CHINA Strategic Investment, the largest foreign investor in mainland state enterprises, will spend US$500 million (about HK$3.86 billion) to expand its breweries before seeking a listing in New York. Chairman Oei Hong Leong said moves were being made to set up China Brewery Holdings and bring the five breweries on the mainland under its wing before a listing would be sought within the next two years. Last week, China Strategic announced a joint venture with Beijing Brewery, adding to its existing factories in Quanzhou, Hangzhou, Laizhou and Yantai. The five breweries have a total annual production capacity of 500,000 tonnes, making the group the largest brewery in the country. China Strategic, the major shareholder, would quadruple the capacity to two million tonnes in two years. Towards this end, the company is holding talks with breweries in Japan, Australia, Germany and New Zealand to introduce international brand names and technical expertise to its breweries. ''Once the licensing and technical arrangements are made, we can be assured of a certain quality and name recognition, which will be useful to us when we seek listing,'' said Mr Oei. He added that the group was also discussing with the Japanese brewery to take a stake in the proposed brewery holding company. He said although the five breweries were either profitable or on the verge of profits, they had yet to meet the listing requirements of the New York Stock Exchange. ''The breweries may be profitable but we still do not meet the listing requirements of a three-year profit record of a minimum of $2.5 million a year,'' said Mr Oei. Thus, the company is busy rationalising and upgrading the breweries to ensure that the accounting practices and profitability are in keeping with the proposed listing requirements. Mr Oei said a US flotation was preferred to one in Hong Kong because the former was a much larger capital market and could easily absorb an issue of $100 million or $200 million. ''An issue of that size is huge by local standards. But in the US, this is considered as average,'' he said. Also, it made sense for China Strategic to seek a US listing because it planned to sharply expand its exports of light industrial and consumer goods produced in China to the US. ''I would expect US to be our largest export market in future. Having brand names which are recognised there would help us in our listing,'' Mr Oei said. In July, the group floated its tyre business under China Tire Holdings in New York with an initial public offer which raised $103 million. The Indonesian-born businessman added that the International Finance Corp, the private sector investment arm of the World Bank, had agreed in principle to take a five per cent stake in China Strategic's paper-making factory in Ningbo. The World Bank has also given in-principle financial backing for a US$200 million expansion of the factory. ''The financial backing will be used for equipment purchase and details have to be worked out.'' Once the Ningbo factory met the listing requirements, it would also be floated overseas. That would mean China Strategic's core businesses on the mainland - paper-making, brewery and tyres - would all be listed. So far, the company has taken over nearly 200 state enterprises in China, making it probably the largest foreign investor in this sector. Last year, it took over all 41 state enterprises in Quanzhou and restructured them into 14 units. Mr Oei said that as a result of the restructuring, most of these enterprises were beginning to produce profits. ''Quanzhou is the only city now with no state enterprises and, for the first time, the city government does not have to give a financial subsidy because we would be able to show a net profit this year,'' said Mr Oei. Earlier this year, the company also reached agreement with the Dalian authorities to become the majority shareholder in 101 state enterprises. In addition, it has gained control of seven state enterprises in Wuxi, five in Hangzhou and 37 in Ningbo. China Strategic's total investments in China total about three billion yuan (about HK$4.02 billion at the official rate).