Ten years ago the Harbin Brewery Factory was the very model of a mainland state-owned enterprise. Today it is domiciled in the Cayman Islands, listed in Hong Kong and the subject of an unprecedented takeover battle between Anheuser-Busch and SABMiller, whose bitter contest for China's fourth-largest brewery will ostensibly be decided by independent shareholders. Harbin Brewery Group's decade-long journey from state ownership to transnational acquisition target captures in microcosm the Chinese government's sometimes fitful flirtation with privatisation. SABMiller's hostile bid for Harbin Brewery could also emerge as a pivotal test of Beijing's ability to stomach the sale of once-prized state assets to foreign buyers. The sensitivities in this instance are acute because in March the Harbin municipal government agreed to sell its remaining 29 per cent stake in the brewery to a shadowy, British Virgin Islands-registered shell company - Global Conduit - for $947 million, or $3.25 a share. Global Conduit's only identified investor, Stephenson Harwood & Lo partner Philip Kan Sung-chee, did not return calls to his office. Ten weeks later the rights to that purchase were sold to Anheuser for $1.09 billion or $3.75 a share. SABMiller's subsequent general offer for the entire company at $4.30 a share - and the run-up in its shares to as high as $4.90 - reinforces the impression that, at best, Harbin government officials are not terribly sharp negotiators. It is not clear whether the Harbin government's original disposal in March had been approved by all the relevant mainland authorities, such as the State-owned Assets Supervision and Administration Commission. Anheuser issued a brief statement this week saying that the deal had been completed 'after receipt of all requisite approvals for the transaction'. Company spokesmen declined to elaborate beyond that, while a commission spokesman said its head office in Beijing had not dealt with the matter and referred questions to its Heilongjiang provincial office. Officials there could not be reached for comment. Harbin Brewery is no stranger to new owners. Established in 1900 by a Russian businessman known to posterity only as 'Mr Ulubulevskij' to slake the thirsts of Harbin's sizeable turn-of-the-century European population, it was for a brief period managed by Czech brewers before it fell into the hands of the Japanese Imperial Army in 1937 and the Soviet Red Army in 1946. Only after it was turned over to the Harbin municipal government in 1950 did the brewery enter a period of relative stasis. For 45 years it remained wholly owned by the state. In an era when most major mainland cities existed in a state of economic isolation, each with its own factories producing everything from beer to bicycles, Harbin Brewery was a quintessential state-owned enterprise situated in the heart of China's industrial rustbelt. But it differed from most state factories in one important way. With a European brewing tradition and like Shandong-based Tsingtao Brewery, Harbin Brewery had - by state enterprise standards anyway - a quality product and a venerated brand. These two assets would serve it well with China's rapid liberalisation through the 1990s, when previously sacrosanct regional economic fiefdoms were opened to all comers and contributed to the rise - arguably for the first time in Chinese history - of truly national markets. It is no accident that today Tsingtao and Harbin are, respectively, China's No1 and No4 breweries by sales. As evidence of their attractiveness, SABMiller bought 29 per cent of Harbin Brewery in July last year and Anheuser 5 per cent of Tsingtao in 1993. Anheuser later increased its holding in Tsingtao to 9.9 per cent and has an option to raise it further to 27 per cent by 2010. Expansion across China required capital. And as the mainland opened itself more fully to foreign investment in the 1990s, so too did Harbin Brewery. In the space of nine years the municipal government's stake steadily dwindled away, through a combination of direct sales to foreign investors including SABMiller and the Hong Kong investing public. The steady disposal of government-held shares in Harbin Brewery served two purposes. For the brewery, the disposals provided the capital it needed to embark on an acquisitions binge. They also provided funds for a cash-strapped municipal government saddled with mounting welfare obligations in one of China's most backward regional economies. Indeed, the brewery did not venture beyond Harbin's city limits until 1996 and did not make its first acquisition until 1998. Today it operates 12 breweries in five provinces, making it an attractive takeover target for multinationals such as SABMiller and Anheuser who are intent on building up market share city by city and province by province. A 52 per cent stake in Harbin Brewery was sold to a Hong Kong businessman in 1995. Five years later the Harbin municipal government transferred its remaining 48 per cent stake to a company it controlled in the British Virgin Islands - Kwok Nea Development Limited - to facilitate further disposals and its Hong Kong listing. The use of such offshore holding companies by regional governments across China is a common tactic through which state enterprises can qualify for 'foreign investor' status and tax breaks, facilitate further disposals and prepare for overseas stockmarket listings. In Harbin Brewery's case, the transfer of the municipal government's 48 per cent stake to Kwok Nea in 2000 was followed by the creation of a Cayman Islands holding vehicle and its Hong Kong flotation in June 2001. Kwok Nea sold 14.5 per cent of the brewery to the public, reducing its stake to 33.5 per cent. Kwok Nea's March agreement to sell 29 per cent of the brewery to Global Conduit effectively ended the state's involvement in a once-cherished asset. Kwok Nea's chairman, Chen Ruizhi, is also general secretary of the Harbin municipal government. Mr Chen said he was not aware of the identity or background of Global Conduit's beneficial owners. 'I don't know them,' he said. 'I was involved in the transaction at the beginning but not later on.' Mr Chen referred all other queries to the Harbin municipal government's Foreign Investment Bureau. An official there, who declined to give her name, said it was impossible for the local government to know much about companies registered outside the country. SABMiller and Anheuser have invested an enormous amount of time, money and prestige in their battle for Harbin Brewery, which has only just begun. But in this particular game of pass-the-asset, it is the mystery men behind Global Conduit who have already won big.