Yanjing – the Emperor’s beer

The history of Yanjing Brewing’s founding and early growth provides a fascinating insight in the social embeddedness of Chinese enterprises.

This post is derived from a case study in one of my academic writings: Chinese Corporate Identity. Readers who are triggered to get a deeper understanding, please read that chapter, or better: the entire book.

Yanjing: more Beijing than Beijing

Yanjing, literally meaning ‘the capital of (the state of) Yan,’ is derived from Yan, the name of an ancient kingdom located just south of present day Beijing. Before the unification of China in the Qin dynasty, China was divided in a number of small states with a king, duke, or other feudal nobleman as its leader. The influence of these states on the construction of local cultures has been so strong, that many of their names are still used today as an indication of the origin of a company or government organization. In modern usage, Yan is often combined with the name of another ancient state: Yan’s southern neighbour state of Zhao. The compound Yanzhao seems to refer to Hebei province, in particular Hebei’s capital Shijiazhuang. A local newspaper, e.g., is called Yanzhao City News (Yanzhao Dushibao).

The case history (see below for the details) will show that the suggestion to change the brand name of the new brewery into Yanjing Beer was made under similar circumstances. Beijing Beer was already used as a brand name by the Beijing Brewery, which was located in Beijing and carried the word ‘Beijing’ in its name, but was tightly connect to the State, rather than Beijing Municipality. Yanjing Beer then offered an ideal alternative for ‘Beijing Beer.’ Interestingly, there is another example of a Chinese food brand referring to the Chinese capital. In the post on instant noodles I am reporting about Nanjiecun (Henan) that is marketing a new type of noodles under the Beijing brand, to give the product a high-end feeling.

Period 1 1980 – 1988 – 100,000 hls/yr

For each period, the average increase of the beer output is indicated as the first parameter of a period. Yanjing evidently strongly anchors its self-perception in its core business: brewing.

Yanjing’s story starts by stating that it was originally established to relieve the beer shortage in Beijing. At the eve of the economic reforms, beer was still regarded a luxury good in China. Chinese drank the traditional distilled liquor, called white spirit (baijiu) in Chinese, with their meals. Wine was hardly produced and most Chinese wine was very sweet, which made it less suitable to accompany meals. Beer was served in hotels and restaurants, but production was often insufficient to serve the total populace.

Yanjing is positioned in its annals as the result of the combined effort of an impressive number of parties. The following bullets list those parties and their role in the founding of Yanjing Brewing.

  • Shunyi County Government: co-investor
  • Shunyi County CPC: co-investor
  • Shunyi County Industry Bureau: co-investor
  • Beijing Municipal Government: approval
  • State Planning Committee: approval
  • Ministry of Light Industry: vice-minister He Zhihua suggested to change the brand name from Shunyi Beer to Beijing Beer in August 1981; probably the basis for the decision to change the company name from Beijing Shunyi Brewery to Beijing Yanjing Brewery on 13.3.84
  • State Council: Praise by vice-premier Wan Li in RMRB after visit to Yanjing on 19.5.82; visit by another vice-premier Chen Muhua on 12.4.86.

Period 2 1989 – 1993 – 500,000 hls/yr

By 1988 Yanjing had already attained a share of 30% of the Beijing market. Some people in the Beijing government were sceptic about the expansion of the local brewing industry. They estimated the Beijing market at maximum 200,000 hls p.a., which was less than the combined capacity of the region’s three main breweries. Yanjing’s management calculated in a different way. They took into account that the per capita consumption of beer would increase considerably and therefore estimated the total local market at 500,000 hls, more than double the official estimate.

Moreover, Yanjing did not intend to restrict its sales activities to the Beijing region. The company had already laid out a rough expansion scheme:

Beijing > Tianjin > Hebei > China > the world

The port city of Tianjin, like Beijing, is a city with provincial status. The regions of Beijing and Tianjin municipality are almost adjacent and the two can be regarded as twin cities. Hebei is the province surrounding the regions of Beijing and Tianjin. In fact, from an economic point of view, Beijing and Tianjin are cities located in Hebei, though directly controlled by the national government. Linguistically, geographically, culturally, etc., it is one region (Yanzhao).

The following table shows Yanjing’s upward march to the number one Chinese brewery.

Year rank
1991 10
1992 5
1993 3
1994 2
1995 1

By 1995, Yanjing had a 70% share in Beijing.

Another feat of Yanjing achieved in this period was raising the percentage of its output that it was allowed to sell directly to customers. In the old command economy, state owned enterprises had to sell 90% of their output through state regulated sales channels, controlled by the Ministry of Commerce. Yanjing’s management wanted more freedom in this respect. The request was granted and Yanjing received a license to sell 50% of its output itself.

Period 3 1994 – 1998 – 1 million hls/yr

This period starts with the designation of Yanjing Beer as the official beer served at state banquets in the Great Hall of the People in February 1995. It is an honour of symbolic value, which once more suits Yanjing’s identity of state owned enterprise that is proud of that status. In that year, Yanjing replaced Qingdao as China’s number 1 brewery.

Yanjing was reorganised into a limited stock company in 1997. In the same year, the company sought listings at the stock exchanges in Hong Kong and Shenzhen.

By this time, Yanjing ranked among China’s major enterprises. The Chinese government keeps a number of lists that are updated annually. In this context, Yanjing was regarded as:

  • one of 520 Large Enterprises recognized by State Council;
  • one of 300 enterprises supported by the State Economic Committee.

Being included is lists like these is more than just honourable. It is an indication that an enterprise has access to funds that are out of reach for others. It also means that an enterprise is more likely to obtain support from the government for ambitious plans.

Period 4 1999 – 2004 – 3 million hls/yr

Yanjing received a foreign trade license, which allowed the company to directly engage in import export business without the use of a foreign trade company in March 1999. Yanjing exported its first batch of beer to the US in 2001. Export to Europe started in 2005.

The main issue of this period is the expansion of Yanjing into various regions of China. Yanjing had been using the name Yanjing Group since 1993. However, the company really only consisted of one brewery, the old mother plant. The first expansion by acquisition took place in 1995, when Yanjing took over the bankrupt Huasi Brewery. Huasi was also based in Shunyi and included capital from a Hong Kong investor. Very little is known about the background of this company, but according to Yanjing’s historians it was located right on Yanjing’s doorstep.

