The Chinese subsidiaries of dairy giant Parmalat have ceased production while the troubled Italian company is to make a final decision about the unit.

Analysts said that it is possible that the Italian giant may sell its Chinese factories to help the company out of its trouble.

But the future of Parmalat's three Chinese production plants remains unclear.

Parmalat (Tianjin) Dairy Co Ltd and Parmalat (Nanjing) Dairy Co Ltd suspended their operations successively this year, following the parent company's massive fraud scandal unveiled last December.

The Milan-based group filed for bankruptcy protection because of a US$11 billion shortfall due to false accounting over a possible period of 15 years.

"Production here has been suspended for a period of time," said Li Xianbin, director of the general office of Nanjing Diary (Group) Co Ltd, the Chinese partner of Parmalat's Nanjing venture.

It is reported that the diary giant's production base in Tianjin has also stopped production for over two months.

"We are conducting an overhaul now while awaiting instructions from Italy," the 21st Century Business Herald quoted an employee of Parmalat (Tianjin) as saying.

The company's officials in Tianjin were not available yesterday.

The diary maker's other Chinese factory, located in Northeast China's Heilongjiang Province, was rented to the Yili Corp, as early as in 2001, due to its poor business performance.

Currently, Parmalat diary products can hardly be found in China's stores and supermarkets.

The Italian Government approved the scandal-hit company's restructuring plan at the end of last month.

The plan calls for the sale of the group's non-core assets, slashing the number of Parmalat brands from 120 to 20, and concentrating on fruit juice, milk and milk-related products.

The group will also quit most overseas markets, only remaining in a few.

Industry experts estimated that Parmalat will not retain its Chinese operation, which has suffered huge losses since it entered China in 1995 in a bid to tap into the high-end diary market.

With a total investment of US$8.5 million, Parmalat's 65 per cent owned Nanjing venture suffered losses of around 10 million yuan (US$1.2 million) since it went into production in July 2001.

The Italian group transferred managerial control over the Nanjing venture to the Nanjing Diary Group last May, which promised to make a profit in three years.

"We are now talking with Parmalat to find out how to do with the joint venture, the deal is expected to be reached within the year," said Li Xianbin from Nanjing Diary.

But Li refused to give further details about the negotiations.

In an earlier interview with China Daily, Li said his company intends to buy the joint venture.

(China Daily August 4, 2004)