Our first step in developing businesses in this area was the commencement of a business alliance and capital participation with the Charoen Pokphand Group (CP Group) in July 2014.

The CP Group is centered on Charoen Pokphand Group Company Limited, which traces its roots back to 1921, when the Chearavanont family, from China, opened a small seed shop in Bangkok. The group’s business activities were subsequently extended to the production of animal feed, and from the 1980s the CP Group accelerated its diversification, moving into agriculture and livestock products, food, ICT, logistics, finance, pharmaceuticals, and other fields. The group also expanded its geographic reach to include all ASEAN members as well as China and Europe. Currently, the CP Group has sales of ¥5 trillion, about half of the national budget of Thailand; approximately 300,000 employees; and operations in 17 countries. It has grown into Thailand’s largest conglomerate and one of Asia’s leading business groups. Its core animal feed operations are among the largest in the world, and its exposure to the real estate business, which has been central to the growth of many overseas Chinese business groups, is limited to about 10% of its total assets. The CP Group’s distinctive presence, which reflects the consistent development of sound and stable businesses, is one of its major strengths.

In particular, it was the creation of business opportunities in China that unified the thinking of ITOCHU and the CP Group.
Even as one of the strongest Japanese trading companies in China, ITOCHU had problems in making headway in the domestic Chinese markets, just like other foreign companies. In contrast, the CP Group has more than 300 companies operating in 29 provinces in China, not only in agricultural and livestock products but also in other businesses. The CP Group has grown into China’s largest foreign-capital business group, with widespread name recognition as “Chia Tai.” The CP Group has earned the trust of the Chinese government and consumers, and has built an extensive network of contacts. One of the core companies in those endeavors has been CPP, in which ITOCHU has taken an equity position. CPP is one of the largest producers of animal feed and has a feed sales network that covers nearly all of China. By combining ITOCHU’s management resources, such as Japan’s advanced technologies, and the CP Group’s business infrastructure, such as its sales routes, ITOCHU and the CP Group will be able to address the growing “needs for quality” on a broad scale. In addition to food, throughout the entire non-resource sector ITOCHU and the CP Group will be able to implement cooperative initiatives across an extremely wide range of fields, including ICT, retail, finance and insurance, and pharmaceuticals.
To advance cooperative business-expansion initiatives in a steady, sustained manner, ITOCHU and the CP Group have implemented cross-investment measures and established a solid relationship to increase the corporate value of both groups.
ITOCHU and the CP Group have begun taking concrete steps to promote collaboration, such as holding periodic meetings of the Strategic Alliance Committee and dispatching directors and employees. One particularly decisive measure was joint investment in CITIC Limited by ITOCHU and the CP Group.

In January 2015, CITIC Limited (CITIC), CP Pokphand Group Company Limited, and ITOCHU reached a capital participation agreement under which ITOCHU and the CP Group would ultimately acquire 20% of CITIC, China’s largest conglomerate and a constituent of the Hang Seng Index. The investment is approximately ¥1,200.0 billion and is made through a joint investment vehicle held in equal 50% shares by ITOCHU and the CP Group. The three companies also reached agreement on a strategic business alliance and capital participation.
CITIC is a government operated company with the Chinese government effectively holding a majority share of this company through the CITIC Group. This company’s businesses include financial services, resources and energy, manufacturing, engineering contracting, real estate, and other businesses in China and overseas.
With its leading market positions in sectors well-matched to China’s development, and with strong expertise in the industries in which it operates, CITIC is well-equipped to capture opportunities arising from China’s continued growth.

To understand the significance of this capital participation agreement, it is necessary to look back to the 1970s. At that time, China had just started to follow a course of reform and opening up under the leadership of Deng Xiaoping. In 1979, China International Trust and Investment Corporation (later renamed CITIC Group) was established as a state-owned entity that was 100% funded by the Chinese government and assumed the role of China’s international point of economic contact with the world. Subsequently, starting with the reform and opening-up policies, China has been transformed from “the world’s factory” into “the world’s consumer market.” China has grown dramatically to become the world’s second largest economy, and CITIC has supported that sustained economic development.
With the objective of accelerating the absorption of management know-how and international development, the “mixed ownership model,” which promotes the acceptance of private-sector capital, including capital from overseas, is one facet of the reform of government-owned enterprises that is currently being advanced in China. This made the 20% investment by ITOCHU and the CP Group possible.
In 1979, the CP Group became the first foreign company to advance into China. On the other hand, six months prior to the September 1972 normalization of diplomatic relations between Japan and China, ITOCHU obtained ratification for resumption of Sino-Japanese trade and became the first Japanese company to establish a foothold in the Chinese market.
The CP Group has done its utmost to help advance the agricultural reforms promoted by the Chinese government, such as contributing to the development of agriculture and to raising the incomes of farmers through a range of initiatives. These include the provision of know-how to boost productivity and the purchase of agricultural products, centered on poultry, hogs, and eggs, as well as the provision of financing. As China has carefully advanced the introduction of foreign capital and technologies, ITOCHU has also served as an intermediary between China and other Japanese companies and has contributed to the nurturing of industries while maintaining a focus on making people’s lives more comfortable.
The realization of this unprecedented capital participation is backed by the high evaluations garnered by the relationships that ITOCHU and the CP Group have established with China, as well as the strategic significance of the “win-win-win” situation for the three groups.

In this strategic business alliance and capital participation, ITOCHU and the CP Group invested a combined total of about ¥1,200.0 billion in CITIC on a 50:50 basis. As of March 31, 2016, the CP Group owned 4.7% of ITOCHU’s stock, making the CP Group one of our major shareholders. ITOCHU holds 25% of the stock of C.P. Pokphand Co. Ltd., which is the core company in the CP Group and has feed, livestock, aquaculture, and food processing businesses in China and Vietnam. All three parties share the same destiny.
ITOCHU invested ¥600.0 billion, the largest single investment in the Company’s history. To obtain a return commensurate with that level of investment we need to not only participate in the flow of commercial distribution and expand trade but also do our utmost to help increase the corporate values of the CITIC Group and the CP Group and strive to expand earnings and market capitalization.
Financial Service Business accounts for 80% of CITIC’s earnings. Through growth in non-finance businesses, centered on consumer-related businesses, ITOCHU can contribute to the reform of CITIC’s earnings structure. This will have a major impact on the corporate value of the CITIC Group. Synergies can be created in an extremely wide range of fields, such as retail, processed foods, livestock, grains and other foods, brands and other apparel-related areas, communications, and medicine. On the other hand, CITIC, a large corporate group with assets of about ¥110 trillion, generated net profit of about ¥800.0 billion in FYE 2015. Major initiatives suitable for this large scale will be required to influence CITIC’s earnings structure. Accordingly, ITOCHU will not rush forward in a hurry to achieve benefits from the tie-up. Rather, we will take a careful approach to projects from a long-term viewpoint.