Zheng Junhuai, former chairman of Inner Mongolia Yili Industrial Group, one of China's largest dairy producers, has reportedly emerged from prison to start a new dairy company in Inner Mongolia, Yili's home turf.
Quoting an unnamed source, the Shanghai-based National Business Daily said that Zheng has raised 4 billion yuan for his new venture in Hohhot, the capital city of Inner Mongolia, China's dairy industry heartland.
Zheng was sentenced to six years in prison in December 2005 for misappropriating public funds. Before his conviction, Zheng was chairman and CEO of Yili Group from May 1993. He was considered one of the most experienced leaders in China's dairy industry. Zheng was released from prison in early September, after his prison terms were twice reduced.
Most dairy producers in China have taken a hard hit from the tainted milk scandal that was blamed for killing six babies and sickening 294,000 children, according to official figures from the Ministry of Health.
Sanlu Group, the first Chinese dairy company whose products were found to contain high levels of the industrial chemical melamine, filed for bankruptcy on Wednesday. Meanwhile, Mengniu Dairy, the nation's largest liquid-milk producer, expects a 900 million yuan loss in 2008 because of the melamine scandal, according to a statement released by the company on Tuesday.
However, this has also opened a window for dairy veteran Zheng to make a comeback, said China Business Journal.
The tainted milk scandal exposed weakness in management in China's dairy producers and Zheng's experience at Yili was exactly what those producers needed to shape up their operations, said Liu Xiaofeng, analyst from China Minzu Securities. During his service at Yili Group, Zheng turned a local milk factory into one of the largest dairy producers in China.
"If Zheng wants to create a new dairy brand, he has to figure out how to win consumers' trust first. At the same time, he has to pick the right kind of dairy products to begin with. It's hard for him to compete with established brands like Mengniu or Yili in liquid-milk products," Liu added.
But Chen Yu, an independent analyst, was confident that Zheng would be able to attract many investors. "Although China's dairy industry was hurt by the tainted milk scandal, it has remained one of the most promising industries in China. This is because people can save on other expenses due to the economic downturn, but they will not stop buying milk for their children," Chen said.
Mengniu and Yili, China's top dairy producers, both declined to comment.
(China Daily 12/26/2008 page13)