• A Chinese dairy farmer tends to his cows.

A Chinese dairy farmer tends to his cows. (Photo : Getty Images News)

China Huishan Dairy Holdings Co Ltd (Huishan Dairy), one of China's biggest dairy companies, is now struggling to keep afloat amid increasing liabilities and a short-term debt squeeze.

The company's shares plummeted 85 percent in a single day last month--wiping $4 billion off its value.

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Huishan Dairy's woes began after embracing an "innovative financing" scheme such as the sale and leaseback of its cows and selling wealth management products for rich investors.

Last November, Huishan Dairy pledged its 40,000 dairy cows to a financial leasing firm for a 750 million yuan loan, which it promised to repay in 10 installments beginning May.

The company's top shareholder Champ Harvest, which is controlled by Huishan dairy chairman Yang Kai, pledged almost all its shares to secure loans and financing help.

Huishan Dairy finance executive Ge Kun, who was in charge of treasury functions and cash, said the company would consider adopting "innovative tools in the future" just right after leasing its cows. Ge is now missing.

Shawlin Chaw, Control Risks analyst focused on Greater China, noted that Huishan Dairy's case is not unique as there could thousands of similar cases at a smaller scale in less developed provinces and counties.

In 2013, after Huishan's $1.3 billion Hong Kong listing attracted many investors, the Liaoning provincial government became very vocal in supporting the company with slogans proclaiming that it would create tens of thousands of jobs.

After Huishan Dairy missed its debt payments to 23 creditor banks, including big companies such as Bank of China Ltd, AgBank and Ping An Bank Co Ltd., the Liaoning provincial government had to broker meetings between the concerned parties. The creditors assured Huishan Dairy that it "would continue to have confidence" in them.

Huishan Dairy was further burdened by the region's falling milk prices and rising feed costs.

Shan Jiawu, a dairy farmer for over a decade in Zhangwu, commented that 2017 is the worst he's seen for the dairy cattle industry.