China National Cereals, Oils and Foodstuffs Import and Export Corporation (COFCO)

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China National Cereals, Oils and Foodstuffs Import and Export Corporation (COFCO)

11/F, Tower A, COFCO Plaza
No. 8 Jian Guo Men Nei Avenue
Beijing 100005
China
Telephone: +86 10 6526 8888
Fax: +86 10 6527 6028
Web site: http://www.COFCO.com.cn

Government-Owned Company
Incorporated: 1952
Employees: NA
Sales: $2.2 billion (2004)
NAIC: 424410 General Line Grocery Merchant Wholesalers

China National Cereals, Oils and Foodstuffs Import and Export Corporation (COFCO), is one of China's state-owned foodstuffs import and export holding companies, including rice and other grains, edible oils, sugar, brewing products, fruits, vegetables, and the like. The former state agency has embraced its corporate status through a drive to develop itself into a world-leading diversified conglomerate. As such the company is involved in a variety of food manufacturing businesses, including a Coca-Cola bottling franchise; the production of premium quality chocolate and other snack foods through subsidiary Shenzhen Le Conte; wines and spirit, primarily through its market-leading Great Wall brand. Yet COFCO has diversified beyond the food and beverage industry to include real estate, through Hong Kong-listed subsidiary Top Glory International, which includes the Sanya Yalong Bay development, Hong Kong Top Glory Tower, Beijing COFCO Plaza, Beijing Capital Paradise, and the Gloria International Hotel Group, among others in its property portfolio. COFCO entered the insurance and finance industries in the early 1990s, and groups these operations under its COFCO Financial division. COFCO's finance business operates especially through two insurance joint ventures, Aviva-COFCO and Aon COFCO. The company has announced its intention to expand its financial operations to account for as much as one-third of its total business by the end of the 2000s. COFCO also controls Hong Kong-listed COFCO International, which directly controls a number of COFCO's foods-related businesses, and serves as a vehicle for foreign investors to acquire a stake in the state-controlled parent. Under managing director Zhou Mingchen, the company has adopted a strategy calling for it to double in size by 2010 and toward that end has adopted the world's largest company, General Electric (GE), as its corporate model.

State Grains Agencies in the 1950s

COFCO's origins reached back to the early years of the Chinese Communist revolution, when the new government took control of the country's agricultural sector, including and especially its foodstuffs exports, which provided much needed foreign currency for the country's struggling economy. In 1952, the government organized a number of specialized state-owned agencies, including China Oils Export Corporation, China Foodstuffs Export Corpation, and China Cereals Export Corporation.

During the 1960s, the government began merging its state-owned agencies toward a single, centralized operation. This process began with the creation of China China Cereals and Oils Export Corporation, which was then merged with China Food-stuffs Export Corporation in 1961 to form the China Cereals Oils and Foodstuffs Import & Export Corporation. The company's change in focus reflected the country's growing dependence on foodstuffs imports to feed its ever-growing population. In 1965, these activities were grouped together under a single body, China National Cereals Oils and Foodstuffs Import & Export Corporation, or COFCO. The company became an important component of the Chinese government, and especially during the hardships of the 'Great Reform' era.

By the beginning of the 1980s, a new Chinese government had initiated a new era in China, gradually re-opening the country to capital reforms, and foreign investments and operations. COFCO became an early participant in this movement, founding its first international subsidiary, COFCO New York Co. Ltd., in the United States, in 1980. Into the second half of the decade, COFCO began preparing its transformation from a state-owned trade agency to a full-fledged corporation. That process was completed in 1988, when COFCO, although still owned by the Chinese government, adopted a corporate structure.

Into the early 1990s, COFCO carried out a restructuring of its operations, redeveloping itself into a nationally operating network of subsidiaries and branch offices. The company also pushed through reforms in the agricultural sector, instituting modernized production techniques, and improving the quality of its grains and other products in order to support its future efforts on the export market.

