China police detain Yili CFO

Speaking to national press, a company spokesman confirmed that the executives had been detained by the police, identifying the officials as Zheng Junhuai, chairman; Zhang Xianzhu, CFO and Ly Yongping, head of the securities division.

Other Chinese media reports confirmed last week that the executives of the Inner Mongolia-based dairy giant were being investigated on suspicion of embezzlement as well as a number of other economic crimes. Seven executives were believed to be originally questioned over the accusations.

The executives are suspected of inappropriately using CNY 417 million (€37.7m) to support a management buy out back in July 2003. In reaction to the reports about the investigation share trading on the Shanghai Stock Exchange in Yili fell by the daily limit of ten per cent on Monday and share dealing in the company was automatically suspended as a result.

Yili​ is the third largest player in a market that has grown by at least 30 per cent as many Chinese nationals have tried to up their calcium intake in response to government campaigns. The biggest player is Mengniu Dairy, followed by Bright Dairy.

The company has an extensive product range that covers some 39 dairy products, including yoghurt, milk, milk powder, and ice cream. The rapid product roll-out over the past few years has proved very successful for the company, which so far this year has reported sales of CNY 10 billion, compared to CNY 6.3 billion last year.

Although the allegations of embezzlement are considered serious, market analysts believe that the ultimately the blue chip company is likely to pull through with limited impact to its future performance.

In the wider picture many industry experts believe that the investigation into Yili's financial dealing could be the tip of an iceberg that could uncover a series of corporate scandals.