The Telegraph
Since 1st March, 1999
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Foreign beer makers chill out in China
- Glut at home forces Western brewers to look eastwards

Hong Kong, Sept. 2 (Reuters): Facing saturated markets at home, foreign brewers are rushing to team up with Chinese beer giants in a trend that could intensify an already fierce battle in China’s booming, but glutted beer market.

Foreign brewers hope that their Chinese counterparts’ vast sales networks and relatively low production costs can help them hitch a ride on the six-percent-a-year growth of the world’s second largest beer market.

In recent months, giants from the United States, Japan and Belgium have been eyeing or buying stakes in Chinese beer-makers. Striking partnerships with big local brewers marks a departure from the last wave of foreign investment in China’s beer sector, which ultimately went flat.

In the 1990s, overseas brewers set up shop by themselves or with mostly small, local producers, only to see their start-ups drowned in a sea of dirt-cheap domestic beers.

“In light of the high growth nature of the Chinese beer market, foreign brewers are streaming into China again,” said Tsingtao Brewery chairman Li Guirong. “But the current trend is that they will team up with big domestic brand names,” he told reporters recently. Chinese brewers are pursuing foreign capital and managerial know-how in efforts to remove a margin hangover and slake a thirst for funds resulting from a recent spree of acquisitions of smaller, often bankrupt breweries.

Tsingtao, China’s biggest brewer, said last month it was in exclusive tie-up talks with Anheuser-Busch, the world’s largest beer producer and maker of top-selling Budweiser beer. Tsingtao has yet to disclose details of the possible deal, but it has said Anheuser-Busch would increase its stake in Tsingtao from the current 4.5 per cent.

Tsingtao says the alliance is aimed at developing the Tsingtao brand, although analysts say Anheuser-Busch is eyeing development of its own brands over the long term in China.

“Anheuser-Busch would want to make use of Tsingtao’s distribution network to sell their own beer. Maybe in the future, they may use of some of Tsingtao’s facilities to brew Budweiser,” said Grace Mak, an analyst at Merrill Lynch in Hong Kong. Anheuser-Busch owns a brewery in the central Chinese city of Wuhan, where Budweiser for the China market is brewed.

Anheuser-Busch is part of a larger wave of foreign brewers pouring investment into China. Earlier this year, Belgian giant Interbrew signed a preliminary deal to buy a stake in Zhujiang Beer Group, the dominant brewer in the wealthy southern province of Guangdong.

Japan’s number two brewer Kirin Brewery Co Ltd., which has stakes in Australian brewer Lion Nathan Ltd. and Philippine food and beverage giant San Miguel Corp, is also reportedly mulling strategy in China.

Cut-throat market

A 640-ml bottle of Chinese beer often retails at just above one yuan (12 U.S. cents), cheaper than mineral water. In the face of such competition, foreign brewers including Carlsberg, Britain’s Bass Plc and Foster’s have shuttered, sold or scaled back their China operations.

Chinese brewers, meanwhile, have been on a shopping spree, taking advantage of publicly-raised capital and Beijing’s mandate to consolidate the industry.

The buy-out binge has created several domestic giants, including Tsingtao, Yanjing Brewery, CRE Beverage Ltd. and Harbin Brewery Group.

Harbin, China’s fourth largest brewery, raised $ 37 million in a stock offer in Hong Kong in June to buy more breweries and repay debt. Harbin made acquisitions worth HK $ 230 million ($ 29.5 million) last year, almost doubling its capacity to over one million tons.

Tsingtao, which produced 1.53 million tons of beer in the first six months of this year, has boosted its market share to above 12 per cent from just 2 per cent in 1996 after acquiring more than 40 breweries across the world’s most populous country.

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