When China Mengniu Dairy hit trouble in September 2008, as one of 22 companies implicated in a contaminated milk scandal, the market reaction was savage: the Hong Kong-listed shares of the country’s leading milk supplier fell more than 60 per cent in a day. But when Mengniu was linked last week to a new outbreak of poisoning of schoolchildren in Shaanxi province, the shares were off a mere 3 per cent as trading resumed on Tuesday.
The contrast speaks volumes about China’s peculiar brand of market-based authoritarianism. The key difference was that three years ago, the Mongolia-based company was privately owned, a creation of Niu Gensheng, its flamboyant founder and chief executive. In 2009, though, the shamed company became a ward of Beijing, after selling a 20 per cent stake – its largest individual holding – to a consortium run by state-owned Cofco, China’s biggest importer and exporter of food. Mr Niu, who now serves as non-executive chairman, was sidelined.
The result is that Mengniu, once an icon of entrepreneurialism, is effectively a government-controlled enterprise like China’s other big liquid milk producers Sanyuan, Guangming and Yili (run by Beijing, Shanghai and Inner Mongolia respectively). Gone is much of the racy advertising, as Mengniu has styled itself as a more responsible corporate citizen. Gone, too, is a lot of the growth. Sales, which increased by a factor of 213 between 1999 and 2007, are up by about 40 per cent since. Earnings per share have barely budged, as the company has invested in its own milk production facilities rather than relying on very lightly regulated dealers. The full implications of the latest probe will not be known for a while. But unlike last time, Mengniu seems sure to survive it.