Fierce competition and price-cutting by powerful local manufacturers were behind Foster's Brewing Group's decision to pull out of two of its three mainland joint ventures, both of them losing money. Company president Ted Kunkel made the announcement on Monday in Melbourne, saying brewing operations in the mainland generated most of the A$42.2 million (about HK$189.35 million) loss of its Asian division in the year to June 30. But he said Foster's remained committed to the mainland and would focus on its operations in Shanghai. 'We need to adopt a new approach to our operations in China,' said a Foster's official. 'We will focus operations in Shanghai, with sales in Beijing and Guangzhou. We cannot support three breweries and develop Foster's at the same time.' He said the company was squeezed by competitive markets in Tianjin and Guangdong, with the date of breaking even on operations in both stretching further and further away. Its brewery in Tianjin, the only one in a city of 10 million people, produced local brands, with a market share of 50 per cent in winter and 30 per cent in summer. 'Tianjin seems to be a dumping ground for beers, selling for less than two yuan (about HK$1.86) a bottle. We saw no turnaround in the short term.' He said it was the same in Guangdong, although prices there were better, despite strong competition from local and foreign brewers. Its main rivals in Tianjin were Beijing and Yanjing beers from Beijing, 130 kilometres away, and Haomen beer from Tangshan, 90 km away. Beijing Yanjing Brewery, owned by Beijing Enterprises, is the mainland's biggest producer, with output last year of 733,500 tonnes, or 3.9 per cent of the domestic market. Armed with cash from share issues in Hong Kong and Shenzhen, it aims to produce 800,000 tonnes this year and one million by 2000. An official of the Chinese Brewing Association said Foster's had only itself to blame for not dominating the Tianjin market. 'It should have had a controlling share of that market. How was it that beers from neighbouring areas had such a strong share? Foster's did not develop Tianjin as it should have,' he said. 'Or it should have developed new markets, such as in the rural areas.' There were more than 90 Sino-foreign joint-venture breweries and most were making money, the official said. 'Look at Becks in Shanghai, Suntory in Jiangsu, Blue Ribbon in Guangdong and Anheuser-Busch.' He said there was overcapacity in some cities but that, overall, there was potential for development, especially in rural areas. Others are not so optimistic. The official forecast is for demand to slow from an annual growth rate of more than 10 per cent in the 1994 to 1997 period, which took output to 18.66 million tonnes last year. The official target is 20 million tonnes in 2000, rising to 24 million in 2010, making the mainland the world's biggest producer. In the first quarter of this year, output rose 11.5 per cent over the year-earlier period to 3.19 million tonnes. While consumption growth is expected to slow, production capacity has greatly increased with the establishment of so many joint ventures in a short time, plus additional capacity from leading domestic firms such as Yanjing, Tsingtao Brewery, Guangzhou Zhujiang and Shenyang Snowflake. Domestic brewers account for about 80 per cent of the market. All this has resulted in intensified competition, slimmer profit margins and the need for heavy spending on advertising, especially by foreign brands which must market intensively to establish an identity for themselves different from other foreign beers. The mainland has hundreds of small breweries which sometimes use illegal means to protect their markets, including road blocks to prevent entry of outside brands or attacks on retailers who sell them, with the tacit approval of the local government which depends on the brewery for tax revenue. The regional crisis means that the mainland cannot export its surplus, with Asia accounting for more than 60 per cent of exports. In the first six months, exports fell 15.5 per cent to 28,580 tonnes. Foster's is actively looking for buyers of its US$50 million stake in the Tianjin plant, of which it owns 92 per cent, and of its US$30 million stake in the Guangdong plant, of which it owns 90 per cent, be it a local or foreign brewer or investor. It hopes to get more than it originally invested. For the future, it is pinning its hopes on Shanghai, home of its best and biggest brewery in the mainland and the most promising market for premium brands.