You are here：China Business Focus >> Companies in China>> Article
Taizinai Group or "Prince Milk" is the largest scientific, industrial and trade group of fermented lactobacillus milk drink in China. As October draws to a close, it's becoming increasingly clear that Taizinai has serious internal problems. The prince of the Chinese yoghurt industry is in trouble.
 
In the underground parking lot of Taizinai Headquarters in Zhuzhou, Hunan, there are two special parking spots, reserved for a Porsche SUV and a Benz sedan. They have been empty since the end of October. The owner of the two cars, Li Tuchun, is the president of Taizinai Group, and he is busy with his enterprise’s captain chain.
 
Painful Contradictions
 
Three men meet in a room around a table of glass. Silently, they are encircled by ten outsiders. Suddenly, the glass breaks with a sharp clang. The three men in the center look at each other, rooted to the spot, too petrified to make anything but eye contact.
 
This was not a scene from a movie, but an accurate depiction of the office of Taizinai in Wenjiang District, Chengdu City, Sichuan Province on October 24. The group of ten is the distributors of Taizinai Group, while the three in the center are the employees of the Wenjiang Office of Taizinai. The distributors asked Taizinai to give them a straight-shooting honest answer, and were met with obfuscation. "There has been no definite reply. We were at such a pitch of excitement that we broke the glass in the office," said Mr. Chen, a distributor from Yibing, Hubei.
 
Though Li Tuchun has put his full energy in saving Taizinai, tension between distributors all over China and Taizinai grow more and more acute.
 
Mr. Wu came from Sichuan, looking quite anxious. "This July I joined in the distributor team of Taizinai with money I borrowed from the bank. But I haven't gotten anything from Taizinai, absolutely nothing. The bank will seize my house." Mr. Wu, understandably, was quite agitated. "No money, no goods. This is not Taizinai (prince milk), but pianzinai (fraud milk)."
 
According to Mr. Wu's introduction, a distributor from Hebei Province surnamed Huang joined Taizinai's distribution team at the start of 2008. This March he preordered and paid for over four thousand items. But as of this July he had received only four or five hundred goods in batches. Having no hope of a refund, distributors all over China began to sell the Taizinai products at a drastically low price. The price of a carton fell from 32 Yuan (USD 4.57) to 10 Yuan (USD 1.43).
 
"At least they have something to sell. They much luckier than me," said Mr. Wu.
 
The journalist called Mr. Chen, General Manager of Sichuan Office of Taizinai for his opinion. Mr. Chen was absolutely sanguine: "Our operation is quite OK now. The problems will be solved perfectly."
 
Distributors were eager to invest all they had in Taizinai, because it offered promises of easy and lucrative gain. Taizinai's promise was that if they ordered and paid for the goods more than three months in advance, the distributor who deposited the reserve would receive a bonus of 30% of the marketing fees. Distributors who prepaid fifty thousand Yuan (USD 7.14 thousand) received a ticket to a lottery with a maximum award of a full million Yuan (USD 142.9 thousand). Many distributors signed up with dollar signs flashing in their eyes, dreaming of waking up rolling in cash. Some of them even borrowed money from their friends and relatives, allowing them to dig themselves in even deeper.
 
Eager to take advantage of these apparent opportunities, huge numbers of China's three thousand distributors raced to deposit their money. Most of them invested more than three hundred thousand Yuan; some put in up to seven hundred thousand Yuan (USD 100 thousand). According to a rough estimation, the amount of reserves of the distributors in Sichuan reached more than seventeen million Yuan.
 
"It is quite clear that Taizinai is using the money from the distributors and investors placing to lay a foundation for the future,"said Mr. Chen. Taizinai has consistently promised to return the distributors' money in full. So far, Taizinai has done no such thing.
 
After the agreement fell through, Mr. Li said that Taizinai would sell 30% of its share, which would give the company 1.7 billion Yuan (USD 242.9 million). As for returning the distributors' money, the company claims that it will do this before July 15.
 
Li Zhibao, director of Chengdu Affiliation of Taizinai Group said at the end of October that the company has already found the collateral to raise capital and is just waiting for the capital to be fully funded. The Zhuzhou municipal government was also actively striving for ways to save Taizinai Group. Attempts to contact Li Tuchun were all met with the same answer; a gruff "I'm in a meeting" and a steadfast refusal of any further interviews. Li used to be a rather garrulous figure, for an entrepreneur, but he has been consistently silent on this subject.
 
Back on Feet with Foreign Capital?
 
The increasingly violent disagreements between Taizinai Group and its distributors have forced Li Tuchun to change his attitude towards foreign capital.
 
Li has been quoted as saying: "What we need is financial help rather than strategic help." When facing capital problems, Li has been willing to transfer his individual share. Goldman Sachs and Morgan Stanley are interested in getting a piece of the deal. It has been reported that the assets liquidation group organized by Goldman Sachs and other institutions has already entered Taizinai. If this deal goes through, Goldman Sachs will put at least thirty million US dollars in Taizinai Group.
 
"Li Tuchun is wholeheartedly involved in his business, just like Mengniu's chairman Niu Gensheng. However, Taizinai, in contrast to Mengniu, is not yet in danger of being controlled by foreign capital," said Liu Jinhu, a securities analyst at Guohai Securities. According to the data Taizinai issued previously, Li Tuchun has absolute holding rights over Taizinai Group.
 
A spokesman for Goldman Sachs had no comment on the matter. The relevant director of Taizinai said that the company was communicating with the strategic investors. Who knows what’s really going on.
 
The financial crisis on Wall Street has put a lot of United States financial institutions in a rather touchy situation. But if they survive the crisis, they might reconsider looking to China for their next investments. Hopefully, their advanced management techniques will rejuvenate companies that are on the verge of failing. Taizinai certainly needs a lot of rejuvenation. And three hundred million US dollars is enough to bring a lot of things back to life. Perhaps both Taizinai and the guys in the USA with all the capital will get what they want.
 
The Financial Times has offered the opinion that Goldman Sachs' success is at least partially due to its strong ability to pick winners. The investment institutions seem to have great confidence in their Taizinai investments. Fred Hu, a managing director of Goldman Sachs, is on record saying that China's yoghurt industry has a lot of potential, and Taizinai controls 72.8% of China's yoghurt market. Taizinai is reeling, but you should never count out a prince.
 
However, there is still an X in the future of Taizinai.
Prv：[December 2008] CISCO China Overwinter Cautiously[0][2009.01.22] Next：[December 2008] Opening A Door to Happiness[0][2009.01.22]