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    Liquor producers' spirits high for top brands
    Liquor producers' spirits high for top brands JIA HEPENG,China Business Weekly staff 2004-08-03 08:08

    China's liquor producers are shaking off their domestic hangovers by manufacturing high-end brands and attracting foreign investment.

    "In recent years, a group of Chinese liquor producers have expanded their sales and profits... by introducing expensive, high-end brands," said Zhao Jianhua, an expert with the China Brewing Industry Association.

    "That has widened the gap between ordinary liquor makers and themselves."

    China's top liquor producers focusing on high-end brands include Sichuan-based Wuliangye, Sichuan-based Langjiu, Guizhou-based Moutai and Inner Mongolia-based Genghis Khan Group.

    Earlier this year, Wuliangye Group announced plans to increase the price of its leading brand, Wuliangye, by 100 yuan (US$12.10) per bottle, to more than 500 yuan (US$60.39).

    Most recently, Genghis Khan Group, originally a producer of spirits in Hohhot, capital of the Inner Mongolia Autonomous Region, invested 65 million yuan (US$7.85 million) to shoot a series of 30 commercials to promote its top brand, Genghis Khan.

    The group plans to sell the liquor for between 200 yuan (US$24.15) and 500 yuan (US$60.39) per bottle.

    To improve the quality of Genghis Khan liquor, the company also invested 18 million yuan (US$2.17 million) to buy a distillery in Sichuan Province's Luzhou.

    Luzhou has the oldest distillery still in use in China. The facility dates back more than 500 years.

    "Besides the long history of Luzhou's liquor-making industry, there is a historical anecdote that makes Genghis Khan liquor culturally valuable," said Liu Yong, vice-general manager of Beijing Genghis Khan Trade Co.

    The firm is a subsidiary of Genghis Khan Group.

    The mighty Mongolian knights led by Genghis Khan and his sons managed to conquer half of Europe in a few years, but battled Song Dynasty (960-1279) troops at the southwestern section of Luzhou's wall for 39 years.

    During those decades, Arabian wine makers, brought by Mongolian troops, exchanged ideas and techniques with Chinese liquor producers, which resulted in significant progress in China's liquor making industry.

    Thanks to top brands, the sales volume of China's liquor industry reached 54.53 billion yuan (US$6.59 billion) last year, up 11.79 per cent year-on-year, according to China Brewing Industry Association statistics.

    That achievement, however, followed several years of sector-wide falling sales.

    In 2002, with the industry's combined sales volume remaining at about 49 billion yuan (US$5.92 billion), roughly the same as in 1999, the sector's total profit decreased from 4.17 billion yuan (US$503.6 million), in 1999, to 3.24 billion yuan (US$391.3 million).

    China's liquor industry has long suffered from reduced consumption, rising production costs and harsh tax policies, said He Jihong, office director of the National Candy and Liquor Fair's organizational committee.

    In 2001, the government imposed a new consumer tax, a fixed 0.5 yuan (6 US cents), on each bottle of liquor.

    That was harsh for average liquor producers, especially those whose products sold for 5 yuan (60.4 US cents) or less.

    Major liquor producers were dealt another blow: They were not able to evade their taxes, Zhao said.

    Meanwhile, many small liquor producers easily escaped paying their taxes, under local governments' protection, because they were the main sources of taxes in smaller communities.

    Under such circumstances, China's major liquor producers have tried, since 2001, to develop and promote high-end, expensive brands.

    Besides increased profits, the higher quality liquors have made it possible for producers to pay less in consumer taxes while distinguishing themselves from small liquor producers, He said.

    It takes huge amounts of capital to develop and promote top brands. Many entrepreneurs from outside the sector have, since 2001, rushed to invest in China's liquor producers.

    For example, garment maker Shiqi, from Hohhot of Inner Mongolia invested in, and controlled, Genghis Khan Group in 2001. That capital infusion made it possible for the liquor firm to improve its production facility and product quality.

    Shenzhen Wanji, a health food producer, recently acquired Kongfujiajiu, a famous liquor producer in Shandong.

    "Although the liquor industry did not boom in 2001 and 2002, many outside investors came, because profits were stable," Liu told China Business Weekly.

    "The rate of profit for top brands, if promoted successfully, is very high. The quest for high profit bridge China's top liquor producers and outside investment," Liu said.

    (Business Weekly 08/03/2004 page9)

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