The history of our Group can be traced back to August 1988 when our founder and Managing Director, Niu Ji Xing, saw potential in the food industry, as the PRC economy and living standards, including the purchasing power of the citizens, grew at a rapid pace, leading to increased demand for various consumer products. Niu Ji Xing observed that with the rapid growth in the food industry, there was a significant shortage in the supply of candies in the PRC. Hence, Niu Ji Xing believed that the candy industry had great growth potential and established Ji Xing Candy Factory in Yishui, Shandong Province, to produce hard and soft candies, with an annual production capacity of approximately 1,000 tonnes of candy.
After three years of operations, we gained wide customer acceptance as a result of our product quality and good track record. Our customers' demands exceeded our production capacities. Seeing a future in this business, in October 1991, we acquired new candy production lines in order to increase our candy production capacity and the maximum annual production output for our candies was increased to approximately 8,000 tonnes.
Based on market research and feedback, Niu Ji Xing realised that liquid glucose was an important ingredient in the food and candy industries and it was produced using starch as raw material, and required lower costs of production. Realising the growth potential of liquid glucose, we switched our core business from the production of candies to the production of liquid glucose. In June 1993, we acquired a production line and commenced production, with an annual production capacity of approximately 5,000 tonnes of liquid glucose. In July 1993, to reflect the change in our core business, Ji Xing Candy Factory changed its name to Shandong Yishui Luzhou Food Factory (subsequently Shandong Luzhou).
In November 1994, as our production capacity for liquid glucose could not satisfy the demand of our customers, we acquired another production line, thereby increasing our annual production output of liquid glucose to approximately 13,000 tonnes. Since liquid glucose is produced using starch as raw material and we had been purchasing starch from third party suppliers, in order to lower costs and improve profits, we acquired a starch production line (capable of producing 10,000 tonnes of corn starch annually) to enable us to utilise corn as our key raw material to produce corn starch which in turn can produce better quality glucose at lower production costs. This also allowed us to capture higher profit margins that would have otherwise been lost if we were to outsource the production of corn starch to third parties.
In December 1995, to boost our production of liquid glucose, we acquired a third production line that was capable of producing 26,000 tonnes of corn starch, which could be used to produce 40,000 tonnes of liquid glucose annually.
The demand for our products grew rapidly, especially in the northeast regions of the PRC. Due to the long distance between our production facility in Shandong and the northeast regions of the PRC, it was not logistically cost effective for us to transport our products to our northeastern customers on a long-term basis. Hence, in December 1997, we established Liaoning Luzhou to extend our market coverage to the northeast region of the PRC, namely Liaoning, Heilongjiang and Jilin. Our Fushun production facility operated by Liaoning Luzhou was located in the Songliao Plains of Fushun, Liaoning Province (widely known as a corn cultivation and harvesting region in the PRC) to capitalise on the ready supply of corn. The Fushun production facility produced both liquid glucose and corn starch, with an annual production output of approximately 20,000 tonnes of corn starch, which may be used to produce approximately 30,000 tonnes of liquid glucose annually.
In July 1998, we commenced large-scale production of high maltose syrup in our Yishui production facility operated by Shandong Luzhou. At that time, high maltose syrup was a relatively new product that was superior in terms of characteristics and applications to liquid glucose and the production of high maltose syrup in the PRC was relatively low. Hence, we saw growth potential in this product and decided to invest in the production of high maltose syrup. The annual production output of high maltose syrup at our Yishui production facility was approximately 60,000 tonnes.
In line with our business growth, we decided to extend the production of high maltose syrup to our Fushun production facility. In April 1999, we commenced production of high maltose syrup in our Fushun production facility. The annual production output of high maltose syrup in our Fushun production facility at that time was approximately 30,000 tonnes.
As part of our plans to expand our business to the western regions of the PRC, we established Shaanxi Luzhou in September 1999. Shaanxi Luzhou was set up to extend our market presence to the northwestern provinces in the PRC such as Shaanxi, Gansu, the Ningxia Autonomous Region, Sichuan and Chongqing. Shaanxi Luzhou's production facility was located in Xingping, Shaanxi Province, an area widely known for its production of corn and other resources which are used in our production process. Our Xingping production facility commenced production of high maltose syrup with an annual production capacity of approximately 50,000 tonnes.
