Marriage of interests the meat of the matter

YURUN FOOD GROUP, a Hong Kong-listed meat product manufacturer that has received government subsidies of more than HK$4 billion ($510 million) from 2005 to 2015, more than 46 percent of the company’s total profits over that period, is struggling to restart some 20 projects in Northeast China’s Liaoning province. Beijing Youth Daily commented on Monday:

The stalled operation of Yurun’s projects in Liaoning indicates that much of the subsidies it received over a decade could have gone down the drain.

The dilemma facing Yurun’s plants in Heishan county is a case in point. The meat supplier was supposed to invest 300 million yuan ($45 million) in a local meat production project, which has stalled, while the subsidies offered by the government of Heishan could be more than 100 million yuan, according to their agreement. The failed operation means the generous subsidies stand little chance of being retrieved.

On the one hand, governments at all levels have good reason to trade favorable policies and financial support for investment, which can in turn boost the local economy and create jobs. Enterprises whose subsidized operations are successful are more likely to expand their local operations and raise wages. The win-win deal could work well as long as the companies are not over-subsidized.

On the other hand, offering such favorable treatment risks wasting government money if the investment fails and undermines the lawful interests of nonsubsidized local companies.

The stalled project in Heishan county is just one of Yurun’s 20 failed projects in the province. The local government’s determination to create jobs and boost the local economy does not justify it using public money to give Yurun subsidies that apparently accounted for more than one-third of the company’s total investment.

It is also worth questioning whether the various subsidies and tax cuts for Yurun are in line with relevant laws and regulations. In some cases, according to reports, the meat supplier’s investment was only approved by local governments, not by the provincial authorities. That highlights the need to unearth what is really behind the marriage of interests.

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