After Huasi was acquired, it was quickly consolidated into Yanjing. During the following years, Yanjing acquired a considerable number of breweries in various parts of China. The following table lists the acquisitions in historical order.

18/01/1999 Jiangxi Ji’an
18/06/1999 Hunan Xiangxiang
18/12/1999 Hubei Xiangtan
20/01/2000 Hunan Hengyang
18/05/2000 Jiangxi Ganzhou
08/08/2000 Shandong Laizhou
18/11/2000 Inner Mongolia Baotou
18/03/2001 Shandong Wuming
20/03/2001 Shandong Qufu Sankong
10/07/2001 Inner Mongolia Chifeng
18/07/2002 Guangxi Guilin Liquan
16/09/2002 Fujian Nan’an Huiyuan
16/07/2003 Zhejiang Xiandu
26/07/2003 Fujian Huiquan

Yanjing has never stated to have a specific strategy as to the order of regions in which it intended to become active. However, there seems to be a certain pattern in the above list. During the first 1.5 years of its acquisition spree, Yanjing developed into South Central provinces: Jiangxi, Hubei and Hunan. During the following 1.5 years, the company aimed its acquisition activities on the Northern coastal province of Shandong and Inner Mongolia, both quite close to its own home region. The period that seems to emerge then is a two-year period in which Yanjing penetrated to very South and the Southern coast.

A second pattern that can be extracted from Yanjing’s acquisition list, seems to corroborate this hypothesis: Yanjing’s acquisitions are never located in provincial capitals, but always in second echelon cities in their respective regions. Just as Yanjing did not select China’s poorest regions, the company also stayed out of the poorest provincial towns. Cities like Ji’an and Ganzhou in Jiangxi are industrial centres in their home province.

In October 2003, Yanjing established a South China Office, replacing the management office for non-Beijing subsidiaries. Following the same line of analysis, we can conclude that this decision indicates a change in the geographical perception among Yanjing’s management. I will spend the entire section 6.4 on the significance of ‘the South’ in Yanjing’s identity constructs. Here, I will concentration on the important symbolic feature of establishing such a South China Office, as it indicated that Yanjing was shifting from a Beijing identity to a China identity. It was becoming a truly national company. While the term ‘outer prefecture management company’ still had a strong Beijing flavour, the term South China Office implicated that Yanjing in the sense of the mother company was cognitively located in North China, and no longer in Beijing.

This analysis is corroborated by the fact that the non-Beijing subsidiaries were good for more than 57% of Yanjing’s turnover of 2003.

Yanjing’s largest acquisition was the 31.8% state share in the Huiquan Brewing Co., Ltd. Although Huiquan at that time was not performing well, it ranked in size among China’s top breweries. Huiquan generated a turnover of RMB 760 million. The brewery was reorganized from a state-owned production plant to a limited stock company in 1997, with the State retaining a minority share. Following this reorganization, Huiquan sought to attract more capital by a public listing. This proved to be a bad move, on the eve of the Asian financial crisis. The take-over was celebrated with a ceremony in the Great Hall of the People. Yanjing was celebrated as the saviour of the state’s assets. The was yet another event confirming the state-owned identity of Yanjing. Although it has never been confirmed, this official state level celebration seems to indicate that Yanjing was requested by the State to take over the financial burden of Heniquin. Years before, when Yanjing took over the almost bankrupt Huasi brewery, the company positioned itself as the protector of state assets against the encroaching foreign investors. When Huiquan became an ideal target for a take-over, the State seemed to prefer this to be done by a domestic rather than a foreign party.

After the acquisition of the State’s share in Huiquan, Yanjing started buying up more shares of that company. It became the majority shareholder in March 2004 and Huiquan was consolidated into the Yanjing Group in July of that year.

6.4 Yanjing’s road to the South

Yanjing’s expansion to the South is a crucial chapter in the company’s life. The original Shunyi Brewery was established with the idea to alleviate the need for beer among Beijing residents. This idea co-creates an identity of the existing breweries in the region, in particular Five Star and Beijing, of not being able to fulfil the local demand. Moreover, as the Shunyi Brewery would be operated as a state-owned enterprise, an approval from the State Planning Committee was required. This could explain that a Vice-Minister found it useful to visit the plant in 1981, even though it was a relatively small project of a county government. However, once such a visit has taken place, which involves considerable interaction between a number of parties (arranging the Vice-Minister’s security alone would be an enormous task).

The Vice-Minister did more than just honouring the plant with a visit. He suggested to change the brand name from Shunyi Beer into Yanjing Beer. In Weick’s terms of retrospective sensemaking, the creation of Shunyi Beer as the brand name took place almost automatically. A brewery established in Shunyi was called Shunyi Brewery and its beer sold under the Shunyi brand. Even though we do not exactly know what triggered it, the suggestion to switch the county related name to a name linked to the municipality indicates a strongly heightened state of sensemaking. It again stands to reason that, as the new project was to supply beer to the thirsty citizens of Beijing, the brand name should be broader in geographic scope. However, just like the idea itself, this suggestion for Yanjing as the brand name (and a few years later as the company name) reinforced the negative identity of the existing local brewers, in particular Beijing Brewery. Suggesting Yanjing as the brand name was almost like saying that the new brewery would replace Beijing Brewery. It actually did; it is currently a subsidiary of Asahi.

Visits by State Councillors in 1982 and 1986, further strengthened the ‘central authorities’ identity of Yanjing. Identity is a process, a product of social interaction. The behaviour of state leaders took place in interaction with local leaders of Shunyi county and later managers of Yanjing. The behaviour of the state leaders therefore affected the behaviour of the Yanjing related actors. The latter started acting as favourites of the central authorities, first in their interaction with the leaders, but then also in their interaction in other contexts. This explains why so many of the events of Yanjing were reported in media close to the central government, like the People’s Daily. Reporters of those media will tend to visit Yanjing to interview managers, who will therefore have more frequent interaction with the government-controlled media than other, ‘less important,’ competitors. Yanjing managers brainstorm about the importance of the South Chinese market, which makes the journalists report on Yanjing’s acquisition of a brewery in Ji’an is actually only the prelude to conquering the South. These reports will play a role in the strategic sensemaking of Yanjing managers and the mothers-in-law of Yanjing, etc. In the midst of all this interacting (= sensemaking = organizing), Yanjing was also designated as the beer to be served during state banquets in the Great Hall of the People.

