Liquor market tumbles as govt tightens belt

Liquor stocks in the A-share market plummeted by 2.18 percent on Tuesday, a day after China’s State Council announced further belt-tightening efforts in “the three official consumptions” at the Fifth Conference Against Corruption, Beijing News reported Wednesday.

Also affected were the A-share prices of Kweichaw Moutai Liquor, which slumped by 6.37 percent, and Wuliangye Liquor with a 6.5-percent fall. 

The high-end liquor market has been shrinking since the last quarter in 2011, with notable signs of bogged sales and decreased prices, according to a report issued during the 86th National Sugar and Alcoholic Commodities Fair held recently in China.

It came months after the Chinese government decided to curb “the three official consumptions” – the government departments’spending on official receptions, vehicles and overseas trips – at the National People’s Congress (NPC) and Chinese People’s Political Consultative Conference (CPPCC) held in March 2011. The liquor market has been facing a gradual capital outflow since.

Huang Fusheng, a researcher with China Securities Co Ltd, noted that the twin slump could be partially attributed to reasons much deeper than seasonal fluctuations, given the fact that liquor prices had been soaring quite perversely despite the ups and downs of the macro economy in the past three years, according to Beijing News report.

The retail price of Kweichaw Moutai Liquor, a well-known high-end liquor brand, soared from 600 yuan ($95.16) in 2009 to 2,000 yuan in 2011, Beijing News reported.

“A possible explanation for the perverse swell of liquor prices is the investment hikes in fixed assets during the past three years, incurring a notable increase of government affairs and business activities which in turn boosted liquor consumptions,” an analyst who wished to be unidentified told Beijing News.

According to an annual report of China’s liquor industry in 2011, the net profit of Kweichaw Moutai Co Ltd hit 8.76 billion yuan ($1.39 billion), up 73 percent year-on-year. And those of Wuliangye Group increased by 41 percent year-on-year to 6.19 billion yuan.