After 10 years of restrictions, China’s government is opening the access of foreign investments into the corn deep processing industry again. The government is aiming to enhance the economy with this step and also hopes to improve the effective way to reduce the huge corn storage.
China’s corn deep processing industry actually has the longest processing chain in all food crops processing. After all, up to 2,000 downstream products can be created from processing corn. The corn deep processing industry has segments in the food business, medical, daily supplies, fuel, and more.
Equal investment in the industry
According to market intelligence firm CCM, the Catalogue for the Guidance of Foreign-Invested Industries was amended in 2017 and finally will into effect on 28 July. The amended version has cancelled all restrictions of foreign investments into the corn deep processing and fuel ethanol industry, which means domestic and foreign investors can equally invest in the industry and mergers and acquisitions between enterprises are easier.
The restriction for foreign investment was established in 2007 as a response to the limited corn supply which was needed for the food and feed industry rather than used in the corn deep processing industry. The result of the restriction was that less than 26% of corn was able to be used in deep processing. Despite the restriction of foreign investments, also new projects for deep processing were supervised more closely and needed approval.
According to CCM, the cancelling of the corn storage policy with the resulting drop of corn prices as well as the aiming of China’s government to stimulate economic growth are the main factors for the change in this policy. However, since China’s corn deep processing industry is on a quite mature level, the opening to foreign investments might not change the current situation significantly. The biggest change will occur in the domestic competition, as foreign enterprises are generally enjoying better funded companies, stronger research and development abilities as well as higher talent in human resources. As a result, the industry in China will likely concentrate more and the technology will be improved faster.
Improved access to foreign investment
Not only the restrictions for foreign investments in corn deep processing has been lifted, but also processing of edible oil and fats from soybean, rapeseed, peanut, cottonseed, camellia seed, sunflower seed, and palm. Furthermore, processing of rice, flour and crude sugar were also subjects of the improved access to foreign investment. The corn supply for China’s corn deep processing industry was tight in the last years. In order to feed the increasing population in China and guarantee corn supply for food and feed, some corn deep processing products were restricted by the government. Inefficient corn starch production lines even have been required to be eliminated. For example, the 2011 edition of the Guideline Catalogue for Industrial Restructuring stipulated that the construction of corn starch production lines with capacity under 300,000t/a shall be restricted.
What’s more, corn deep processing enterprises will certainly benefit from the corn subsidy policy, especially starch sugar manufacturers: starch sugar, particularly corn soft sugar, will be an increasingly popular substitute for sugar, as the current sugar price is quite high, according to CCM. The peak season for the beverage industry comes, and consequently the consumption of starch sugar, in particular HFCS, will become high. For example, 95% of drinks produced by the Coca-Cola Company are added with HFCS, and its HFCS consumption is expected to be higher in Q3 2017. Currently, the corn price remains low and the production costs of starch sugar are lower than those in 2015 and 2016. Even if the consumption of starch sugar goes up, its price will not increases greatly but remain stable.