By the time Yanjing made its first acquisition outside the Beijing region, it was included in a context in which it was made sense of as a strong symbol of the central government, a protector of the national industry, etc. The behaviour of Yanjing, a number of central government organizations, the centrally controlled media, etc., was tightly coupled.

When analysing Yanjing’s expansion activities, the notion ‘South’ seems to play a major role. Although Yanjing has never made explicit statements regarding the order of regions in which it acquired new subsidiaries, the company spent the first 1,5 years of its acquisition spree on buying up breweries in the South-Central provinces: Jiangxi, Hubei and Hunan. After a second 1.5-year period in which Yanjing expanding to regions closer to its home region, another move to the South started, including Guangxi, Zhejiang and Fujian.

The division of China into two major regions North and South is very old. Allusions to it can be found in ancient works of literature. The division is not only a geographic one. An imaginary border, often localized in the Yangtze River, has been perceived to divide the people in the North from those in the South. The people in the North are struggling with the harsh continental climate, constantly threatened from invading barbarians. They are, on the other hand, the speakers of Mandarin and most Chinese imperial families have been of Northern descent, while some of them actually were barbarians, including the last dynasty, the Qing. The staple of the Northerners is wheat. The Southerners live a milder climate, although Northern officials often did not appreciate a post as local magistrate in the South, complaining about the hot and humid summers. The Southerners grow and eat rice. They speak many, mutually not intelligible dialects. Although also mainly farming, many of them have switched working the soil for trading. Most Chinese that ventured emigrating to start a new life abroad were Southerners.

That most Chinese imperial families originated from the Northern half of China and that the various capitals of the Chinese empire have mostly been located in that area has probably been a product of a number or causes. First of all, Chinese civilization, based on archaeological findings, started in the North(west). Then, during the ages, most threats to that Chinese civilization had come from the North. The Northerners had to take the first blows, but by doing so also became the rules of China. In terms of organizing processes, the recurrent behaviour of the Northern Chinese as the protectors of the nation constructed an environment in which the dynastic families were typically Northerners. Moreover, this also explains the continental inclination of most Chinese dynasties, with a high regard for the tilling of the land, but with a dread for sailing out to the sea; a fear re-enacted by the Communist rulers until the 1980s.

The Northerners thus were the rulers and the Southerners the ruled. However, the Southerners have learned how to live a life of their own without too much interference by the rulers (the federalist tendency in Chinese culture introduce in the beginning of this chapter). The rulers through the ages have realized that and, in turn, have devised ways to maintain a basic level of control in the South, without antagonizing the Southerners too much. One typical way for the Emperor to establish his influence in a faraway region that was (reported to be) rebellious was the special envoy, who was given the Emperor’s sword as a token that he enjoyed the undivided trust of the Emperor. Such an envoy could decide over life and death.

Yanjing’s decision to establish South China Office in October 2003 can be interpreted as a continuation of this tradition. By that time, Yanjing was operating breweries in nine administrative regions of China, equally divided over the North and the South. However, the company’s head office was located in the capital, as was the Forbidden City in imperial times. It seems as if Yanjing, steeped in Northern culture, felt that it could operate the Northern subsidiaries sufficiently from Beijing, but that those in the South needed to have an office of their own. This would give the Southerners the feeling that they were to a certain extent in charge of their own affairs.

I have already pointed out that Yanjing has so far not been reaching out to a number of regions, including the very North of China. The very South, on the other hand, in particular the rich province of Guangdong, is frequently mentioned as a major objective. However, instead of directly acquiring a suitable brewery in that province, Yanjing attempted to attack Guangdong by means of a siege from its neighbouring provinces first.

Yanjing’s first acquisition outside the Beijing region, in Jiangxi’s Ji’an, was directly linked to a move South by Chinese analysts. A commentator in the Market Daily described the deal in Ji’an as a guarantee and condition for increasing market share in the South. He then continues by stating that it is ‘actually nothing more than a prelude to Yanjing conquering of the entire Chinese market.’ This statement shows remarkable insight in Yanjing’s strategy. When this article was published, Yanjing had only acquired two breweries outside the Beijing area. It seems that this reporter was being used as a mouthpiece of Yanjing’s management. The Market Daily is a publication of the People’s Daily, the national newspaper published by the Communist Party. Further in the article, Yanjing’s Vice-Party Secretary is cited as the main source of the ‘news’ published in this article. In a Chinese context, it is easy enough to perceive Yanjing as the tool of the central authorities in Beijing. Yanjing was served at the official State Banquets in the Great Hall of the People; it was the new Emperor’s favoured brew. The role of Yanjing as the Party’s envoy to the South is then only one step away, the sword being traded for a bag of money.

Another analyst more directly related Yanjing’s acquisition activities in the South as aimed at Guangdong. In this article, Yanjing’s subsidiaries in Ji’an (Jiangxi), Hengyang (Hunan), Guilin (Guangxi) and Hui’an (Fujian) are grouped together as each taking care of part of the Guangdong market, apart from their respective home regions. It reports that a Vice-General Manager of Yanjing has spent the period of December 2002 to March 2003 to forge this circle of breweries into a chain around Guangdong. This Vice-General Manager is referred to as ‘holding a flying office’ (feixing bangong), yet another expression that seems to allude to the office of special envoy of the emperor; who has traded the traditional horse for a modern plane.

The same article reports that Yanjing had been shopping around in Guangdong and has held negotiations with the Qiangli Brewery in Sanshui (near the border with Hong Kong) and the Doumen Brewery in Zhuhai (near the border with Macao). The talks with Qiangli failed, because Qiangli insisted on continuing the Qiangli brand, that was not performing very well at that time, while Yanjing did not want to link its strong brand name with one with a bad reputation. The reason for not acquiring Doumen was not given, but the article cites a Yanjing spokesman stating that the company was not considering an acquisition in Guangdong anymore, because the exorbitant price required by any Guangdong brewery exceeded the cost of a greenfield plant.