In April 2000, Shandong Luzhou commenced the production of isomaltooligosaccharide syrup and maltodextrins when we acquired a new production line that is capable of producing either 5,000 tonnes of isomaltooligosaccharide syrup or 25,000 tonnes of maltodextrins annually. Recognising the importance of research and development in our business, we established a research and development centre based in Shandong Luzhou in September 2000. Our Directors observed that there was an increase in the usage of glucose powders in various industries in the PRC including the food and beverage and medical industries, as they offer superior quality and characteristics compared to other types of sugar powders. Thus, in May 2001, Shandong Luzhou acquired a new production line and commenced production of glucose powders. The new production line produced approximately 10,000 tonnes of glucose powders annually.
In June 2002, we relocated our research and development centre to new premises equipped with better facilities within the Shandong Luzhou premises.
In December 2002, we undertook a revamp of our Yishui production facility, including building new workshops and acquiring new production lines to accommodate the growing need to use advanced technology in our production process, and the growing demand for our products. With our new production facilities, Shandong Luzhou was capable of producing approximately 190,000 tonnes of sweeteners annually.
As the PRC economy continued to grow at a rapid rate, energy usage in the PRC also increased. To cope with the potential energy crisis, the PRC government permitted selected enterprises to have their own energy production capabilities. In response to such government initiatives, in July 2003, Shandong Luzhou invested approximately RMB 35.0 million for the construction of a 6MW thermoelectricity generator to be located within its production facility premises to provide steam and electricity for its production lines and save on electricity costs. Shandong Luzhou completed the construction of its generator in December 2003. Liaoning Luzhou and Shaanxi Luzhou followed by investing a total of approximately RMB 16.0 million for the construction and installation of thermoelectricity boilers and some basic facilities in their production facility premises, in preparation for the construction of complete thermoelectricity generators.
In January 2004, we added new production lines and equipment at our Xingping production facility to accommodate the growing demand for our products and Shaanxi Luzhou's annual production capacity grew to approximately 160,000 tonnes of sweeteners. In May 2004, Liaoning Luzhou also introduced new production lines and equipment and saw its annual production capacity grow to approximately 160,000 tonnes of sweeteners.
In April 2004, Shaanxi Luzhou and Liaoning Luzhou completed the construction and installation of the thermoelectricity boilers in their production facility premises that laid the basic foundation for the construction of full fledged thermoelectricity generators. Meanwhile, the thermoelectricity boilers were used to produce steam required for our production process.
In January 2005, pursuant to the Restructuring Exercise, our Group acquired certain assets and liabilities relating to the corn refining business of Liaoning Luzhou, Shandong Luzhou and Shaanxi Luzhou. We also entered into lease agreements with Liaoning Luzhou, Shandong Luzhou and Shaanxi Luzhou for the use of the premises occupied by our production facilities, acquired a power generator from Shandong Luzhou and acquired all patent applications and certain trade marks from Shandong Luzhou.
In March 2005, Shandong Bio-chem entered into an investment agreement with Henan Province Xiping County People's Government (河南省西平县人民政府) for the purchase of a piece of land and the establishment of a branch office and production facility for the production of sweeteners in Xiping County, Henan Province (中华人民共和国河南省西平县国土资源局). Hence, to accommodate our Xiping branch office and production facility, in September 2005, Shandong Bio-chem entered into a transfer agreement of state-owned land use rights with the State Land and Resource Bureau of Xiping Country Henan Province for the purchase of a piece of land with an area of approximately 138,155 sqm in Xiping County, Henan Province. Our Xiping production facility commenced production in January 2006.
In November 2005, Shandong Bio-chem entered into a transfer agreement of state-owned land use rights with the State Land and Resource Bureau of Yishui County (沂水县国土资源局) for the purchase of a piece of land with an area of approximately 97,945 sqm in Yishui County, Shandong Province, for the purpose of establishing a new production facility for the production of sweeteners, namely sorbitol, with an estimated annual production output of 40,000 tonnes. The production facility is currently undergoing construction. We expect to commence commercial production in the last quarter of 2006.