The De-Colonization of Chinese Beer

If you are a loyal reader of PandaYoo, you will realize that we wrote an article on The De-Colonization of Chinese Drink in February 2020. In that article, we reviewed the relationship between China’s soda industry and the anti-colonial war in modern Chinese history. 

China won the anti-colonial war in 1949 and became an independent country, but China’s soda industry did not win the war against economic colonization until 2008. In the end, Chinese soda got rid of the monopoly and control of the Chinese soda market by multinational soda companies.

As the title of this article implies, the same thing is still happening in China’s soda industry’s neighbor, the beer industry. 

In 1900, the first bottle of home-grown beer was produced on the Chinese mainland. But until 2020, foreign companies still almost monopolized China’s beer market. Now, let’s take a look at this history of beer.

Chinese Beer Industry which began with the colonists

China has a history of drinking for thousands of years, but beer is not among them. The ancient Chinese preferred to drink rice wine and liquor. So beer, like soda, is exotic itself. 

For overseas consumers who know a little about Chinese beer, Harbin Beer, Tsing Tao Beer, Yanjing Beer, and Snow Beer may be the four Chinese beer brands they can name. These four beer brands are indeed the starting point of China’s beer industry. 

So, which of these four brands is the earliest beer brand in China? The answer is “Harbin Beer”. 

But its birth is a tragedy: Harbin is the area where China was first colonized and invaded in modern history, and the colonists set up China’s earliest brewery here to meet their own needs. 

In 1900, Russia invaded the northeast of China, and alcoholic Russians brought beer to China. Russian Jan Wróblewski set up China’s first brewery in Harbin, which is the prototype of “Harbin Beer”. 

In 1932, Japanese troops occupied Harbin. They drove out the Russians there and renamed the Wróblewski Brewery to Harbin Beer Brewery.

In 1935, Japan Great Japan Wheat Wine Co. set up a factory in Harbin. After Japan surrendered in 1945, the Soviet Red Army took over the Japanese brewery. In 1946, the Soviet Red Army renamed it “the first Brewery of Churin Group”. After the founding of New China, the Soviet Red Army handed over the factory to the Chinese government.

In 1952, “Harbin Beer” and “Churin Beer” merged into today’s “Harbin Beer”.

In 1903, three years after the birth of the predecessor of “Harbin Beer”, German and British businessmen established the Qingdao branch of Germanic Beer Company in Qingdao, Shandong Province. This company is the prototype of “Tsing Tao Beer” in the future.

In 1914, when World War I broke out, Japan occupied Qingdao and drove out the Germans, and forcibly bought shares in the company from the Germans, and began to produce Asahi Beer.

In 1945, when the war against aggression was won, the government of the Republic of China confiscated the assets of the brewery and renamed it Tsing Tao Beer Company. after the founding of the People’s Republic of China, it was renamed the state-owned Tsing Tao Beer Factory. This is what we now know as “Tsing Tao Beer”.

In 1933, Japan Sun Co., Ltd. and Kirin Co., Ltd. respectively set up breweries in Shenyang that time. After the establishment of the puppet state “Manchukuo”, the two wineries merged into “Manchuria Wheat Liquor Co., Ltd.”.

In 1945, after China’s victory in the War of Resistance against Japan, it was handed over to the Russian company Churin Group. After the founding of New China, it was renamed Shenyang Brewery, and workers at the factory developed a beer that would froth like snowflakes when poured into a glass in 1957, which eventually made it famous as the “Snow Beer” brand.

On Yanjing Beer, there is exactly the same story: in 1941, Japan Wheat Liquor Co., Ltd. established the “Peiping Brewery” in Beijing (then known as “Peiping”). With the end of the War of Resistance against Japan, it was returned to the Chinese and defeated in the competition with Beijing Beer.

The second De-Colonization War of Beer

Like the soda market, Chinese beer has entered a slow but steady period of development after the founding of the people’s Republic of China. 

Like soda, beer has been a product that is difficult to transport over long distances for a long time. So during that time, almost every province in China launched its own beer, most of them named after the provincial capital, and the list can be very long: 

Yanjing Beer, Snow Beer, Tsing Tao Beer, Harbin Beer, Chuncheng Beer, Dali Beer, Flower, and Snow Beer, Lhasa Beer, Wusu Beer, Xinjiang Beer, Yellow River Beer, Chongqing Beer, Shancheng Beer, Tianmu Lake Beer, Harbin Beer, Xuejin Beer, Baisha Beer, Tangshan Beer, Jinshi Beer, etc.

But if you check the ownership of each brand on this list in 2020, you will be surprised to find that most of these local Chinese breweries, which are about 50 years old, have been controlled or acquired by overseas breweries.

It all began with the Reform and Opening-Up. 

In our article on soda, we talked about how things happened: in the early days of China’s reform and opening up, China went through a period of “unlimited worship” of European and American companies, from the government to enterprises. 

At a specific level, it has become a popular strategy to privatize existing enterprises and establish new joint ventures with similar foreign companies. Contrary to many foreign critics, Chinese companies often do not gain access to advanced technology in these partnerships, but foreign companies steal the Chinese market indeed.

