THE decision by Anheuser-Busch, the world's largest brewer, to take a five per cent stake in Tsingtao Brewery ahead of the public issue, was a telling sign of the growing interest foreign beer makers have in the large but largely untapped Chinese market. The move seemed inevitable after Australia's Foster's Brewing announced plans last month to invest $900 million over the next four to five years to establish a strong foothold in the China, now the world's third largest market. While Anheuser-Busch's investment in Tsingtao is worth only US$16.4 million, it is significant because the company is just beginning to expand its international presence, which has primarily been limited to licensing agreements and exports. More important, analysts believe Anheuser-Busch and Foster's have raised the stakes when it comes to foreign participation in China's brewing sector. With both brewers taking aggressive approaches, international rivals might be forced to follow suit or face getting left behind in what could be the world's most exciting market. ''I think that's true and I think that given the state of over-capacity in so many other markets, there's a obvious pull to get into this potentially huge market,'' says Smith New Court analyst Stephanie Guz. China's beer market is now estimated to be more than 10 million tonnes a year with more than 860 breweries, most of them small, scattered around the country. Tsingtao, for example, is China's largest brewer but its total market share is only 2.44 per cent. What has Tsingtao and foreign brewers excited is that annual per capita consumption in China is only 8.4 litres compared with 92 litres in the US and 158 litres in Germany. China expects both production and consumption to expand sharply over the next decade, which would easily make it the world's largest market. Foster's, Australia's largest brewer, clearly believes in the market's enormous potential. Its ambitious investment plans will see it inject much-needed capital into two joint ventures, in Shanghai and Doumen. This will involve the upgrading of Shanghai's Huaguang Brewery and the eventual construction of a plant in the Pudong development zone. A new plant also will be built in Doumen where Foster's partner is Princess Brewery. When the new facilities are completed, the two joint ventures will eventually produce 700 million litres a year. This compares with the 220 million litres produced by Tsingtao. Foster's China managing director Nick Norgard says the company believes its approach is logical and timely but only after it spent two years studying the market. ''The temptation is overwhelming to say, 'let's go' and so is the ability of China as a nation and a place to seduce you into coming,'' he says. ''However, a lot of work had to be done. Making beer in China isn't the most difficult thing, it's making money in making beer in China.'' Mr Norgard says China is interested in foreign brewers with international track records which can boost the industry's technology and infrastructure. As a result, he was not surprised when it was announced that Anheuser-Busch had taken an equity stake in Tsingtao. The question now is: what does Anheuser-Busch plan to do to exploit its investment? Anheuser-Busch vice-president of finance and planning John Koykka says the company is interested in makings its flagship brand, Budweiser, in China and may increase its stake in Tsingtao. Anheuser-Busch's investment in Tsingtao is another indication that it wants to expand - becoming a truly international player, a development that can only make its rivals a little nervous. This year, it moved into Mexico by acquiring 17.7 per cent of the country's largest brewer, Grupo Modelo, for US$477 million. Smith New Court's Ms Guz says that while Anheuser-Busch's investment in Tsingtao provided the $899 million public offering with a seal of approval, it left some important questions unanswered such as Anheuser-Busch's future plans in China. What is also unclear is how international rivals such as Carlsberg and Miller will respond to the major forays of Anheuser-Busch and Foster's. Both Carlsberg and Miller have licensing agreements with brewers in Huizhou and Beijing, respectively, but they could find another level of participation is needed to remain competitive. Mr Norgard says the market is ripe for Foster's move because many European brewers have been preoccupied with Eastern Europe following the fall of the Iron Curtain, while American brewers have not enjoyed a lot of success outside the United States. There is little doubt, however, that foreign brewers will find it difficult to resist China and deals such as those made by Anheuser Busch and Foster's will become more frequent.