During the time that Yanjing was preparing itself for the attack of Guangdong, a peculiar incident occurred in Nanchang, the capital of Jiangxi. Late February 2003, a number of unidentified people purchased 400,000 bottles of Yanjing beer at more than 3600 retail outlets in Nanchang. Some of the offered a price higher than the actual retail price, while others offered to trade one bottle of freshly produced Yanjing beer for three bottles of Nanchang beer dating November 2002. Reporters investigating this matter found an abandoned warehouse with approximately 100,000 bottles of Yanjing beer piled up. The incident was never further reported, but after the short article appeared in a local paper, it was also published in Guangzhou (Guangzhou Evening News 2003) and even the national People’s Daily. Especially the latter fact seems to corroborate once more that even such a, seemingly, minor incident is a matter worth reporting in the ‘throat and tongue of the Party’ (dang de houshe; a slang term for the People’s Daily).

This incident indicates that, although Yanjing had already been active in the region for more than two years, it had not yet been accepted as a local beer. Regardless whether the ‘raid’ on Yanjing beer in Nanchang was an initiative of the local brewer of Nanchang beer, or that it was an act of local popular protest, the offer to substitute one bottle of recently brewed Yanjing beer for three bottles of the local brew that had been produced four months earlier is highly symbolic. Even though the campaign was apparently directed against Yanjing, the attackers subconsciously still attached a higher value to Yanjing than to their local Nanchang beer; three time higher to be precise. The alternative deal, offering a price higher than the regular retail price, has a similar symbolic value.

This incident also fits in with the identity of Yanjing as the envoy of Beijing, the central government, the Communist Party, etc. In the old days, the imperial envoys, in spite of the power invested in them by the Emperor himself, had to deal with suspicion and even downright display of dislike from the local people, including the local gentry. We should never forget the enormous symbolic power of the Yanjing brand. As Yanjing is a literary equivalent of Beijing, protest against Yanjing can be likened with protest against Beijing, and from there everything ‘Beijing’ stands for. I will revert to this mechanism in the final chapter, in which I will integrate the findings of the case chapters with the theoretical framework laid out in chapters 1 and 2.

Then finally, still unexpected, Yanjing decided to build a brewery in Guangdong after all. Beijing Yanjing Brewing Co., Ltd and Beijing (Industrial) Brewing Co., Ltd., two Beijing based daughter companies of the Yanjing Group, had entered into a joint venture in December 2004 to jointly build the Guangdong Yanjing Brewing Co., Ltd. The location selected was the Nanhai District of Foshan, a city close to Guangzhou, the capital Guangdong. The objective was to start production in June 2005.

A Yanjing spokesman motivated this move with three reasons:

  • Foshan was an excellent location, offering favourable investment conditions;
  • Foshan was an economically developed region, with a pool of affluent consumers;
  • Yanjing still did not have its own production facilities in Guangdong, which was a burden for the mother company in Beijing, as it had to ship the Yanjing beer all the way to Guangdong.

The latter is the most intriguing of the three. While Yanjing had been carefully laying a chain of breweries in adjacent provinces to attach the Guangdong market from four sides, now the establishment of a brewery of its own in the region was motivated as a means to lighten the burden of the mother plant. It seems as if the consumers in Guangdong had never really accepted ‘Yanjing beer’ that was not produced by the real Yanjing (the one in Beijing). While the acquisition of Huiquan was even celebrated by a party in the Great Hall of the People, yet another act that constructed the ‘central government’ identity of Yanjing, it was never able to penetrate the Guangdong market as hoped. Major competitors of Yanjing on the other hand, in particular Qingdao, were more successful in this region through local subsidiaries.

Actually, Qingdao acquired Doumen, after Yanjing broke off its negotiations with that brewery. Apparently, Guangdong consumers do accept beer from other regions, but only if it is produced by the mother company or brewed in their own home province. Yanjing then realized what it had exclaimed in despair a couple of years before: it is cheaper to build a Greenfield plant in Guangdong than to acquire an existing one.

With a brewery in Guangdong on the way, Yanjing now seems to have ended its journey to the South. Yanjing = Beijing = the central government rules in the South, be it through an entity with a Southern identity.

Latest news from Yanjing

Yanjing Brewing has generated a turnover of RMB 3.28 bln in the first quarter of 2018; up 3.35%.

Eurasia Consult Food knows the Chinese food industry since 1985. Follow us on Twitter.

Eurasia Consult Consulting can help you embed your business in Chinese society.

Peter Peverelli is active in and with China since 1975.

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Food for brands

Food brands inspired by the name of their home region is easy to grasp. When a local product starts being promoted elsewhere, branding it with the name of a famous city or region of origin can help push the brand name quicker than when a completely new brand name is forged.

Some of those brand names become so common, that the average consumer gradually forgets that it is a geographic name. Good examples are Worcester sauce or Dijon mustard.

The reversed situation, regions being named after their most famous food or drink, is much rarer.

Chinese local governments, in particular cities, have discovered the power of local foods in increasing the (inter)national awareness of their home region.

Tea city

PuerTeacity

In an earlier post, I introduced how Pu’er tea has been so important for its home region in Yunnan province, that the central city in that region decided to change its name from Simao to Pu’er. The text on the stele in the picture says ‘China’s city of tea’.

Spiritual airport

MaotaiAirport

The Wuliangye Group, the producer of Chinese most famous type of baijiu, made headlines a few years ago by proposing to change the name of the airport of its home town of Yibin to Wuliangye Airport. This has so far remained an idea.

Its competitor Maotai Group in Guizhou has been more successful. Renhuai county will soon open its Maotai Airport. The picture shows the ceremony celebrating the start of the construction.

Let’s hope that the pilots departing from it will not sample too much of this local specialty.

This post is still relatively short, but I intend to add examples as they occur.

Eurasia Consult Food knows the Chinese food industry since 1985. Follow us on Twitter.

Eurasia Consult Consulting can help you embed your business in Chinese society.

Peter Peverelli is active in and with China since 1975.

 

Baijiu – not Chardonnay, but perhaps an alternative for whiskey

2017 was the year of baijiu brands. For the first time, the fiery Chinese drink now accounts for a greater share of brand value than any other spirit type. In 2016, baijiu accounted for 23% of the total brand value of the Brand Finance Drinks 50 behind Whiskey on 37%. However this year, the tables have turned. Whiskey’s share has dropped to 28% while baijiu has surged to 37.5%.

