State Council issued the
restructuring plan, and the counterpart is Shandong Opinions of the State Council on Promoting Enterprise
Hualian Mining Co., Ltd. (Shandong Hualian), whose Merger and Restructuring and proposed to support
controlling shareholder is the joint transferee. This the corporate M&A through taking advantage of the
plan shows that Shandong Dacheng will gain Shandong capital market. The State Council also supports eligible
Hualian's 100% shares. And then, Shandong Dacheng enterprises' financing of M&A though issuing stocks,
will be turned into a mining company whose main bonds, convertible bonds, etc. The listed companies
business is iron ore mining & dressing. are encouraged to use equity, cash and other financial
innovations as payment means of M&A to broaden
The core business of Shandong Dacheng is chemical financing channels and improve the efficiency of M&A
pesticides, production and sale of basic chemical in capital market. The State Council also encourages
raw materials before the assets reorganization. After and supports private enterprises to participate in the
the completion of assets reorganization, Shandong competitive fields of state-owned enterprises' reform,
Dacheng will sell out all its original assets and liabilities, restructuring and reorganization, which promotes the
and Shandong Hualian will become a wholly-owned development of non-public economy and SMEs.
subsidiary of Shandong Dacheng. From then on,
Major domestic M&A in pesticide Agrochemical mainly produce more than fifty kinds of
products, including three serials of pesticide (herbicides,
industry insecticides and bactericide), acyl chloride series of
intermediates (for pesticide, medicine and dye) and
I n recent 2-3 years, domestic pesticide companies
are restructuring frequently, and many companies
phosgenation series of intermediates (for pesticide,
medicine and dye), etc. After the acquisition completes
have implemented the M&A. It has become a successfully, Lier Chemical could improve the product
consensus in the industry that M&A can improve mix, enhance the ability to resist risks and expand its
the industrial concentration and enhance the sales network and business scale.
competitiveness of the enterprises. However, M&A
between different enterprises have different purposes. That Noposion shares the equity of Jiangsu Changlong
Farm Chemicals Co., Ltd. (Changlong Farm Chemical) is
Such as Shenzhen Noposion Pesticide Co., Ltd. an important step for Noposion to extend the upstream
(Noposion), Lier Chemical Co., Ltd.(Lier Chemical) industry chain, to enhance its long-term competitive
and other listed companies, their acquisition strategy advantages in pesticide field. Changlong Farm Chemical
generally is, looking for companies with complementary is one of the advanced companies in pesticide technical
strengths, diversifing products and expanding business field, and it is also a medium-sized technical company
to increase profits. with mature technology in China. It has perfect product
mix and beneficial phosgene resources. Through this
To analyze the case that Lier Chemical acquired Jiangsu acquisition, on one hand, Noposion can gain a reliable
Kuaida Agrochemical Co., Ltd. (Kuaida Agrochemical), source of pesticide technical and accelerate the industrial
Lier Chemical’s main products are chloropyridines speed of pesticide formulations; on the other hand,
serial and its product mix is single. At present, Kuaida this case has played a positive role in ensuring the
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10. China Agriculture Investment Express
Vol.1 Issue 01.11
pesticide technical supply and reducing the risk in raw material procurement.
The pesticide product registration and product patents owned by Fujian Sino-dashing Bio-engineering Co., Ltd.
Sino-dashing have great potential profitability. The purpose of Noposion's acquisition of Sino-dashing is to further
improve its national distribution base, to form a multi-brand company and to accelerate development. And the
purpose of Noposion's acquisition of Jinan Leeder Chemical Co., Ltd. Jinan Leeder Chemical is to further improve
its product mix and accelerate the R&D, production and sale of herbicide products .
Three distinct common features can be found from these M&A cases: first, both sides have strong complementarity
in product species to meet each other's demand from the upstream or downstream industry chains. Second, the
target enterprise has some advantages in R&D; Third, listed companies can expand the market through off-site
acquisition.
However, some of the companies’ M&A aim at obtaining a new profit source or backdoor listing, such as the M&A
between Zibo Hongda Mining Co., Ltd. (Zibo Hongda) and Shandong Huayang Science and Technology Co., Ltd.
