Mao-tai is at a crossroads. Prices for the highly alcoholic drink have collapsed after a de facto ban on its use at official functions. Meanwhile, global luxury brands are circling the market and snapping up stakes in distillers that make sorghum-based spirits. The two trends are not contradictory. The market has hit a wobbly patch, partly due to a slowing economy and partly because of a recent desire among officials to play down the role of mao-tai at official gatherings. But the drink's long-term outlook is excellent: its popularity is booming and profit margins are exceptional. Mao-tai is a fiery, acrid drink with an alcohol content usually above 50 per cent. Even ardent fans would hesitate to say it tastes 'good'. But it is loaded with national pride and symbolism. It was drunk liberally during the revolution. It is the beverage for official toasts at state gatherings. And today it is arguably China's first fully blown home-grown luxury brand. As with champagne, there is a geographic restriction on what can be called mao-tai: only spirits brewed in Guizhou province can carry the name. All other spirits are known generically as baijiu. However, brands of baijiu that are 30, 40 or even 60 years old fetch a lot of money at auctions. Mao-tai is the top of pyramid, but prices are up for all high-end bottles of the drink. It has been a mainstay of official banquets. A Beijing public servant once told the China Youth Daily that officials would often visit each other in the name of 'exchanging ideas and learning from each other', after which there would be an hours-long banquet where expensive dishes and mao-tai were consumed. However, in late March, Premier Wen Jiabao banned the use of public funds to buy expensive liquors, mao-tai included, effectively eliminating official use of the drink. The impact of the ban is most notable in Chongqing, the centre of a widening corruption scandal that involves former municipal party secretary Bo Xilai. 'Officials in Chongqing daren't order mao-tai and the like any more,' says Zhao Yong, a beverage analyst at Haitong Securities. This is reflected in plummeting prices for the liquor. For example, at an auction in Guizhou in April, a bottle of 1959 mao-tai went for 150,000 yuan (HK$184,000), a world apart from a Hangzhou auction in 2010 where a 1958 mao-tai fetched a record 1.45 million yuan. According to Zhao, the wholesale price of a bottle of Wuliangye, a high-end baijiu, dropped from 1,100 yuan to about 730 yuan. National Cellar 1573, a brand that dates back to the Ming dynasty, was down from 1,300 yuan to about 900 yuan. 'The magnitude of the decline was surprising. There are other market factors behind this and we expected prices to go down. But we didn't expect such a sharp fall,' says a Shanghai food industry analyst who did not want to be named. The mainland economic slowdown has also hurt prices, as has overproduction. Nevertheless, the mao-tai market outlook is bright. For example, most see the political ban as temporary. As China will see a once-a-decade leadership change this autumn, some doubt that the high-end alcohol ban will last. 'Wen Jiabao is leaving office soon. When the new leadership takes over, things will change. If the top guys relax the restriction or put it on the back burner, [baijiu] prices may go up again,' the analyst says. Zhao also expects the market to recover following the leadership transition. 'That's what many baijiu companies are expecting. But when it comes to politics, it's hard to make a prediction,' he says. Over the past 10 years, prices of top-tier baijiu have soared to historic levels, with the so-called national drink of mao-tai being the brightest star in the boom. Prices of mao-tai, the preferred drink of China's revolutionaries, have risen roughly tenfold over the past decade. 'Chinese consumers may prefer imported designer bags and watches. But when it comes to liquor, they like to stick to something with a national character,' Zhou says. 'Toasting a glass of baijiu embodies goodwill and unity. It is not to be replaced by a foreign drink. For this reason, there will always be demand for upmarket baijiu.' This helps explain the difference in sales between imported spirits and baiju in China. According to Jing Daily, an online publication covering the luxury market and culture of China, 900 million cases of baijiu are sold in China each year, compared with four million cases of imported spirits. This huge market has attracted the international branding giants. In 2007, LVMH bought a 55 per cent stake in Wenjun Distillery at a reported cost of 960 million yuan. The following year, it relaunched Wenjun's liquor after upgrading the production and packaging. Wenjun became upmarket and prices soared from 30 yuan per bottle to between 600 and 1,500 yuan. Last year Diageo, the British drinks group that owns brands such as Guinness and Johnnie Walker, won approval from the China Securities Regulatory Commission to take a majority stake of Quanxing, which controls Sichuan Shuijingfang, China's number four baijiu maker. The firm is listed on the Shanghai Stock Exchange. A few weeks ago, Diageo completed a mandatory tender offer for Shuijingfang, which formalised its control of the firm. Erica Poon Werkun, head of Asia consumer research at UBS, does not think foreign firms will make a push to launch mao-tai internationally. 'Baijiu is a more of a Chinese drink. I don't think that this has a lot of international appeal,' says Poon. Paul Mathew, a Beijing-based bar and drink consultant and associate editor of DRiNK Magazine Asia, agrees. 'There is little awareness among non-Chinese consumers ... some of the flavours are quite unusual to a Western palate, so I think it has a long way to go,' he says. 'And given the size of the domestic market, there is not much incentive. The Chinese market for baijiu just seems huge, even if some of the younger generation are moving towards Western spirits.' However, the mainland market is large and profitable enough to warrant attention. The international brands will use their acquisitions to tap into local distribution networks, and marketing expertise to drive up the price. 'My sense is that [Diageo will be] trying to emphasise the history, 'terroir' and 'traditional knowledge and craftsmanship' required to make it to create a story that backs up a more high-end positioning,' says Torsten Stocker, a Hong Kong-based partner at management consulting firm Monitor Group. The message is clear. Mao-tai's political setback is temporary. And the politics will be no match for a fully fledged marketing campaign promoting the product, which is only just getting going.