China has produced 119.81 mln hls of spirits in 2017; up 6.9%.

Top 10 distillers of the 3rd quarter of 2017

Brand Turnover  

(RMB bln)

Growth

(%)

Maotai 42.45 59.40
Wuliangye 21.97 24.17
Yanghe 16.88 15.08
Shunxin 8.85 0.79
Luzhou Laojiao 7.28 23.03
Fenjiu 4.86 42.80
Kouzijiu 2.72 16.29
Jinshiyuan 2.39 16.14
Yingjia Gongjiu 2.18 2.11
Laobaigan 1.73 4.44

 

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Being lured into drinking numerous shots of local spirits during a Chinese banquet is a recurrent theme in the tall stories foreigners take home from their China trips. While Chinese are often imagined in Western literature as a tea drinking nation, alcoholic beverages have been the typical drinks to wash down your dinner in China, and especially business meals are not complete without at least one bottle of distilled liquor.

Image

There is an endless variety of local spirits and the local brew is often used in the self promotion of regional governments. The World of Chinese has compiled a useful overview. However, they share a common denominator: baijiu, which literally means: ‘white wine’. However, that translation is never used, as it will put most Westerners on the wrong foot, mistaking it for fermented white grape wine.

Chinese make them strong. Most spirits have an alcohol content exceeding 50%, and even the more recently developed ‘low degree baijiu’ is usually stronger that whiskey or brandy. A sip of baijiu is a completely different experience than savouring a glass of Chardonnay.

This video provides a look in a baijiu production plant. It is in Chinese, but those familiar with the distilling industry will understand most of it.

China has produced 135.836 mln hls of spirits in 2016; up 3.23%. The following table lists the regional breakdown of the spirits production in China in 2014, and the in- or decrease compared to 2013.

Region Volume(10,000L) Growth(%)
China 1,257,131.81 2.75
Sichuan 349,970.50 5.57
Shandong 118,142.91 -9.99
Henan 107,746.24 1.76
Jiangsu 89,851.47 -4.05
Hubei 84,935.45 17.13
Inner Mongolia 61,670.55 -1.68
Jilin 59,415.13 7.17
Heilongjiang 57,032.90 15.38
Liaoning 50,445.49 -15.33
Anhui 43,598.58 4.66
Guizhou 38,045.20 11.00
Beijing 29,496.59 5.34
Hebei 29,367.45 5.60
Hunan 21,710.21 5.74
Chongqing 19,798.72 14.20
Guangdong 17,131.64 14.53
Jiangxi 16,381.00 13.81
Shaanxi 11,919.09 11.58
Guangxi 9,939.96 5.84
Shanxi 9,359.71 -10.11
Yunnan 8,632.72 5.26
Xinjiang 6,331.25 -2.10
Gansu 4,442.03 -1.65
Fujian 4,439.83 7.60
Tianjin 2,301.27 -9.40
Qinghai 1,944.23 -7.98
Zhejiang 1,859.33 -10.02
Ningxia 874.47 -25.31
Hainan 199.90 72.48
Shanghai 75.00 -88.11
Tibet 73.00 -10.10

The order of the regions has hardly changed in 2014. Sichuan has been the absolute top region for many years. The (much) higher than average increase of some southern provinces is conspicuous in the current statistics. Traditionally, the people in the north are the heavy drinkers.

The following picture shows how well Chinese spirits companies are appreciated among international investors. The stocks marked in red are baijiu producers.

Age and education matters

A survey into the development of the popularity of baijiu among different market segments conducted in China during the first half of 2017 reveals that spirits are getting slightly more popular in the youngest drinking age segment and then significantly more among people of 40 and up. However, this trend is considerably stronger for the low end spirits than for the high end varieties. The older consumers drink more spirits, but prefer the cheaper brands, while the beginning drinkers like to start with the high end products. This can be partly explained as a cultural phenomenon. Starting baijiu drinkers like brag about it and then the effect will be best if you can brag about your first sip of Wuliangye, rather something from a local still.

Similar curves can be observed for the various levels of education. The letters refer to the highest diploma of the respondents; legend: P = primary school, H = high school; M = intermediate vocational; V = higher vocational; U = university. It is not easy to explain why people with a higher education would drink more baijiu, while you would expect them to be more interested in wine. However, when they drink it, they prefer the high end brands.

Long tradition

The Chinese production of alcoholic beverages has a long history. The most ancient, chemically-attested, alcoholic beverage in the world was recovered from a Neolithic tomb site in Jiahu (Henan), dating back to 7000 BC. This discovery dates to almost 2000 years earlier than the hitherto discovered most ancient wine production in the Middle East. A mixed fermented beverage of rice, hawthorn fruit/grape and honey was reconstructed on the basis of the analyses of the pottery recovered from the Jiahu site by Delaware-based brewing company Dogfish Head Craft Brewery with the help of the University of Pennnsylvania. The brew is marketed under the Chateau Jiahu brand. The ancient Chinese made a unique contribution to alcoholic beverage-making by using specific grains, especially rice and millet, whose carbohydrates were broken down into simple and fermentable sugars by mold saccharification or amylolysis.

The Moutai story

Ever since US President Nixon tasted Moutai at a state banquet in China, what was already recognised as the nation’s national spirit then became known worldwide instantly. Interestingly, this brand has been developed with the aid of the State, witness the following timeline.

