Could new alcohol regulation be on the cards in China?

  • Strong criticism of China’s drinking culture in the state newspaper and by the anti-graft watchdog in recent days has sent shares in drinks companies tumbling. 
  • Investors fear that this could be the forerunner of tighter regulation following crackdowns on other sectors of late. 

 Shares in various drinks companies, including popular baijiu brand Kweichow Moutai, tumbled late last week after a stinging report from state newspaper People’s Daily. 

The paper, along with several other outlets, hit out at both alcohol and e-cigarettes in a recent article, citing links to cancer for the former and concerns over underage vaping for the latter.  

The Chinese government has recently been pursuing a regulatory stance that cracks down on “vice industries”. So far, both technology and property have been subject to tighter state regulation and the recent media reports suggest that alcohol could be another sector under review. 

The situation has been compounded by the recent firing of a senior manager at tech giant Alibaba for sexual assault. The attack happened after an evening of heavy drinking. 

Following this, the party’s anti-corruption watchdog issued a statement earlier this week that the practice of drinking at business occasions should be replaced with “correct values”. 

Shares in Kweichow Moutai dropped 1.5% and those of its rival Wuliangye Yibin’s 3.1% at the news last week, and both slumped a further 2.1% and 2.8% respectively today (Wednesday 11th August) following the latest statement. 

Whether stricter regulation for alcohol is on the cards or not, readers will recall the impact on the secondary market that followed the anti-graft measures of 2012 (see chart), stymying what appeared to be the start of a recovery after two years of serious decline. 

Similar such anti-corruption measures have become a common feature of Xi Jinping’s tenure in office. 

As an important festival season approaches in China, renewed state restrictions on gift giving and corporate dining could provide a headwind for the secondary fine wine market in the final half of the year.