(Huayang Technology), Shandong Hualian Mining Co., Ltd. (Shandong Hualian) and Shandong Dacheng Pesticide
Co., Ltd. (Shandong Dacheng). The M&A purpose of Zibo Hongda and Shandong Hualian is backdoor listing to
gain access to the capital market financing platform while Huayang Technology and Shandong Dachang are to
obtain a new profit source.
No matter what purposes they have on earth, they are practicers of the M&A which is greatly encouraged by the
authority.
TABLE 2: Major Domestic M&A in Pesticide Industry, 2009-2011
Source: CCM International
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11. China Agriculture Investment Express
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Company dynamic
Shandong Kingenda seeks M&A
O n April 26, 2011, Shandong Kingenta Ecological
Engineering Co., Ltd. (Shandong Kingenta)
Besides expansion, Shandong Kingenta is seeking for
merger & acquisition targets, expecting to enlarge its
released its operation performance in Q1 2011, production capacity within a short time.
showing a 28.5% growth in net income year-on-year.
As for the merger & acquisition targets, Shandong
At present, Shandong Kingenta is the largest controlled Kingenta prefers nitrogenous or phosphate fertilizer
release fertilizers (CRFs) producer in China, with the producers and compound fertilizer producers, according
production capacity of 600,000t/a. to Shandong Kingenta.
By 2010, China has been the largest production and That's primarily because nitrogenous or phosphate
consumption country of CRFs in the world, with the fertilizer is the main raw material of CRFs. Cooperating
production capacity of about 2.5 million tonnes per with nitrogenous or phosphate fertilizer producers will
year, composing nearly one third of the world's total. help Shandong Kingenta to extend to the upstream to
save production cost. And cooperating with compound
However, CRFs' output of 700,000 tonnes only takes up fertilizer producers will help Shandong Kingenta to
0.7% of the national total fertilizer output in 2010. Being strengthen the compound fertilizer production.
gradually accepted by the government and farmers,
development of CRFs is to witness a faster growth in the Meanwhile, Shandong Kingenta prefers to cooperate
coming years. with companies in Shandong, Guangxi, Guangdong,
Hunan, Hubei and Northeast China, which indicates
In the Guiding Catalog of Industrial Structure that Shandong Kingenta aims to capture a larger market
Adjustment (2011 edition), development of CRFs is share in these regions.
classified as one of the encouraged items for the first
time, which indicates that the development of CRFs will About Shandong Kingenta
speed up during the 12th Five-Year Plan (2011-2015).
Founded in 1998 and specialized in the R&D,
To capture larger market share, Shandong Kingenta is manufacturing and marketing of compound fertilizers,
to add investment to enlarge its production capacity, controlled release fertilizers (CRFs) and new types of
including expansion and merger & acquisition. fertilizers, now Shandong Kingenta is the largest CRFs
producer in China and the National Key High-tech
In September 2010, Shandong Kingenta got listed on Enterprise.
Shenzhen Stock Exchange to raise USD105.92 million
(USD1=RMB6.74) for a new CRFs production line with In 2011, Shandong Kingenta has assets of USD674
capacity of 600,000t/a. When the new production million, nearly 3000 employees and holds 3.0 million t/
line launches in Sep. 2012, Shandong Kingenta's CRFs a fertilizer production capacity.
production capacity will be doubled.