  • 1951-1952: The Chinese government purchased Chengyi, the biggest local distillery, and merged it with another two distilleries, Ronghe and Hengxing, establishing the State-owned Moutai Distillery.
  • 1952: Kweichow Moutai was rated as a nationally famous liquor, and top ranked among eight national liquors.
  • 1957: China invested 1.3 million yuan ($197,511) in expanding liquor and yeast production, liquor storage, and laboratories. Moutai formalized 14 operating rules and procedures for producing Moutai, fully restoring traditional techniques.
  • 1962: The Office of Light Industry of Guizhou province designated the annual output of Moutai as 500 metric tons, with 610 employees.
  • 1972: During the National Workplanning Conference, Zhou Enlai instructed that in order to maintain water quality for Moutai production, no more mines or factories, especially chemical factories, should be built along the upper reaches of the Chishui River. Also the year of Pres. Nixon’s seminal visit to China.
  • 1979: Moutai won the National Liquor title for the third time and the National Golden Award for Quality for the first time.
  • 1980: The packaging of Moutai liquor was transformed into a semi-mechanical, continuous production system, effectively improving its quality and increasing efficiency.
  • 1983: The security committee of the Office of Light Industry proclaimed that the techniques of Moutai production had been officially listed in the first batch of confidential projects in light industrial science and technology. The production process was opened for visits but could not be photographed.
  • 1989: Manual stomping to make distiller’s yeast was fully restored. Moutai Distillery revised the national standard for first-class sauce aroma liquor distilleries. Kweichow Moutai won the Golden Award at the Fifth National Liquor Tasting Conference for the fifth consecutive time. Despite the overall decline of sales of white spirit in China, sales of Moutai surpassed the goal set by the nation and exceeded 100 million yuan ($15 million).
  • 1991: The Kweichow Moutai brand from Guizhou gained top ranking in the first China Famous Trade Marks appraisal.
  • 1996: Guizhou provincial government gave approval for Moutai Distillery to restructure into an exclusively State-owned enterprise, and to be renamed as China Kweichow Moutai Co Ltd. The series of 500 milliliter bottles of Kweichow Moutai (including Feitian and Wuxing) formally started to use customized caps provided by Italy’s GOALA, with anti-counterfeiting marks, anti-refilling and safe-to-use functions.
  • 2001: Kweichow Moutai launched Vintage Moutai, marking its production date at a conspicuous place next to the Moutai brand. Kweichow Moutai was successfully listed at the Shanghai Stock Exchange, raising RMB 2 billion.
  • 2006: The Moutai liquor-making technique was selected on a list of the first batch of National Intangible Cultural Heritage.
  • 2010: Annual sales revenue of Moutai Group exceeded RMB 15 billion. The company expanded its production capacity by more than 35%. The total market value of Kweichow Moutai Group Co Ltd reached RMB 173.5 billion, the highest of all listed white spirit companies.
  • 2013: Heritage sites of the Moutai liquor-making industry were placed seventh on the list of key national-level cultural relics under protection. The Kweichow Moutai brand was valued at 82.4 billion yuan, topping the Chinese food and beverage industry list.
  • 2015: Moutai initiates an annual Moutai Day in San Francisco.
  • 2016: Moutai is officially launched in Germany.
  • 2017: Moutai pops up as the world’s leading spirits brand on Brand Finance’s list.
  • 2017, Sept. 9: Moutai University, China’s first university named after a liquor company opens its doors for the first cohort of 600 students. The university has five undergraduate majors: liquor-making, grape wine-making, food quality and safety, resource recycling sciences and engineering, and marketing.

To meet rising demand from home and abroad, Moutai Group will launch a new project that will produce 66 mln hls of liquor in 2018. The company plans to produce 1.36 bln has of alcoholic beverages in 2023, including 560 mln hls of Moutai liquor.

In the first 10 months of 2017, Moutai exported 16.23 mln hls of alcoholic beverages and earned $281 mln. The group’s sales revenue is estimated to have exceeded RMB 60 bln in 2017, with profits of RMB 30 bln. By 2020, the amount of Moutai liquor sold overseas will account for at least 10% of the company’s total production, according to the group’s strategy.

Moutai has made strong inroads in France, with efforts to acquaint drinkers with the unique taste of baijiu. Lin Xuyang, vice-president of Cammy France Development, the sole distributor of Moutai in France, said the company sold around 60,000 bottles of the spirit in 2017, an increase of 30% year-on-year.

Flavours

Baijiu comes is distinct flavour types:

Rice aroma: The basic baijiu. Expect a floral, mild flavor, almost like rice (hence the name), and an exceptional smoothness from triple distillation.

Light aroma: A popular style in Northern China, this baijiu is made from a rice and sorghum blend that displays some of the restrained aromas of sake. The feature that distinguishes light aroma baijiu from it’s more pungent cousins is the ceramic jars in which it’s fermented, which keep the spirit’s aroma fairly neutral. Also, the mash often include peas, as is the case with the famous Fenjiu, imparting a sweet, floral taste. Light aroma baijius are typically the least expensive to produce.

Strong aroma: The most ubiquitous and widely consumed style of baijiu. It is spicy, fruity, and packs a serious aftertaste that pairs well with cuisine in the Sichuan region where it is produced. Strong aroma baijiu is fermented in earth pits with recycled mash, which help to develop the spirit’s flavor over the years.

Sauce aroma: From Guizhou province (the home of Moutai), this baijiu style is full-bodied with a sharp taste (akin to soy sauce, hence the name) and is the most labor-intensive to produce. The spirit passes through up to eight rounds of subterranean fermentation and distillation and at least three years of aging, which is why it’s more expensive.

Like Western distillers, all major producers have their own confidential process, mixing cereals with herbs, spices, berries, beans and even Chinese medicinal herbs. However, sorghum is the bulk ingredient for most types of baijiu.

An interesting novel use of this traditional distinction of flavours is implemented by Hexiaoshuang, a young brand of baijiu from Inner Mongolia. It presents its spirits in two bottles, a lighter flavour in a white bottle for consumption during day time and a more fragrant version in a black bottle for your night cap.

Modern production

All manufacturers and certainly the cheaper brands, have modernised their production processes, regulating the flavour of their end products using additives. These can include small amounts of sweeteners like sodium saccharine, sodium cyclamate or acesulfame-K. Commonly used aroma chemicals are: ethyl acetate, ethyl butyrate, ethyl lactate and ethyl formate. Ethyl acetate is the substance most influential to the prominence of the typical baijiu flavour.

A number of Chinese flavour companies have developed ready to use mixes of aroma chemicals for baijiu. Some of these are even supplying mixes to imitate the typical flavour of famous brands, like a flavour company in Guangzhou that is advertising for ‘Maotai flavour’. Moutai has so far not undertaken legal actions against such suppliers. Perhaps their confidence in their own product is strong enough.

New raw materials are also being explored. A distiller in Sichuan is currently experimenting with sugar cane.

