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In Search of China's Red Capitalists

This Business of Farming

In China, free enterprise is alive and well - and driving economic growth

Published on: November 14, 2012

Private enterprise now accounts for 80% of the Chinese economy. Ever since the country began its market reforms 20 years ago, China's brave new 'Red capitalists' have been slowly but surely flexing entrepreneurial muscle in a quest for what used to be China's dirtiest word: Profit.

Yesterday, our group of American farmers touring this vast country met two of those entrepreneurs.

After bumping along a pock-marked back road near Guilin in South China, the tour bus arrived at a most unusual dairy farm, where water buffalo produce milk and calves for sale. Manager Jiang Yan Jet, 38, works for a group of three investors who built the farm in 2002 after signing government long-term leases on 92 acres. (The Chinese government owns all land in China, but to promote growth, it will lease it for as much as 70 years at a time.)

Water buffalo provide milk prized for yoghurt in China.
Water buffalo provide milk prized for yoghurt in China.

According to farm manager Jiang Yan Jet, 38, the owners stocked the farm with 70 water buffalo brought in from a nearby water buffalo research institute. Since then the herd has grown to 270 head, with annual net profits of $83,000. Sixty percent of the income comes from milk production and the rest from calf sales.

Sixteen people work here. Only 50 cows get milked twice daily, and it's all done by hand. Production is only 18 lbs. milk per day per cow, but water buffalo milk has 7% butterfat, 4.6 to 4.8% protein. The Chinese don't love cheese the way Americans do, but they do have a growing fondness for dairy in general. This milk captures a premium for use in yoghurt.

Unlike the government-owned dairy we visited earlier this week, this farm actually manages its income risk. "We have signed contracts with milk factories," says Jiang. "We believe we need to make sure sales are stable and reduce our risk. This way we make sure all milk we produce is sold."

Jiang Yan Jet, farm manager, says milk contracts help reduce risk.
Jiang Yan Jet, farm manager, says milk contracts help reduce risk.

Water buffalo eat chopped sudan grass along with a protein supplement derived from tofu leftovers – soybean meal, in effect. Jang, who graduated from Guangxi Agriculture University with a major in animal science, focuses on everything from milk quality to cost control and labor management. In our short visit he seemed to be up to the task in every regard.

Qin Jian Ming, one of the three investors here, says he got the idea from friends who came to the region and realized there would be good demand for agriculture and housing. In fact, his group of investors now plans to build a series of homes near the farm, beginning next month.

Ming came here with a vision, capital and some serious tax incentives from China's government. Because a vast majority of Chinese farmers are very poor, they don't have the education that someone like Ming has, let alone capital to grow their businesses.

Loving capitalism: Rice factory owner and CEO Hu Jiang Kui.
Loving capitalism: Rice factory owner and CEO Hu Jiang Kui.

Intrepid Entrepreneurs

Rice is the most popular staple in southern China, so our next stop fit right in with earlier experiences. We arrived at a local rice processing factory and heard what is becoming a familiar story. This plant, once government-owned, is now in the hands of private investors. In this case, the new owners once worked at the plant.

Hu Jiang Kui, the company president, got together with 10 others and bought the plant in another wave of government sell-offs in 2000. He remembers what it was like when the government owned the business.

"It didn't matter how hard we worked, we always got the same pay," he says. "So, nobody worked hard." Now everything is different. "Hard working employees make more than others. It's better to have the capitalist system."

We knew right away this was a well-run business. The floor is so clean you could eat Peking duck off it. Now Kui is planning to build a new, much larger rice processor nearby, and convert this facility into a cooking oil processor.

The water buffalo farm, rice processor and the Fu-Hua Meat Company I told you about earlier this week, are all examples of how red capitalists are pushing China's agriculture forward. This private enterprise now accounts for 10% of China's agriculture. Private enterprises have played a brilliant role in rejuvenating the Chinese economy.

Will more red capitalists continue to surface, giving agriculture here the economic boost it needs? As long as the government continues its reforms, the answer is yes.