TABLE 3: Shandong Kingenta's performance, 2009-Q1 2011, USD
Note: USD1=RMB6.47
Source: CCM International
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12. China Agriculture Investment Express
Vol.1 Issue 01.11
COFCO further strengthens and expands wine market
C OFCO Wine & Spirits Co., Ltd. (COFCO W&S), a
subsidiary of China Oil & Foodstuffs Corporation
Grape wine sector is just a part of the wine industry
chain to COFCO W&S. In order to further expand
(COFCO), respectively acquired Chateau de Viaud its business, COFCO W&S plans to enter the liquor
in Feb. 2011 and four of the six fields and a winery sector. During 2009-2010, a succession of "rumors"
of Bisquertt Vineyard in Sept. 2010. Chateau de have come out that COFCO W&S has negotiated the
Viaud is a French wine producer in the Bordeaux cooperation matters with several national well-known
Region, while Bisquertt Vineyard is one of the top ten liquor enterprises such as Guizhou Chun Liquor Factory
winemakers in Chile. (Guizhou Chun), Shaanxi Bai Shui Du Kang Liquor Co.,
Ltd. (Bai Shui Du Kang) and Shaanxi Xifeng Alcohol
From the two M&A activities, it can be found that Co., Ltd. (Xifeng Alcohol). Though some confirmed
COFCO mainly focuses on productive assets like negotiations (with Guizhou Chun and Xifeng Alcohol)
vineyards and wineries. It shows the company's were unsuccessful, it indicates the strong decision of
determination to strengthen its ability to control the COFCO W&S to enter the liquor sector.
upstream of grape wine industry and the distribution
of grape resource worldwide. Meanwhile, it's beneficial Though it's not difficult for COFCO W&S to build a new
for COFCO W&S to form a broad product mix under the liquor factory to achieve its goals, the cost of production
tight supply of every quality grape in domestic market. and management will be much more expensive than
directly acquiring well-known liquor enterprises. Thus,
Besides, COFCO W&S will utilize foreign grape resources COFCO W&S took a series of actions in liquor industry.
of high quality to launch a new brand of high-end grape However, there's something beyond the obvious.
wine in order to consolidate its leading position in Actually, COFCO W&S hopes to not only perfect its
domestic grape wine industry. And this will be helpful wine industry chain but also enter the high-end market
for its entering the international market. In recent three of liquor industry via the M&A of well-known liquor
years, the consumption market of high-end grape wine enterprises. This is all propelled by the high profit in
has witnessed booming development with an annual high-end liquor industry. It's reported that the gross
average growth rate of around 50%. Just depending on profit margin of many high-end liquor products exceeds
the mid-end and low-end products is unfavorable to 70%. The margin of Kweichow Moutai Co., Ltd. (Moutai)
COFCO W&S while competing with other leading grape even comes up to 90%; leading liquor enterprises' gross
wine enterprises in domestic market. Therefore, getting profit margins in domestic market have always kept an
high profit ratio and improving competitiveness are the average growth rate of around 30% in recent years.
key purposes for COFCO's active launches of M&A in
grape wine industry. Owing to the above reasons, COFCO W&S won't give
up seeking for reasonable liquor wine partners to
Moreover, taking over the two foreign vineyards favours achieve its goals. As to the grape wine sector, COFCO
COFCO to learn the advanced experience in order to W&S declared in April 2011 that it will finish two M&A
further promote the development of domestic grape of large vineyards in the US and Australia this year to
wine business and enhance its international influence. strengthen its leading position in the first group in the
world and further realize its strategic development.
TABLE 4: M&A activities of COFCO W&S in grape wine industry, 2010-2011
Source: CCM International
TABLE 5: Some of rumors about COFCO W&S intending to acquire liquor
eterprises, 2009-2010
Source: CCM International
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13. China Agriculture Investment Express
Vol.1 Issue 01.11
Bright Food shows ambition in domestic and overseas M&A
A s a large conglomerate in China's food industry,
Bright Food (Group) Co., Ltd. (Bright Food) has To lay a global resource network and get high-quality
been carrying out M&A since 2010 after integrating resources, Bright Dairy & Food Co., Ltd. (Bright Dairy),
its inner assets in 2009. It indicates the company's a subsidiary of Bright Food, is actively finding suitable
ambition of business expansion even thought the overseas investees. It invests in overseas companies
results are barely satisfactory—only one of the five because there are few excellent dairy companies left
overseas M&A gets successful, while the rest ends in after several integration in the dairy industry after the
failure. 2008 melamine scandal, and high-quality raw milk is
limited in China, while the price of imported premium
Bright Food's launching large-scale M&A in 2010 is milk powder is relatively low. In Oct. 2010, Bright
not a whim but an overall consideration to extend its Dairy successfully bought the 51% shares of Synlait
food industrial chain from planting to sales of end Milk Limited (Synlait Milk), recording a big step for its
products as well as ensure its leading position in food internationalization. Now it can provide high-end infant
industry. Through M&A in different industries, it hopes formula for domestic customers with the help of foreign
to achieve full food industrial chain, make full use of the bases of high-quality raw milk. Synlait Milk is one of the
high-quality resources of companies it merges, establish suppliers of high value-added milk power worldwide,
extensive sales networks in the world and enter the through the share purchase Bright Food sets foot in
high-end market to get high profit in food industry. It high-end products and upstream resource industry.
