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A beverage maker has become China’s most valuable public company, surpassing the country’s largest bank.
Kweichow Moutai is a spirit of luxury favored by Chinese politicians and businessmen seeking to impress.
The company’s share price has increased dramatically this year, taking its value to new highs.
Despite producing one of China’s most prestigious brands, few people will have heard of it outside the country until now.
As its value has increased, Kweichow Moutai has overtaken the Industrial and Commercial Bank of China (ICBC), the world’s largest commercial bank by assets, to become the country’s most valuable public company.
Its share price has soared more than 20% so far this year, according to Refinitiv data, and it is one of the few listed Chinese companies whose price has exceeded 100 yuan (£ 11, $ 14).
Chinese tech giant Alibaba is more valuable, but not listed in China. Huawei, another well-known Chinese company, is privately owned.
According to Monday’s closing share prices, Kweichow Moutai is currently valued at more than 1.8 trillion yuan. ICBC is currently worth less than 1.8 trillion yuan.
What is Kweichow Moutai?
Kweichow Moutai has an unusual corporate structure. It is partially state-owned and partially listed on the Shanghai Stock Exchange.
Formed in 1999, Kweichow Moutai is the world’s most valuable spirits company, beating out the UK-based Diageo three years ago.
It manufactures and distributes a unique brand of baijiu, a clear, colorless liquor that is considered the national spirit of China.
Baijiu generally has an alcohol content of between 35% and 60% by volume.
John Watkins, an expert in the alcohol industry who has worked extensively in China, said: “Shooting with Moutai is part of the corporate culture and accelerates building trust and friendship.”
Speaking about the manufacturer, he added: “It appears that from the outside it is a well-run company that will be able to generate sustainable and growing profits as the Chinese consumer market grows and has more and more purchasing power.”
Why is it so prestigious?
Kweichow Moutai was a favorite drink of the founding father of the People’s Republic of China (PRC), Mao Zedong, who served it at state dinners during the visit of US President Richard Nixon to China in 1972.
In 1974, the United States Secretary of State, Henry Kissinger, told Deng Xiaoping, the future supreme leader of China: “I think if we take enough Moutai we can solve anything.”
Such brilliant endorsements made Moutai the brand of choice for the elite, a must at business banquets and a display of wealth and power.
“It is considered a status symbol because of the high price and limited supply, which I think is part of Moutai’s marketing and sales strategy,” said David Liu, a Shanghai-based analyst and regular drinker of baijiu.
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Why did your share price skyrocket?
Shares in Kweichow Moutai have risen since the coronavirus pandemic in China erupted, while other alcohol brands have seen their values drop.
Kweichow Moutai is often drunk at home, so sales have not been abolished like rival brands that rely heavily on bars and clubs that have been closed during the virus crash.
The luxury brand also benefits from the trade war between the United States and China.
“Right now, with growing patriotism out of pride in how China has so far contained Covid-19 and anger toward the United States over Trump’s trade war, the Chinese are increasingly buying more national brands and products out of patriotism.” .
“This is true from sportswear to cosmetics and alcohol,” said Shaun Rein, founder of the China Market Research Group.
He added that because the Chinese are unable to travel abroad on expensive shopping trips to Europe, they are instead spending on domestic luxury consumption.
How much?
Buyers regularly spend up to 900 yuan (£ 91, $ 127) for a bottle of Kweichow Moutai baijiu, but the price can rise dramatically for rare and good harvests. Some bottles sell for up to $ 20,000.
Although distribution and pricing are heavily controlled by the Chinese government, many people buy bottles as speculative investments to keep and sell at a higher price.
And what does it taste like? “The first time I tried Moutai it tasted like motor oil – it burned and burned my throat on going down. Now I find it soft and nice,” Rein said.
Kweichow Moutai still has a long way to go to become the world’s most valuable listed company. That title currently belongs to Saudi Aramco (Saudi Arabia Oil Company), which is valued at nearly $ 1.9bn, according to Refinitiv.