Fluctuating market

In spite of the fact that the list of top food brands still includes several types of spirits, the production has shown considerable fluctuation during past decades. With the increase of spending power of the average Chinese consumer, the consumption of alternatives, first beer, later followed by wine, grew rapidly to the expense of spirits. This trend was reinforced by the central government that wanted Chinese to consume less baijiu, for health reasons and to save cereals.

The market has been rising again in recent years, and the output of 2013 was 123 mln hls, up 11% compared to 2012. However, this trend is not likely to be continued in 2014, as baijiu, in particular the top brands, is suffering most from the new government’s cut down on public spending. Famous spirits used to be an indispensable ingredient of an official banquet. Government organizations, but also enterprises, are now wary of feasting on Moutai or Wuliangye and are choosing less expensive brands.

Consumers aged between 35 and 45, especially those in the middle-class bracket, are crucial to the baijiu market, according to a recent market survey. They start to discover high-end baijiu between the ages of 25 to 35. Then from 35 to 45, they gradually form a “brand loyalty”.

New strategies

As a result, the China’s top distillers need to reconsider their strategy in two respects: the domestic repositioning of their brands and exploiting the international market. The growing Chinese communities all over the world form an interesting market, but the real challenge will be to lure Western drinkers to switch from their familiar whiskey or vodka to baijiu.

The buzz word of the China Foods & Drinks Fair (Tangjiuhui) of October 2014 was: ‘spirits for the masses (dazhongjiu)’. Several of the top producers were pushing cheaper brands. Moutai is now also offering a Small Moutai, Wuliangye has teamed up with Xijiang (also Sichuan) as a mid level priced baijiu. The latter option is a win-win strategy for both brands. Xijiang can link its brand to its famous brother Wuliangye, while Xijiang is promoting Wuliangye whenever it is advertising for itself.

An Beijing-based initiative to promote baijiu is World Baijiu Day. It is actually a weeklong series of events that runs from August 1 – 9, 2016.

world-baijiu-day

Yet another ruse is selling top spirits for a very low price to get new customer types hooked on the product. Right after the 2014 National Holiday, Luzhou Laojiao‘s top product sold for RMB 9 for a short while (original price: RMB 288). You can imaging the rush.

Also see the spirits section in our item on the cost price of several Chinese food and beverage products.

Xifeng, another old respectable baijiu brand has announced that it intends to take in about 10 of its largest domestic agents as shareholders. Its agent for the Beijing region, Beijing Sugar, Tobacco & Alcohol Group, will even hold a 5% share. This has been revealed in the papers necessary for Xifeng’s intended IPO in March 2015. An interesting example of value chain integration.

Sichuan-based Luzhou Laojiao has launched a special type of baijiu geared to what it refers to as ‘young business people’. This strategy is aiming at two promising market segments, young people and business people, simultaneously. It is a top quality baijiu packed in a smaller than average bottle, to decrease the costs of business lunch or dinner. This strategy therefore also tries to fit into the new policy of the national government to curb spending on wining and dining for business.

The promotion abroad seems to get results. The list of the world’s top 10 distillers published by Brand Finance early 2017 includes 6 Chinese brands, with Moutai featuring as the world’s leading brand of 2017.

 Baijiu dedicated bars in China

A new bar in Beijing billing itself as the world’s first dedicated to baijiu,named Capital Spirits, has opened its doors in Beijing recently.

“A lot of people have had bad experiences at banquets” where they might be coerced into drinking shot after shot of the colourless liquor, says American William Isler, one of the bar’s owners. “They throw up and say, ‘Never again.’”

Capital Spirits has the vibe of a speakeasy, with muted lighting, plenty of antique wood and a stainless-steel still in the corner churning out distilled beer and wine. There’s no sign on the door, although a ledge outside is set up with small wooden chairs, low tables and candles.

The Schoolhouse at Mutianyu, a restaurant and lodge project in Beijing’s suburbs near the base of the Great Wall, that produces baijiu-based liqueurs.

Mott 32 recently won media accolades as the top baijiu spot in Hong Kong.

R&D Cocktail Lab, a Taipei venue that is dedicated to alcohol experimentation. It will feature kaoliangjiu, the baijiu most associated with Taiwan.

Baijiu dedicated bars outside China

Exports of baijiu have been increasing recently. The customs of Yibin, (Sichuan), the home town of Wuliangye, report that 14,880 hls of baijiu were exported in 2015, an increase of 92.4% compared to the previous year. Let’s have a look at the situation in a few selected countries.

An important boost to the consumption of baijiu abroad is making it an ingredient of cocktails. In December 2016, Moutai Group launched its Moutai brand in Hamburg, Germany. About 300 guests were served the liquor in three cocktails designed by a local bar catering service. “Moutai has a smell and taste of cocoa, so in one cocktail we combined it with a chocolate vodka and chocolate bitters,” said Alexander Brittnacher, founder of Next Level Cocktails.”In another we looked for food pairing partners and we found that blackberries are a good combination.”

USA

Another way to facilitate baijiu making its way to the Western world is creating cocktails. Peking Tavern, a hip Northern Chinese restaurant in Los Angeles mixes baijiu into a slew of cocktails (with names like: Peking Coffee, Jin Jing, and Wong Chiu Punch), as does Korean eatery Drunken Dragon in Miami and New York’s Asian fusion den Buddakan. In early March 2015, Lumos, a new evening haunt specializing in baijiu,has landed in Manhattan. Lumos has a menu of more than 60 baijiu cocktails. Owner Salicetti was introduced to baijiu by his architect partner Li Qifan and realized baijiu would be a great way to stand out in a city awash with specialty bars.

Australia

Golden Monkey, a cocktail bar and restaurant in Melbourne, Australia, with many China-inspired dishes and drinks.

UK

The Hide, one of the London bars co-owned by Paul Mathew. Mathew, owner of the Arbitrager and the Hide cocktail bars in the British capital, said Moutai’s strong aroma is tricky to compliment, so he likes to use things such as pomelo, strong teas, pear or smoky flavors to mix Moutai cocktails. The distinctive character of the spirit adds a complexity to drinks when mixed well, he added.