Diversified Conglomerate in the 1990s

The arrival of Zhou Mingseng as the company's managing director in 1992 became a new milestone for the company, as Zhou initiated a new diversification strategy for the company. As part of this effort, the company targeted several sectors for its expansion. Food manufacturing became a natural extension for the company, and included the founding of Shenzhen Le Conte Foodstuff Co, Ltd. Le Conte launched production in 1991, becoming the first in China to manufacture European style premium chocolates. By 1995, Le Conte was China's leading chocolate brand. The company later grew into one of the Asia's largest producers of chocolates. That company later branched out into candy production in 2000, and snack foods in 2003.

COFCO expanded into Hong Kong in the early 1990s as well, buying up majority control of Top Spring Development Ltd., a company initially founded in 1977. COFCO then began redeveloping Top Spring into a food processing business, transferring a number of its own food and beverage production businesses. In 1994, COFCO renamed Top Spring as China Foods Holdings Ltd., which then joined its parent in a joint venture with an edible oil processor in Shenzhen, on the Chinese mainland.

By then, COFCO had launched a new direction in its diversification strategy. In 1993, the company targeted the real estate market, and acquired another Hong Kong-based company, which was renamed Top Glory International Group Company. Top Glory developed into one of COFCO's major branches, with real estate and property development holdings including COFCO Plaza in Beijing, the Top Glory office complex in Hong Kong, and the Sanya Yalong Bay project. Top Glory was later listed on the Hong Kong stock exchange, becoming COFCO's first public subsidiary.

China Foods Holdings also developed into another major COFCO company, particularly after its acquisition of Eastbay Oils and Fats Industries in Guangzhou in 1997. In 1998, the Hong Kong-based subsidiary acquired a 25 percent stake in China Great Wall Wine Co., the leading wine producer in China. In that year, China Foods adopted the new name of COFCO International. COFCO then transferred more of its business interests to COFCO International, including operations in edible oils, wine and beverages and soybean oil. Following its expansion, COFCO International went public in 1999, listing on the Hong Kong Stock Exchange. At that time, COFCO announced its intention of building COFCO International into the primary conduit for foreign investment capital into China's booming foods industries. The listing of COFCO International also came as part of an overall restructuring effort by COFCO to transform itself into a fully publicly listed corporation in the future. This restructuring also came as part of the Chinese government's announcement that it intended to reduce the number of state-owned companies from 189 to just 44 into the new century.

The Chinese General Electric of the 21st Century

COFCO began developing a new wing for its diversified operations. For this effort, the company sought inspiration from General Electric (GE), the world's largest corporation, which derived some 40 percent of its annual revenues from its operations within the financial sector. COFCO itself began developing a finance wing, starting in 1993 with the acquisition of an insurance business based in New Zealand, which was renamed as Peng Li Insurance. In 1994, the company established two new subsidiaries, COFCO Capital Corporation, based in the United States, and Ceroilfood Finance Ltd. based in Hong Kong. In 1996, the company added a futures business, COFCO Futures Company, based in Beijing, which became one of the top ten futures brokers in China.

Key Dates:

1953:: Chinese government forms several export-oriented state trade agencies, including China Oils Export Corporation, China Foodstuffs Export Corporation, and China Cereals Export Corporation.
1961:: Government begins centralizing foodstuffs trade, creating China China Cereals and Oils Export Corporation, which merges with China Foodstuffs Export Corporation to form the China Cereals Oils and Foodstuffs Import & Export Corporation.
1965:: Changes name to China National Cereals Oils and Foodstuffs Import & Export Corporation, or COFCO.
1980:: Company opens first international subsidiary in New York.
1990:: Le Conte chocolate production joint venture is formed.
1992:: Launch of new diversification strategy and acquisition of Top Spring (foodstuffs) and Top Glory (real estate) in Hong Kong.
1998:: China Foods becomes COFCO International.
1999:: COFCO International goes public on Hong Kong exchange.

COFCO targeted the mainland insurance market for its next financial sector expansion, after the Chinese government began allowing insurance brokerage activities in 2000. For this effort, the company teamed up with foreign partners, eager to make their own entry into the vast Chinese market. In 2003, the company announced it had formed a joint venture with insurance giant Aviva to establish an insurance company in Guangzhou in 2003. That company, Aviva-COFCO, which also represented the first entry of a foreign insurance company in China, quickly developed ambitions to become a major player in the country's insurance market, and began plans to expand into new markets.