can be found that Bright Food's six M&A from 2010 Though its attempt to acquire the French company
to now are all related to its core business and target Yoplait in March 2011 failed, it should not prevent
resource-intensive enterprises. Bright Food's strategy of getting resources by capital
methods.
In 2009, Bright Food purchased 60% shares of Yunnan
Yinmore Sugar Co., Ltd. (Yunnan Yinmore). This deal Besides, Bright Food expects to acquire global leading
promoted Bright Food's sales volume of sugar to reach enterprises to smoothly enter overseas high-end food
2.1 million tonnes and sales revenue beyond USD1.5 market. It hoped to enter overseas high-end food market
billion (RMB10 billion) that year. Also, it helps the by acquiring the world-largest producer of vitamins and
company extend sales networks of sugar to Northeast health products in the US—General Nutrition Centres,
China and Northwest China and obtain a market share Inc. who owns around 7,100 stores worldwide, and
up to 18% in domestic market. The successful in this made full use of the latter's global sales network, but
M&A further strengthens Bright Food's leading position finally gave it up.
in China and makes it the largest sugar producer and
marketer. Bright Food gets some advantages to successfully
launch M&A. Firstly, as the largest food group in
It's reported that Bright Food has early began to China at present and a state-owned enterprise, Bright
prepare for the acquisition of sugar enterprises in Food is easy to get financial and policy support from
other countries worldwide, which indicates its interest government and strive for external financial support.
in food's upstream industry. Given the success in its Secondly, Bright Food's food industrial chain is
acquisition of CSR Limited (CSR) in 2010, Bright Food relatively complete, which is helpful for it to utilize and
would have got 45% of CSR's capacity of raw sugar in integrate external resources to optimize own resource
Australia and become one of the top three players in advantages. Also, Bright Food's advanced management
sugar industry in the world, but it failed. and organization level is beneficial for it to merge
domestic enterprises.
The same situation also happened in wine industry and
rice industry. Bright Food enters liquor industry after However, the failure in some M&A also expose its
merging Sichuan Quanxing Distillery Co., Ltd. (Sichuan disadvantages. First of all, lacking experiences in M&A
Quanxing). It's reported that Bright Food is also seeking makes it stand in a weak position while competing with
for wine resource in Australia. As to rice industry, leading investors around the world. Secondly, lower
Bright Rice Co., Ltd. (Bright Rice), a subsidiary of management and technology level compared with global
Bright Food, is ready to change its current self-sufficient leading enterprises is another reason for its failure.
production mode to a market-oriented one after large- Thirdly, owing to language barrier, background and
scale restructuring in 2010, and M&A will be the main cultural difference, it's rare for East Asia countries to
channel to achieve its goal. At present, Bright Rice succeed in merging Euro-American enterprises; even
has been looking for partners in Anhui Province and Bright Food can't be exempted.
northern Jiangsu Province to negotiate its purchase of
their rice assets, laying the foundation for its future full Though most of its M&A carried out from 2010 are
food industrial chain. declared to be a failure, Bright Food won't stop its M&A
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14. China Agriculture Investment Express
Vol.1 Issue 01.11
steps. Bright Food expresses its development directions on 19th January, 2011 that it will continuously take M&A
as an important measure to realize the growth targets. It's said that a series of M&A are being actively promoted in
wine, dairy product, sugar and health product industry.
