China's premium liquor industry has fallen on hard times since the central government barred official banquets from serving luxury brands like Moutai.
This ban is part of a recent nationwide initiative to end extravagant displays of wealth at state functions.
Industry insiders have said that many of the lower-priced liquor brands in China's largest liquor producing province, Guizhou, are also suffering from the market slowdown.
Moutai is now the most expensive brand of baijiu, or white liquor, in China.
In addition to sluggish sales, experts said that financing is a big problem for the industry because banks are limiting the credit being extended to liquor companies.
A new financing model in Guizhou is expected to help address this pressing issue, insiders said.
In March 2012, the nation's first liquor exchange was established in Guizhou's provincial capital of Guiyang.
This is similar to a liquor futures market, but it includes other functions, such as fund raising, sales and storage.
"It was a new attempt to turn liquor products, especially those from Guizhou, into a kind of financial product," said Peng Bo, chairman of the Guizhou Liquor Exchange.
He said the exchange is intended to encourage as many parties as possible - banks, securities companies and individuals - to invest in and sell liquor products.
Recently, Guizhou Liquor Exchange and Kweichow Moutai Co established a partnership. A total of 200 tons of Feitian Moutai worth 500 million yuan will be traded at the exchange.
"Customers can purchase Moutai just like other futures products. Their purchased liquor will be stored at our facilities. After one year, they can decide to keep holding or sell them for a higher price according to the market trend," Peng explained.
For baijiu brands like Moutai, the quality and the value rise after a certain period of storage, he said.
"That's why we believe baijiu is a product with investment value," said the chairman.
Wang Song, general manager of the Guizhou Liquor Exchange, said "the lower-tier brands with good quality will also play a significant role in trading".
"There are demands from both the producers and investors," he said.
He cited the example of Yunjiu, a distillery company in Guizhou's Duyun city, which is eager to seek financing for its market expansion.
It recently signed an agreement with the exchange for a financing and sales package.
"Our first batch of products, worth about 10 million yuan, were sold out within a week at the exchange, much better than what we expected." said a marketing manager at Yunjiu.
Wang believes there is a much wider market space for smaller brands like Yunjiu.
"Not everyone can afford a Feitian Moutai, priced at more than 1,200 yuan per bottle, but they can buy and store some lower-tier baijiu as an investment with lower cost and risk," Wang said.
Data shows that by July 31, seven baijiu brands chose the liquor exchange to trade their products as futures or spot goods, with combined transaction value totaling 50 million yuan. In addition, they also successfully obtained 240 million yuan worth of funding with the help of the exchange.
Overseas firms have also shown great interest in the business. In 2012, several wine companies from Spain and Italy visited the exchange to seek cooperation with local partners.
"We discussed the possibility of helping Guizhou's brands enter the international market," said Peng Bo, adding that they are planning to launch the first liquor futures product to overseas investors in next three to five years.
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With a centuries-old tradition of making liquor, Maotai town in Guizhou province is a name as familiar as the Moutai brand among the Chinese people. Provided to China Daily |