Developing its financial wing became a key part of COFCO's growth strategy. As Business Daily Update quotes Zhou: "All the top 50 multinational companies in the world have businesses in finance sectors, which provides us good incentives to put more resources in this emerging financial sector," said Zhou. "It is a must for COFCO to enhance its presence in the finance sector if we want to hit our target by 2010—doubling our net assets, which stood at 12.1 billion yuan (US$1.5 billion) in 2001." As part of its strategy, COFCO added a new financial partner at the end of 2003, when it created a new joint venture with AON Corporation, launching its first insurance subsidiary in the Shanghai market.

COFCO meanwhile became a central vehicle for the Chinese government's efforts to streamline its unwieldy and inefficient network of state-owned corporations. In 2004, for example, COFCO carried out the acquisition of China National Native Produce and Animal By-Products Import and Export Co (China Tuhsu). Later that year, the company acquired a 37 percent stake in Xinjiang Tunhe Investment Company Ltd., followed by the 2005 purchase of a 59.63 percent stake in Shenzhen Baoheng (Group) Company Ltd. These acquisitions were also seen as playing a part in the run up to COFCO's own future public offering. COFCO meanwhile set its sights on remaining one of China's top ten corporations, and becoming an international heavyweight as well.

Principal Subsidiaries

BNU Corporation; Ceroilfood (New York) Inc.; Ceroilfood Finance Ltd.; China Great Wall Wine Co., Ltd.; China National Liangfeng Grain Import & Export Company; COFCO (Hong Kong) Ltd.; COFCO (Singapore) Ltd.; COFCO Capital Corporation; COFCO Dalian Import & Export Company; COFCO East China Co., Ltd.; COFCO Oils & Fats Holdings Ltd.; COFCO Shandong Cereals & Oils Import & Export Company; COFCO Shandong Peanut Imp. & Exp. Co., Ltd.; COFCO Shanghai Cereals & Oils Import & Export Company; COFCO Shanghai Import & Export Company; COFCO Shenzhen Trading & Co., Ltd.; COFCO Wines & Spirits Co., Ltd.; COFCO Wuhan Import & Export Company; COFCO Wuhan Meat Products Ltd.; COFCO Yantai Winery Co., Ltd.; COFCO Zhuhai Industries Co.; East Ocean Grains and Oils (Zhangjiagang) Co. Ltd.; Eastbay Oils & Fats Industries (Guangzhou) Co., Ltd.; Euro-China Trading Corporation GmbH; Great Ocean Oils and Grains Industries (Fangchenggang) Co., Ltd.; Hochu Trading Co., Ltd. (Hong Kong); Huaxia Winery Co., Ltd.; Laiyang LuHua Fragrant Peanut Oil Co., Ltd.; North Sea Grains and Oils (Tianjin) Co. Ltd.; Pangthai (Qinhuangdao) Flour Co., Ltd.; Shenzhen COFCO Industries Co., Ltd.; Shenzhen Huaxiahong Wines & Spirits Co., Ltd.; Shenzhen Le Conte Foodstuff Co., Ltd.; Southseas Oil & Fats Ind. (Chiwan) Co., Ltd.; Tian Ding International Trading Co., Ltd; Top Glory (Australia) Pty Ltd.; Top Glory (London) Ltd.; Top Glory Enterprises (Canada) Ltd.; Xiamen Haijia Flourmill Co., Ltd; Yellow Sea Grains and Oils (Shandong) Co. Ltd.; Zhengzhou Haijia Food Co., Ltd.

Principal Competitors

Xiamen Cannery; Hangzhou Wahaha Group Corporation; Fujian Cereals, Oils and Foodstuffs Import and Export Group Corporation; Wuhan Zhongbai Group Company Ltd.; First Investment and Merchant Company Ltd.; Anhui Huangshan Foreign Trade Corporation; Jiangsu Cereals, Oils and Foodstuffs Import and Export (Group) Company; Shaanxi Cereals, Oils and Foodstuffs Import and Export Corporation.