TABLE 6: M&A cases of Bright Food, 2009-2011
Source: CCM International
Longping High-Tech: road to industry consolidation
I n April 2011, Longping High-Tech has purchased
28% shares of Sichuan Longping, starting to solve
firm determination of the administrators to develop
Longping High-Tech.
the problem of minority shareholders on the road to
achieve industry consolidation. On 18 April 2011, the State Council Meeting discussed
and approved the Suggestions for Accelerating
On 15 April 2011, Yuan Longping High-Tech Agriculture Development of Modern Crop Seed Industry (the
Co., Ltd. (Longping High-Tech) said it will purchase Suggestions). It emphasized that China must: adhere to
28% equities of Sichuan Longping High-Tech Seeds the integration of crop seed industry resources; improve
Co., Ltd. (Sichuan Longping) with USD8.27 million. the support of policy and investment; rapidly enhance
After the transaction was completed successfully, the technological innovation capability in crop seed
Longping High-Tech became the largest shareholder industry, the competitiveness of enterprises, the seed
of Sichuan Longping, holding 80% of its total equities. supply capability and the supervision of the market;
Longping High-Tech expresses that the purpose of this construct an integrated morden crop seed industry
purchase is to gradually increase its holding proportion system.
of subsidiaries and to achieve industry consolidation
progressively. Longping High-Tech's superiority, on one hand is to set
a high technical barrier, on the other hand is expected
Shareholders of Sichuan Longping before the purchase: to become the focus of national policy support. In 2011,
Longping High-Tech held 52% shares, individual it has frequently taken some actions in rationalizing the
shareholder Liao Peizhong held 30% shares and equity relationship and the industry.
individual shareholder Huang Weicui held 18% shares.
In Feb. 2011, Longping High-Tech revealed that the
Shareholders of Sichuan Longping after the purchase: equities of Changsha Xindaxin Weimai Agriculture
Longping High-Tech holds 80% shares and individual Co., Ltd. (Xindaxin Weimai), the largest shareholder of
shareholder Liao Peizhong holds 20% shares. Longping Hing-Tech, would be transferred. Vilmorin
Hong Kong Limited (VHK), the second largest
All along, Longping High-Tech holds low-percentage shareholder of Xindaxin Weimai and a subsidiary of
equity in its five subsidiaries which earn more profits. Vilmorin & Cie, would sell its shares of Xindaxin Weimai
In these five subsidiaries, a minority of shareholders to Hunan Xindaxin Co., Ltd. (Xindaxin), and after
hold a large proportion of shares and the profits this is finished, the share structure of these companies
are concentrated in the hands of the subsidiaries' would be greatly changed. Xindaxin has become the sole
supervisors. It resulted in the net profit outflow of shareholder of Xindaxin Weimai. And then, Xindaxin
Longping High-Tech, what's worse, many operations Weimai has been transformed from a Sino-foreign joint
couldn’t meet the requirements of the head office, and venture into a domestic company. Prior to that, because
thus the company failed to form a scale economy. It is of VHK's foreign background, Longping High-Tech is a
widely believed that, Longping High-Tech's expansion Sino-foreign joint venture, which makes it hard to enjoy
of its equity in Sichuan Longping this time means great the policy support. After the transfer of its shareholder
significance for Longping High-Tech to build a bigger equities, Longping High-Tech has been changed into a
seed group; it is just the beginning of Longping High- domestic company, which qualifies the company to fully
Tech's internal assets reorganization. It also shows the enjoy the state's policy support. Meanwhile, Longping
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15. China Agriculture Investment Express
Vol.1 Issue 01.11
High-Tech released a report on 10 Feb. 2011 saying that it had signed an agreement with VHK on 27 Jan. to set up a
joint venture for the development of corn seed, wheat seed and its other seed business.
FIGURE 3: Shareholders of Sichuan Longping before the FIGURE 4: Shareholders of Sichuan Longping after the
purchase, 2011 purchase, 2011
Source: CCM International Source: CCM International
China BlueChemical to strengthen profitability through acquisition
C hina BlueChemical Ltd. (CBC)
benefits from its acquisitions
TABLE 7: China BlueChemical's acquisitions, 2006-2010
within value chain.
Now, China BlueChemical Ltd.
(CBC) has become one of the largest
fertilizer producers in China, mainly
by mergers and acquisitions to expand
its production capacity and enrich its
product mix.
