Officials involved in efforts to bring together the nation's two state-owned trading giants made no comments on rumors that the merger will take place next month, indicating that the process is still under way.

A timetable has yet to be published for the merger of the China National Cereals, Oils and Foodstuffs Import and Export Corp (COFCO) and China National Native Produce and Animal By-Products Import and Export Co (China Tuhsu).

COFCO President Liu Fuchun said: "We are still negotiating (with China Tuhsu) over the merger plan."

Speaking on the sidelines of the China International Institute of Multinational Corporations 2004 conference, Liu denied rumors that the merger will be officially launched in August, insisting that no timetable has been agreed.

Liu also remained tightlipped on the role of the National State-owned Assets Supervision and Administration Commission (SASAC) in the process.

Earlier reports had indicated that the merger could have been completed by June, with a China Tuhsu official telling China Daily in May that the merger would be in place "very soon."

However, recent signs show that the negotiations could become somewhat protracted.

China Tuhsu will become a subsidiary of COFCO -- the nation's biggest grain trader - following the merger.

This is the latest stage in the central government's restructuring of large State-owned trading companies.

The SASAC plans to reduce the number of 189 State-owned companies under its direct supervision and administration by merging them into some 30 to 40 bigger ones.

The merger between COFCO and China Tuhsu also aims to eliminate the overlapping of two firms' staple businesses.

COFCO's mainstay businesses include grain trading; while flowers and timber, animal by-products such as feathers and leather, and tea business are the three traditional pillars of China Tuhsu.

Analysts believe the merger will be a win-win deal for the two firms, saying COFCO's strong financial profile and capital market experience could combine well with China Tuhsu's trade networks.

In another development, Liu said COFCO will still focus on both grain trade and food processing for the time being, but it will not rule out the possibility of choosing one of them as its mainstay in the future.

Liu pointed out that, in the West, very few companies are conducting grain trade and food processing at the same time.

The market division in these countries is well organized, he added.

Taking the United States as an example, in the upstream of the industry chain, only a few major players such as Cargill are involved in grain trading.

Some other companies such as Pepsi, Nestle, Unilever and Danon specialize in downstream processing sector.

Generally speaking, a company would only focus on a single sector among the two, Liu said.

But the grain trade and food processing markets are not efficiently divided in China.

To secure grain sales, a grain trader has to have his own food processing plants; while to ensure the quality of materials for processing, a food processor has to be involved in the grain trade, Liu said.

That is why COFCO currently attaches equal importance to these two businesses, Liu said.

COFCO, China's biggest grain trader, is also one of the leaders in China's food processing sector, which has nurtured some famous brands such as Great Wall wine, Fortune edible oil and Le Conte chocolate.

"We will choose between the two sectors when China's market economy develops to a certain degree and the conditions are ripe," Liu said.

But he did not say which might be the major focus in the future.

(China Daily July 14, 2004)