A beverage manufacturer has become China’s most valuable public company, overtaking the country’s largest bank.
Kweichow Moutai is a spirit of luxury preferred by Chinese politicians and businessmen who seek to impress.
The company’s stock price has risen dramatically this year, raising its value to new highs.
Despite producing one of China’s most prestigious brands, few people have heard of it outside the country until now.
As its value increased, Kweichow Moutai overtook the Industrial and Commercial Bank of China (ICBC), the world’s largest commercial bank in assets, to become the country’s most valuable public company.
Its share price has soared more than 20% so far this year, according to data from Refinitiv and is one of the few listed companies in China whose share price has exceeded 100 yuan ($ 11).
Chinese tech giant Alibaba is more valuable, but is not listed in China. Huawei, another well-known Chinese company, is privately owned.
Based on Monday’s closing stock prices, Kweichow Moutai is currently valued at more than 1.8 billion yuan. Currently, ICBC is worth just under 1.8 billion yuan.
What is Kweichow Moutai?
Kweichow Moutai has an unusual corporate structure. It is partly state owned and partly publicly listed on the Shanghai Stock Exchange.
Formed in 1999, Kweichow Moutai is the most valuable beverage company in the world, having overtaken the UK-based Diageo three years ago.
Manufactures and distributes a unique brand of baijiu, a clear and colorless liquor, considered the national spirit of China.
Baijiu usually has an alcohol content between 35% and 60% by volume.
John Watkins, an alcohol industry expert who has worked extensively in China, said: “Shooting with Moutai is part of the culture of business and accelerates building trust and friendships.”
Speaking about the manufacturer, he added: “It looks like a well-managed company from the outside, capable of generating sustainable and growing profits as China’s consumer market grows and has more and more purchasing power.”
Why is it so prestigious?
Kweichow Moutai was a favorite drink of the founding father of the People’s Republic of China (PRC), Mao Zedong, who served famously at state dinners during the visit of U.S. President Richard Nixon to China in 1972.
In 1974, US Secretary of State Henry Kissinger told Deng Xiaoping, China’s future supreme leader, “I think if we drink enough Moutai, we can solve anything.”
Such brilliant praise made Moutai the elite’s favorite brand, a must-have item at business banquets and a show of wealth and power.
“It is considered a status symbol because of the high price and limited supply, which I believe is part of Moutai’s marketing and sales strategy,” said David Liu, a Shanghai-based analyst and baijiu drinker.
Why did your stock price soar suddenly?
Kweichow Moutai’s stock has risen since the beginning of the coronavirus pandemic in China, while other alcohol brands have seen their values drop.
Kweichow Moutai is often drunk at home, so sales have not been affected as rival brands, which rely heavily on closed bars and clubs during virus blocks.
The luxury brand is also benefiting from the US-China trade war.
“At the moment, with the growing patriotism of pride in how China has so far contained Covid-19 and the US anger at Trump’s trade war, the Chinese are increasingly buying domestic brands and products for patriotism.
“This is true, from sportswear to cosmetics and alcohol,” said Shaun Rein, founder of China Market Research Group.
He added that since the Chinese cannot travel abroad on expensive shopping trips to Europe, they are spending on luxury domestic consumption.
How much does it cost?
Buyers regularly spend about 900 yuan (£ 91, $ 127) for a bottle of Kweichow Moutai baijiu, but the price can rise dramatically for rare and good crops. Some bottles sell for up to $ 20,000.
Although distribution and pricing are heavily controlled by the Chinese government, many people buy bottles as speculative investments to maintain and sell at a higher price.
And how does it taste? “The first time I tried Moutai, it tasted like engine oil and it burned my throat on the way down. Now I find it smooth and pleasant,” said Rein.
Kweichow Moutai still has a way to go to become the most valuable listed company in the world. This title currently belongs to Saudi Aramco (Saudi Arabian Oil Company), which is valued at almost $ 1.9 billion, according to Refinitiv.