E-Malt.com News article: China: Having survived colonialism, civil war and Communist revolution, Tsingtao Beer now relies on Japanese investment

China's most famous beer and probably its biggest global brand, Tsingtao has survived colonialism, civil war and Communist revolution. Now, it is relying on Japanese investment to help negotiate slowing growth and intensifying foreign competition, AFP reported on September 3.

Set up by German brewmasters in 1903, Tsingtao Brewery is today state-controlled but partly Japanese-owned, despite strained political ties between the two countries that were on display anew on September 3 as China marked the 69th anniversary of Japan's surrender in World War II.

"Tsingtao Beer has become a big international brand," said Xiao Shengxiong, who travelled with his family and colleagues from Hunan, three provinces away, to Qingdao -- the eastern Chinese city it is named after in an old transliteration.

"We all like to drink Tsingtao beer," Xiao said after touring the Tsingtao museum and brewery, across the road from restaurants serving fresh lager piped directly from the facility.

Nonetheless the company's high profile has not translated into dominance of China's beer market, the world's largest by volume but one that is highly fragmented.

Tsingtao is only the second-largest beer company in China behind Snow, analysts say, and claims a market share of only 17.2 percent.

At the same time, foreign brewers are moving in to the world's second-largest economy.

Snow is partially owned by multinational SABMiller, while Denmark's Carlsberg and Budweiser of the US - which is owned by the world's biggest brewer Anheuser-Busch InBev - put up cavernous tents at the Qingdao Beer Festival, which ended at the weekend.

China has become "an important target of the major international breweries" and competition is "severe", Tsingtao acknowledged in its annual report, after posting a profit last year of 1.97 billion yuan ($320 million).

Domestic beer companies have strongholds in certain regions, stressed Sunny Kwok, an analyst with Guotai Junan Securities in Hong Kong, making it hard for competitors to edge in.

The contest for market share in more open areas is "very fierce", he added. "It's very hard for them to establish a very dominant position."

Japanese brewer Asahi has had a near-20 percent stake in Tsingtao for the past five years, and Osaka-based Suntory set up a joint venture with the Chinese firm in 2012 focused on production and sales in Shanghai and Jiangsu province in eastern China.

Jeremy Yeo, an analyst at Mizuho Securities in Hong Kong, said Tsingtao's high recognition factor gave it an opportunity to profit from premium brews.

"The more pressing question is can they leverage their brand to get people to pay more for beer," he said.

The company declined to put forward any executives for interviews in Qingdao.

Tsingtao's story goes back to the late 19th century, a humiliating era for China when Western powers and Japan were carving up parts of the country as the Qing dynasty tottered after more than two and a half centuries in power.

Germany established a foothold in Qingdao, occupying it in 1897. Six years later the Germania-Brauerei was established, with funding from German and British investors.

"Actually beer at that time was not for the Chinese - only for foreigners, especially Germans," says Wang Yiyi, a guide at the brewery museum, who notes that the China-made beer won a "golden prize" in Munich in 1906.

Japanese troops took control of Qingdao in 1914, ousting the Germans with British help, and two years later the firm was bought by Dai Nippon Brewery, a precursor of Asahi.

In turn, Japan's World War II defeat saw China's Nationalists take control of the company. Just four years later, the Communists won the country's civil war and Tsingtao entered yet another new phase, which a panel at its museum describes as a "historic breakthrough".

Under Mao Zedong China had a Soviet-style planned economy, but Tsingtao was allowed to export from 1954, with sales to the United States commencing in 1972, the year of president Richard Nixon's landmark visit to China.

When Deng Xiaoping instituted transformative economic reforms later that decade, the business was well-placed to take advantage.

It listed on the Hong Kong and Shanghai stock exchanges in 1993 - the first mainland Chinese company to do so - and now sells beer to more than 80 countries and regions.

At the museum, pictures show a series of Communist Party visitors, among them current President Xi Jinping, examining a bottle of beer when he inspected the firm in 2008, before becoming head of state.

Whatever the bigger competitive issues, Wei Deling, who runs a small beer wholesaler in Qingdao near the museum, is optimistic about the future.

China's beer market "will get bigger and bigger for sure", she said.


05 September, 2014