Before 2006, CBC only operated
urea capacity of 1.32 million tonnes
per year, while it expanded its urea
capacity to 1.84 million tonnes per year
after acquiring Inner MongoliaTianye
Chemical (Group) Co., Ltd. in March
2006. And CBC has been successfully
engaged in phosphate fertilizer
production by acquiring Hubei Dayukou
Chemical Co., Ltd. (DYK Chemical) in
Feb. 2009.
In more detail, CBC has achieved
not only capacity expansion but
also expansion within value chain
to consolidate its competitiveness.
Leveraging on the acquired
phosphorus ore (ZHJ Mining) and
coal (Huahe Chemical) resources for Note: * means acquired by China National Offshore Oil Corporation (CNOOC), the parent
constructing vertically integrated company of CBC. Source: CCM International
phosphorus fertilizer and coal-based Primarily thanks to a series of acquisitions, CBC has
urea production bases, CBC will be able to keep its gained high profits for six years.
competitiveness in low cost. And the acquisition of
Guangxi Fudao AMP helps CBC to cut distribution cost In 2011, CBC is to seek merger and acquisition
and capture larger market share. opportunities that match its development strategies
both in China and overseas.
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16. China Agriculture Investment Express
Vol.1 Issue 01.11
CBC aims to become the largest chemical fertilizer manufacturer and the most effective resources-processing
enterprise in domestic chemical industry, and it has also geared up for competing in the international market.
TABLE 8: China BlueChemical's performance, 2005-2010, million USD
Note: On 28 Feb. 2009, CBC acquired 83.17% and 100% equity interest of DYK Chemical and ZHJ Mining respectively. As the three
parities are all ultimately controlled by CNOOC before and after the acquisition, CBC chose to refer to the principles set out in Accounting
Guideline when preparing the consolidated financial statements as if the acquisition had occurred from the date when the combining
entities first came under the control of CNOOC, and the consideration was regarded as the deemed distribution to CNOOC, thus restarted
the 2008 consolidated financial statements.
USD1=RMB6.47
Source: China BlueChemical's Report
Price update
Agricultural products In the near future, the market price of corn will keep
stable then experience an uptrend.
The prices of five agricultural products and analysis in
June, 2011, including wheat, corn, soybean, rapeseed, -- Soybean
peanut.
During the first five months of 2011, the total import of
-- Wheat Chinese corn fell 1% to 1,941 million tonnes compared
with August to Dec. of 2010. On one hand, the
During the period from May 2010 to June 2010, price dealers are now spending the inventory; on the other
of wheat kept stable. And it is expected to steadily rise hand, driven by the influence of pig disease and the
in the next half of this year and the increase rate will weather, the filling of pigs has been put off so that the
not surpass 5%. consumption of soybean did not see increase.
The purchase process of winter wheat has been In the near future, the price of soybean is anticipated to
simplified this year and the market prospect is good. see little change.
-- Corn -- Rapeseed
At present, domestic price of corn kept stable. The price The planting area of rapeseed has been reduced this
in both northeast China and North China was at a high year compared with last year and the growth period of
level, and it slightly increased in southern China owing rapeseed was also affected by cold weather and spring
to the intense market demand. drought, leading to a decline in total output of rapeseed.
Therefore, since the rapeseed has been on the market,
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17. China Agriculture Investment Express
Vol.1 Issue 01.11
the price of rapeseed has been generally high with the Price of agricultural products in China, 24 June, 2011
growing planting cost.
In the near future, the price of rapeseed will still
maintain high level.
-- Peanut
In 2011, the planting situation of peanut is not
optimistic, leading the price to easily rise. In May 2011,
the price of peanut is rising sharply.
In the near future, the price of peanut will rise due to
the tight market supply.
Source: CCM International
Agrochemical
Agrochemical price review and analysis in June 2011, including fungicide, insecticide, herbicide and key raw
material.
