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China dairies see investors dump stocks

By Du Wenjuan (Chinadaily.com.cn)
Updated: 2008-09-23 17:38

China's three leading dairy companies, in the swirl of the tainted milk scandal, saw their stock prices plunge Tuesday.

The price of Mengniu, China's largest dairy producer in volume, dived 64.6 percent to 7.68 Hong Kong dollars Tuesday at the Hong Kong Stock Exchange.

Special coverage: Tainted Milk Scandal Related readings: Shijiazhuang party chief sackedChina takes milk scare 'very seriously' Quality watchdog chief quits 13,000 babies hospitalized

Yili Group, another heavyweight dairy headquartered in Inner Mongolia, north China, saw its shares tumble at the Shanghai Stock Exchange by the daily limit of 10 percent and closed at 9.93 yuan.

Investors also dumped the stocks of Shanghai-based Bright Diary, the No. 3 dairy producer in China. Its shares plunged to 4.03 yuan or 10 percent.

Analysts predict that the three dairies' stock will be on a continuous free fall, and begin to question the possibility of survival for the three dairies, as the government has not decided to give them a policy support.

In the wake of a baby milk formula scare with the local dairy producer called Sanlu, based in Shijiazhuang, Hebei Province, adding industrial chemical melamine to the formula and hospitalizing about 13,000 Chinese children, the state quality supervision authorities have, in their expanded investigations, found similar melamine contents in products of the three leading dairies.

Chinese consumers have been infuriated by the scandal, and investors have chosen to dump their stocks.

Compared with the bleeding of the above three dairies, Beijing-based Sanyuan Dairy's shares surged the daily limit of 10 percent at Shanghai bourse for the fourth trading day, up 46.67 percent in total since Thursday.

Sanyuan's milk was detected safe during the nationwide probe.

The scare among consumers of melamine-tainted dairy products has triggered a series of negative effects for China's dairy industry, though new regulations and inspection procedures have been introduced.

China's CCTV at its prime-time 30-minute news program Monday announced the resignation of Li Changjiang as the minister in charge of the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ). Meanwhile, the party chief of Shijiazhuang, where Sanlu Dairy is located, was sacked by the central government.

So far, almost 13,000 infants nationwide have been hospitalized with kidney problems as a result of drinking milk contaminated with melamine. Four deaths have been reported.

The quality crisis in the dairy industry has brought deepening worries for the future of the whole food sector. It may trigger a "systematic risk" in food and beverage stocks, a latest report from China Galaxy Securities, one of China's biggest State-owned brokers, has pointed out.

The results of a government-led probe announced last Tuesday showed that out of 109 dairy producers checked, 22 had been found to have produced batches of milk contaminated with the chemical compound.