Baijiu connoisseurs

Connoisseurs whose opinions can make or break a wine have been part of the wine industry for a long time. As imitating what others do well is a typical feature of Chinese culture, the Chinese baijiu industry has started to groom a similar type of experts a few years ago, and the first list of baijiu connoisseurs was published in August 2014, comprising 41 people.

It will be hard for these people to exactly copy the ritualistic activities of wine tasters. Spirits do not differ each year depending on weather conditions and other parameters, so it will be useless to decided that Moutai of 2008 was better than that of 2011.

Moreover, most of the people on the current list are employed by distillers; some even are managers. This will make it hard for them to judge competitive products fairly.

Foreign investment

Some multinationals are already trying to cash in on the expected discovery of baijiu by the international market. Diageo has acquired a stake in the Shuijingfang (Sichuan province; the top region for baijiu, see the above table) brand of baijiu a few years ago, and has recently bought out the Chinese partners. The company now intends to take baijiu to the international market. Diageo is looking to market it as a luxury drink for £99 a bottle to high-end Chinese restaurants such as Hakkasan and Mr Chow, and is looking to benefit from the growing affluent Chinese population in London, which is said to be close to 2 million, including (semi-)permanent residents and visitors. Diageo seems to be doing well, as Shuijingfang is one of the recent newcomers in the list of top Chinese food brands of 2014. The brand started to generate better figures in 2017. Shuijingfang filed a turnover of RMB 2.048 bln for 2017, and a net profit of RMB 335 mln; resp. up 74.13% and 49.24%.

However, Diageo is still affected by the spin-off of the anti-corruption campaign. The former Chinese CEO, who had stayed on after the foreign take-over, has left, and was replaced by James Rice. A Chinese has already taken over again. Rice has  It will be interesting to see how a foreign will a Chinese company active in a market with such a strong bond to Chinese culture.

Image

Overseas production

We still have to see the first Chinese distiller venturing overseas production of baijiu. However, two US investors have started producing versions of their own.

Byejoe Spirits in Houston is marketing two varieties under the Byejoe brand. The company gets baijiu from a Chinese distiller. However, this is not the same baijiu that is in your Byejoe bottle. The Chinese baijiu is shipped to a distillery in South Carolina where the alcohol is further cleaned and distilled.

Vinn Distillery (Portland), established by a Vietnamese of Chinese descent, is producing baijiu using an old family recipe.

Australian sorghum

Baijiu production has been growing so rapidly, that China now needs to import part of the sorghum from abroad. Australian sorghum exports to China peaked in 2015 at over A$ 500 mln afler baijiu manufacturers ramped up imports from down under. Sorghum exports benefited from tariff reductions under the recent China-Australia free-trade agreement. A team from various Australian research institutions is now working to identify the quality and varieties of sorghum that are best suited to the China baijiu market.

Exhibiting abroad

Three baijiu makers, Fenjiu (Shaanxi), Baofengjiu (Henan) and Laobaigan (Hebei) have participated in a trade manifestation organised by the US-China Business & Culture Association in San Francisco in January 2015 in a joint attempt to promote baijiu in the US. The China Wine Newspaper was also represented. These three brands have all won prizes during the 1915 Panama Pacific International Exposition, but apart from the honour, it has so far not won them any share in the US market.

Luring the young

Traditional baijiu drinkers in China are men born in the 1950s and 60s; an aging market indeed. To lure back a number of younger consumers, the baijiu industry is developing new types of spirits that better suit the palates of the young urban professionals. One example is Xingpai, a brand name that is said to be a translation + translitteration of High Passion. It is a so called ‘rice aroma type (see above)’ of baijiu. It is said to be made from the highest quality of rice and no flavours or other addidives are added. However, Xingpai is still 52%, so quite strong for young people used to accompany their meals with beer or wine.

Xingbai

Jiangxiaobai – maverick or game changer?

I have pointed at a number of attempts to revive the rather dusty image of baijiu at several places in this post. A player that is actually trying to implement a number of these is Jiangxiaobai. The name Jiangxiaobai is derived from the company’s original name: Jiangji Distillery. Xiao means ‘small’ and ‘bai’ refers to baijiu. Jiangji Distillery is located in Baisha town, Jiangjin District, Chongqing. Chongqing is now a city with provincial status, like Beijing, but used to be part of Sichuan province, the home of some of the top baijiu brands. Chongqing Jiangxiaobai Spirits Co., Ltd., the parent of Jiangji Distillery, is an integrated sorghum liquor enterprise that incorporates ecological sorghum growing, R&D, brewing and distillation, packaging and production, and marketing.

Jiangxiaobai’s products are divided into the following major series:

  1. Mild Flavor Collection; brands: YOLO; DANCHUN
  2. 40% Collection; brands: S SERIES; JOYOUTH
  3. Craft Collection; brands: HANDMADE CRAFT BLACK LABEL; BANJINBALIANG+DREAM; INTIMATE FRIEND; INTIMATE FRIEND(BLACK); GOLD LABEL
  4. Art series; brands: JOVOART; CARTOON SERIES; MR.BOX & JOYBO; CHONGQING FLAVOR

The different products have different flavours, packaging design, etc., all geared to different consumer segments. It is in this aspect that Jiangxiaobai is an interesting innovator in the Chinese baijiu industry. I will select one product as an example: YOLO. The brand name is an abbreviation of: You Only Live Once. YOLO encourages people to make the most of their life. It is geared to young consumers. It comes in 330 ml bottles and has only 25% alcohol. It has a sweetish flavour that appeals more to young consumers.

Baijiu College – educating a new generation of baijiu makers

A Baijiu College has started operating in Yibin, the home region of Wuliangye, in 2018. This school – built in only nine months – is one outpost in Chinese Chinese government’s national push to rethink the country’s growth recipe as trade frictions with the United States intensify. Beijing aims to produce more goods at home and sell larger numbers abroad. This includes upgrading the image of traditional Chinese spirits. The state-funded Baijiu College in the misty Sichuan mountains teaches students how to craft baijiu — or work on robots that could someday automate the brewing process. The goal is to turn China’s native liquor into the next whiskey or tequila or gin: a drink with global recognition.

Eurasia Consult Food knows the Chinese food industry since 1985. Follow us on Twitter.

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Peter Peverelli is active in and with China since 1975.