Market price of main pesticides in China in June 2011
Source: CCM International
-- Fungicide market
In June 2011, prices of fungicide products have kept stable generally. The current price of carbendazim and
mancozeb are USD5410/t, USD3,794/t separately. Due to the shortage of raw materials, the reduction of
manufacturers and the increasing foreign demand, the price of tebuconazole technical is up to USD13,377/t, while
it was USD12,896/t in May 2011.
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18. China Agriculture Investment Express
Vol.1 Issue 01.11
-- Insecticide market
In June 2011, prices of insecticide products have kept stable generally. The price of lambda-cyhalothrin technical
has been staying at USD28,594/t. The price of abamectin technical remains at USD86,553/t while the price
of chlorpyrifos keeps stable at USD5,873/t. Due to the reduction in the manufacturer number and the increase
in government purchase orders. The price of Imidacloprid technical is reported to up to USD17,774/t from
USD17,692/t in May 2011.
-- Herbicide market
In June 2011, prices of herbicide products have also kept stable generally. The price of paraquat is USD2,161/t. The
price of pendimethalin has dropped to USD7,679/t, and that of the nicosulfuron remains at USD31,635/t. Due to
the high production cost and depressed market, the price of glyphosate technical has declined slightly to USD3,369/
t from USD3,460/t in May 2011.
Market price of some key raw materials in China in June 2011
Source: CCM International
-- Raw material market
In June 2011, the prices of raw materials have witnessed an overall increase. Attributed to the higher operating rate
of yellow phosphorus and the prosperity of the downstream demand, the price of yellow phosphorus has increased
to USD2,318/t in June 2011. In this period, the market price of ethylenediamine is USD7,960/t, and the price of
pyridine remains at USD4,482/t.
Food Price of sugar by regions in China, 24 June 2011
The prices of five food products and analysis in June,
2011, including sugar, peanut oil, soybean oil, rapeseed
oil and raw milk.
-- Sugar
Because the production of sugar is limited by the
seasons, and now it is the time for the growth of sugar
cane and beet and every sugar enterprises have small
inventory. The average price is USD10.55 higher than
in 24th May and the price of sugar may increase in the
next few months from this time on, which is predictedly
driven by the strong consumption in summer.
Source: CCM International
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19. China Agriculture Investment Express
Vol.1 Issue 01.11
However, as the government has kept putting a oil. The government turns to purchase rapeseed to
considerable amount of reserve sugar into the market fullfill stock instead of selling rapeseed oil on 7th June,
since early 2011, for example on 31st May, it put 2011.
250,000 tonnes on the market, the price of sugar will
not increase in a large range. Therefore, the price of rapeseed oil will also post
increase in the future.
-- Grain oil
Mainstream price of several grain oil in China, 24 June 2011
-- Raw milk
In Q1 and Q2 in 2011, the price of raw milk kept
relatively stable but witnessed a slight decrease in
Q2. This is because usually Q2 and Q3 is the peak
production season for raw milk and the supply is
sufficient. Owing to the impact from reauditing the
production licenses of dairy enterprises by related
departments, part of small enterprises have to stop the
Source: CCM International dairy production, which leads to the decline in demand
for raw milk. Therefore, the price of raw milk will drop
accordingly in a short time.
Owing to peanut oil's higher price than other grain
oils and bleak market demand, the volume of market
Average price of raw milk in China, Jan.-May 2011
transaction was limited in the past months. It's
estimated that the trend will continue in the next few
months. Therefore, the price of peanut oil will stay
stable because of the rigid demand.
The price of soybean oil may not take an uptrend in
the next few months. Because the supply of soybean is
sufficient for the market demand. The government's
measure on limiting price of small packing soybean oil
may not end in the next few weeks, so it may prevent
the price from rising to some extent. Moreover, the Source: CCM International
strong demand for soybean meal, which consumes more
soybean than soybean oil, may also drive soybean oil's
price to rise.
Owing to the high cost of rapeseed planting and
declining profit for farmers, the planting area of
rapeseed is dropping. The insufficient supply for
rapeseed may expectedly push up the price of rapeseed
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20. Journalist: Zaoqun Chen, Bang Deng, Rongli Wei
Editor: Emma Chen
Chief Editor: Norman Lai, Hongxiang Du
Publisher: CCM International Limited
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