Drinking rice wine is a favourite pastime in Shaoxing, China's largest rice wine production base, as people say it is good for the health. Even the daughter of late Deng Xiaoping , boasting of her father's good health a few years ago, said the patriarch drank Shaoxing rice wine every day. Rice wine, or huangjiu - literally yellow wine - has also provided economic vitality to Shaoxing, where the history of spirits goes back more than 2,400 years. Shaoxing Economic and Technological Zone general office director Wu Daxing said: 'A good investment environment alone is not enough to lure foreign investment, and we have to use the allure of our culture.' This might explain why Japanese, who are fond of Shaoxing rice wine, are the second largest group of foreign investors in the city after those from Hong Kong. The ancient Shaoxing city houses China's three biggest rice wine makers: China Shaoxing Wine Group Corp, Dongfeng Shaoxing Wine Co and Shaoxing Nuer Hong Wine Making General Co. The wine, produced from glutinous rice, is characterised by low alcohol content -between 16 and 18 degrees - and being rich in amino acid. Shaoxing people say their wine is unique because it is made with water from the nearby Jian Lake. The wine is usually stored for three years before it is sold. It is said the older the wine, the more mellow and expensive it is. Chen Baoliang , vice-director of Dongfeng Shaoxing Wine, which makes Kuaiji Mount brand wine, said: 'You can never make it without the Jian Lake water, even though you can master the traditional arts of brewing rice wine. 'Have you ever heard that water is the blood of the wine?' The Guyue Longshan wine, by China Shaoxing Yellow Wine Group, China's largest, has been chosen as the national banquet wine for treating respected foreign guests since 1988. The present group was formed in 1994 by merging two of the city's rice wine-makers. It also produces the Shen Yonghe wine. Group general office director Li Min said Guyue Longshan was sold mainly in Jiangsu and Zhejiang provinces, as well as in Beijing and Tianjin and in Guangxi and Fujian provinces, while Shen Yonghe was primarily targeted at Shanghai. Underscoring its premier position, China Shaoxing Yellow Wine is the country's only rice wine-maker with export and import rights. Last year, it racked up pre-tax profit of 52.32 million yuan (about HK$48.65 million) on 314 million yuan in sales. Although the market of Shaoxing rice wine is primarily at the south of the Yangtze River, the wineries see bright prospects ahead in view of government policies and the world consumption trend towards low-alcohol wine. Beijing has discouraged production of white spirits, or baijiu. It urges white-liquor distilleries to reduce grain consumption and encourages production of grape wine and rice wine as substitutes. Mr Chen said: 'Our market is now mainly in Jiangsu and Zhejiang provinces, as people in the north are accustomed to drinking baijiu. 'But once they come to Shaoxing and try our rice wine, they will like it. We see the market potential as enormous.' He also pointed to the growing market in Taiwan and Japan, where Shaoxing rice wine is popular. In order to capitalise on rising demand, the three groups are considering major expansion plans. China Shaoxing Yellow Wine Group is designated by China National Council of Light Industry as the pillar of the industry, to account for 30 per cent of national production in 2010, with an annual capacity of 400,000 tonnes. In the immediate term, it is seeking approval to launch a project that will add production of 100,000 tonnes a year, at a cost of 870 million yuan, bringing its capacity to 200,000 tonnes. Last year, its capacity was 80,000 tonnes; this will jump to 100,000 tonnes next year after technological improvements are completed. Dongfeng Shaoxing Wine is studying a second phase of expansion to boost capacity by 20,000 tonnes, bringing its total to 80,000 tonnes. Shaoxing Nuer Hong, which has the exclusive right to produce Nuer Hong rice wine - that is both a brand and a type of rice wine - will invest 110 million yuan to increase capacity by 10,000 tonnes to 30,000 tonnes. The company is the smallest in scale compared with its two major rivals. Nuer Hong's vice-general manager Li Shuilin said: 'Because we want to maintain our quality, we do not aim at expanding capacity but at raising brand awareness.' The market is off limits to foreign investors. They are banned by Beijing from investing in Sino-foreign joint ventures on rice wine making because the traditional arts involved are classified as national secrets. That is, except for one venture by Dongfeng Shaoxing Wine with Hong Kong-listed Firstone International, in 1994. 'It is the first Sino-foreign joint venture as well as the last one,' Mr Chen said. Foreign participation is allowed only in the areas of accessory production, such as bottle filling and making. The rice wine groups have therefore relied on state support for development. China Shaoxing Yellow Wine Group invested 230 million yuan in expanding production and building a glass bottle factory between 1991 to 1995, and all the money came from state loans. The loans caused its debt-to-asset ratio to spiral to 79 per cent at the end of last year, with total debts of 500 million yuan. The group has recently won approval to issue 35 million mainland-investor A shares on it rice wine operation to raise about 400 million yuan in the first half of the year. China Shaoxing Yellow Wine's Mr Li said the group would be able to make use of further share issuance for expansion in the future. Dongfeng Shaoxing Wine and Nuer Hong have yet to obtain a share issuance quota. 'We are looking for a partner to invest in a bottling filling project,' Nuer Hong's Mr Li said.