Brewers pounce on China's market liberation
their stakes in Chinese brewers by taking advantage of China's
crawl towards a more liberal market, reports Chris Mercer.
SAB said its Chinese associate, China Resources Snow Breweries, had agreed a deal with the Fuyang city government to buy the assets of the Fuyang City Snowland Brewery for $15 million cash.
Snowland is the biggest brewery in the northwest of China's Anhui province and follows CR Snow Breweries' acquisition of 90 per cent of the Shucheng and Liuan breweries in central Anhui.
Now the company wants to expand production at Snowland from 1.4 million hectolitres to two million as part of a long-term strategy to dominate the region. The firm also plans to build a new brewery in Dongguan, Guangdong.
The move by SAB came at the same time as international rival Anheuser Busch (AB) announced it had increased its stake in the Tsingtao Brewery, China's biggest, from 9.9 to 27 per cent.
The move puts AB only four per cent short of the government's stake in Tsingtao, although a special agreement with the Qingdao State-Owned Assets Supervision and Administration Commission means AB will only take 20 per cent of the voting rights.
Both brewers' announcements show the Chinese authorities increasingly prepared to loosen their grip on the country's state-owned breweries, possibly offering greater opportunities for private investors.
The incentive for this may be the technological and market expertise private firms, especially international ones, are able to bring to domestic companies.
"The shareholding and management structure of the company have been optimized after Tsingtao built a strategic relationship with Anheuser-Busch," said Li Guirong, chairman of Tsingtao's board.
"The existing board and supervisory directors from Anheuser-Busch have brought new ideas on management to Tsingtao, improving management and technology of Tsingtao and helping the company to achieve the goal of internationalisation,"said Guirong.
AB will appoint a second member to Tsingtao's board as part of the new deal.
China is the world's biggest producer of beer with output of some 24 million tonnes per year. Many of the big brewers, including InBev, AB, SAB and Heineken, have been targeting the country for some time.
A report last year by market research group Access Asia, said the Chinese beer market still contained high growth potential due to relatively low per capita consumption, despite the high production volume.
In 2003, the average Chinese adult consumed 18.76 litres of beer. This compares to 44.5 litres in South Korea, 41.9 in Japan and 29 litres in Hong Kong.
Investors have long seen China as a potential gold mine, housing a sixth of the world's population and nurturing a fast-growing economy with increasing market liberalisation.
Yet, the market environment is tough with a strong government presence and increasing competition. There also remain stark contrasts between the affluent big cities and vast rural areas where disposable incomes are significantly lower and life remains much more traditional.
Access Asia said international brewers had made strong progress in China by harnessing the dominance of domestic brewers. But, it warned that China remained a complex market, varying widely from region to region with very few companies able to operate on a truly national level.
