Tsingtao Brewery believes it made 'one of the bargains of the year' in acquiring a controlling share of state-of-the-art Carlsberg Brewery (Shanghai) last week. For 150 million yuan (about HK$140.46 million) it obtained 75 per cent of a plant that cost US$80 million to build. 'The foreign brewers are leaving the market,' boasted Peng Zuoyi, vice-chairman of Tsingtao Brewery. 'More than 90 per cent of them are losing money. Having beaten them in China, we will take them on in the world market. By 2010 we will become the second-biggest brewer worldwide.' Ambitious words spoken in the heat of victory, and it is hard to imagine tipplers in Milwaukee and Munich ordering a beer they can barely pronounce as easily as a Heineken or Budweiser. But the takeover did mark a milestone in the retreat of foreign brewers. 'Yes, the foreign brewers are leaving,' said Jorn Jensen, financial director of Carlsberg, speaking from the company's head office in Copenhagen. 'We made a significant loss from the Shanghai brewery and had too much capacity in China.' He would not give a figure, but mainland press said the brewery, with an annual capacity of 100,000 tonnes, lost money from the day it opened in 1998 and that annual losses were between 70 million yuan and 100 million yuan. Mr Jensen declined to say how much the firm had invested but said the purchase price of 150 million yuan was fair in present market conditions. 'We did not make a mistake. As with most other international brewers, we look with a lot of interest on the China market. We never expected to make a profit in the first years. 'We will continue to produce Carlsberg from our Guangdong plant, which has the right capacity for the Chinese market. If you want to be a significant player and are not Chinese, you have to be in a joint venture with a strong local Chinese brewer. We are keeping 25 per cent of the brewery and expect a lot from it. The major brand will not be Carlsberg,' he said. For Tsingtao it was the third acquisition of a foreign brewery since it began a buying spree in 1997 that has seen it take over nearly 30 factories. Last September, it paid 30 million yuan for 60 per cent in a brewery in Domen, Guangdong with a capacity of 50,000 tonnes that was a joint venture with Foster's Brewing Group of Australia. The same month, it paid 38 million yuan for all of Shanghai brewery. The brewery had been set up by a Hong Kong company and sold to a Malaysian one before production was stopped in 1998 as a result of the Asian financial crisis and liquidation applied for. The acquisitions took Tsingtao's production last year to 1.07 million tonnes and top place on the mainland, with a market share of 4.5 per cent, against 4 per cent for Beijing Yanjing and 2.3 per cent for Guangzhou Zhujiang. It is easy to see what attracted more than 60 foreign brewers to the mainland. Its beer production last year was 20.88 million tonnes, second only in the world to the United States. But, according to Mr Peng, foreigners made four critical errors. After acquiring local plants, they spent too much retooling them, spending five times more than Tsingtao does when it acquires a factory. Their labour costs were too high, with wages for expatriate managers 10 times higher than those paid by local companies, for Chinese managers four times higher and workers two times higher. They spent too much on marketing and advertising, trying to establish brands in a market unfamiliar with them - 20 times more than local companies. They priced their beer too high - at more than 10 yuan a bottle, in a market where beers costing more than five yuan account for less than 10 per cent of the market. They would have done better to spend their money on promoting the cheap, local brands they inherited. The market is dominated by strong, local brands. Local governments support these brands through fair means and foul, including road blocks manned by police to keep out beer from other districts. Tsingtao is the only brand with national recognition. Mr Peng plans to set up dozens of joint-venture plants abroad, starting with Taiwan, South Africa and Malaysia. 'When Premier Zhu Rongji came to our plant in 1998, he said China had only two worldwide brands - Tsingtao and Longjing tea,' a company official said. 'We account for 80 per cent of Chinese beer exports.'