Drink beer to understand the China Model

3 min read
China’s beer market in 2014

Cheers! ‘France 24’ reported on Nov 5 that “… Heineken seals $3 bn deal with China’s top brewer ……

Under the deal the Dutch brewer said it will take a 40 percent stake in the holding company that controls China Resources Beer, merge its current operations in China into the firm and license to it the Heineken brand for use in the country …”

Heineken is the world’s second biggest brewer and this deal costs them 2.68 billion euros.

Beer was something unknown to the Chinese 200 years ago.

It was not until 1898 when the German soldiers who took control of a coastal area in northeastern China from the then Qing dynasty that they were unable to live without beer and therefore arranged merchants to setup a brewery (now Tsingtao Brewery) in 1903.

According to a 31 May 2018 EU report, “… China is the largest beer market in the world with an annual consumption of 45.7 billion litres, twice as much as the US, and more than five times what Germany, the largest beer market in the EU, consumes.

In China, beer represents 75% of the total amount of alcohol consumption in terms of volume …”

Tsingtao Beer now claims about 15% of domestic market share, second to China Resources Beer.

After privatization in the 1990s, Anheuser-Busch owned as many as 27% share of Tsingtao Brewery. Japan’s biggest brewer Asahi Breweries bought the shares in 2009 from the Americans, but in 2017 sold to Fosun which was owned by a Chinese businessman.

In terms of population size and territorial area, the whole Latin America and India+Pakistan were more or less about the same as China in the last century.

While the former two’s growth were withheld or dragged by clientelism, be it in the form of patrimonial or corporate, as well as populism (Peronismo, Getulismo, Adhemarismo, Velasquismo, Gaitanismo, etc), it seems China’s authoritarian leadership worked better than these democracies.

Liberal democracy and market economy may be good systems but Adam Smith had told us all that there is “no free lunch”. Certain pre-requisites are necessary, for example, some sort of fundamental cultural changes and some influential philosophers. A big leap jumping from a backward rural setting to a democratic format is not a desirable short cut. The Asian lessons from Japan, South Korea and Singapore have demonstrated this point.

The Breweries’ share transfers mentioned above reflected the step-by-step development of the Chinese market, from semi-open to almost fully open. Many foreign producers can now sell their products in their own brand name directly, with or without the actual production on mainland China, and then pocket the profits with no need of sharing with any Chinese joint venture partners.

However, having gone through this process on China’s side, Beijing has succeeded in preventing the domestic brands from being sidelined by the better quality oversea brands. Some economists may call it a sort of protectionist policy, but to a developing country, it is a lifeline. It is one of the many ways that the China Model works better for a Third World nation.

The opinions expressed are those of the author, and not necessarily those of China Daily Mail.

Tony Simon

Leave a Reply

Your email address will not be published. Required fields are marked *