Kweichow Moutai

Kweichow Moutai shares drop as luxury crackdown continues

PUBLISHED : Monday, 02 September, 2013, 12:18pm
UPDATED : Monday, 02 September, 2013, 12:19pm

Shares in Chinese premium liquor maker Kweichow Moutai Co Ltd fell by the daily limit of 10 per cent on Monday as a crackdown on corruption in China crimped profit growth in the first half of the year.

Moutai produces the popular fiery alcohol baijiu, a spirit that outsells vodka worldwide. The company saw its shares fall 10 per cent in morning trading after it released its weakest first-half profit growth since at least 2009.

Baijiu has rocketed in price over the last five years, boosted by its traditional use by officials and executives as a gift to help smooth business ties. However, this has brought it under the spotlight of China’s new government as it looks to clean up corruption.

“It’s clear that President Xi Jinping’s crackdown on corruption has been longer and deeper than many analysts had expected. He’s really trying to cut to the bone to ensure the legitimacy of the party,” said Shaun Rein, Shanghai-based managing director of China Market Research Group.

Moutai reported net profit growth of 3.6 per cent in the first six months of the year. This compared to 43 per cent for the same period last year and 58 per cent in 2011.

“It has hit Moutai especially because it’s just such a high-profile band. It’s synonymous with corruption and hedonism. A lot of officials and enterprises are shying away from purchasing or receiving gifts of Moutai because it’s just too high profile,” said Rein.

China has been taking a firm stance on corruption, with even top politicians being caught in the spotlight. Zhou Yongkang, who retired earlier this year from the elite Politburo Standing Committee, is facing a corruption probe, the South China Morning Post reported on Friday.

The official People’s Daily newspaper reported that the government will crack down on official spending during key Chinese public holidays, often peak times of the year for gift giving between business people and officials.