In China at the end of the last century, the beer industry, like the soda industry, sales channels were far more important than brewing technology. To put it simply, people usually drink in night markets, street food shops, and community stores (Xiao Mai Bu).

These commercial premises are not pure commercial places, they are a “relationship” hub in China’s local community, and they are often run by people who lived in the local community for decades. These people form good interaction with the surrounding residents while running these shops, and even help residents take care of their after-school children.

It is not easy for foreign brands to sell goods in these places, and the owner of these businesses do not charge fixed slotting fees to brand salespeople as modern supermarkets and restaurant chains do. Brand salespeople must establish a long-term relationship with them to gain trust. 

But taking stakes in local beer brands that have established long-term relationships and sales channels with local businessmen will make everything easier. As a result, Budweiser(Anheuser Busch) and Carlsberg began their buying spree in the Chinese market. This has actually led to a rapid oligopoly of Chinese beer brands.

Although you still seem to be able to buy hundreds of brands of beer, they are actually produced by a few large breweries.

This not only hurts China’s economy or Chinese people’s self-esteem but actually hurts China’s beer industry. With Anheuser Busch, InBev, and Carlsberg entering China’s beer industry, there is also “industrial beer brewing technology”. It shortens the beer-making process from at least 30 days to 10 days by adding corn starch and rice to the raw materials. Later, some local breweries in China even blended beer without fermentation through alcohol, hop extract, carbon dioxide, and diuretics in order to compete in the market at lower prices. This makes the beer lose the aroma produced in the original brewing process, and makes the competition of beer fall into a vicious circle.

China’s beer industry has almost become a “puppet” at this stage.

Counterattack

In the end, some local beer brands won, and these are the same brands that have so far had the biggest market share: Tsing Tao Beer, Yanjing Beer, and Snow Beer. 

You may have noticed that Harbin Beer, mentioned at the beginning of this article, disappeared from this list because it was acquired in the previous stage. In 2004, Anheuser Busch acquired Harbin Beer, which gave Budweiser a one-time 10% share of the Chinese beer market. 

In 2002, Anheuser Busch also began to increase its stake in Tsing Tao Beer. Tsing Tao Beer was the country’s largest beer by sales at the time, and it bought 36 other local Chinese beer brands in the process of market competition. This means that if Anheuser Busch succeeds in acquiring Tsing Tao Beer, it will acquire 37 Chinese beer brands at once. 

So, Anheuser Busch’s slow acquisition of Tsing Tao Beer’s shares attracted the attention of the Chinese government. Anheuser Busch took a 27% stake in Tsing Tao Beer Group in 2008 when China’s Anti-monopoly Law came into effect.

In 2008, the Belgian InBev Group announced its merger with the Anheuser Busch Group of the United States. The two groups have previously acquired a number of local beer brands, so the merger triggered an antitrust investigation in China.

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According to estimates by China’s Ministry of Commerce, if all the brands held by AB and InBev in the Chinese market are merged into AB InBev, this will result in AB InBev having more than 10 billion yuan in sales in the Chinese beer market, which almost monopolizes the Chinese beer industry. As a result, China’s Ministry of Commerce has added three additional conditions on the trade:

1. The AB Group cannot hold more than 27% of Tsing Tao Beer’s shares until the acquisition is completed.
2. InBev cannot hold more than 28.56 percent of Zhujiang Beer until the acquisition is completed.
3. Neither company is allowed to hold shares in Snow Beer and Yanjing Beer.

This makes the above-mentioned four local Chinese beer companies effectively maintain their independence. After the full competition, Snow Beer, Tsing Tao Beer, and Yanjing Beer became the top three in China’s beer market.

In fact, Snow Beer was once 49% owned by SAB, the world’s fourth-largest beer brand. But when SAB was acquired by AB InBev at the end of 2015, because of the above restrictions, AB InBev had to sell SAB’s 49% stake in Snow Beer while acquiring SAB.

China Resources Group, China’s giant state-owned enterprise, bought back the shares, giving Snow Beer the opportunity to develop independently.

In the years after 2008, AB InBev’s 27% stake in Tsing Tao Beer was split into two parts, one sold to Japan’s Asahi Beer (19.9%) and the other to the public (7.01%).

Although Snow Beer, Tsing Tao Beer, and Yanjing Beer are still in the interests of a small number of consumers in the world market, they are at least famous for those fanatics who love beer very much. They maintain a unique brewing process and enable people to really taste the beer flavor that belongs to China.

Due to the success of the second anti-colonial war, at present, China’s beer market is about like this: Snow Beer accounts for 23.2%, Tsing Tao Beer 16.4%, Ad InBev 16.2%, Yanjing Beer 8.5%, Carlsberg 6.1%, and the remaining 29.6% market share is occupied by “fake Chinese local brands” controlled by a foreign company.

Imagine that if Snow Beer, Tsing Tao Beer, and Yanjing Beer were also acquired, they would enter the 29.6% marked “Others”. And the flavor of Chinese beer, which has lasted for a century, will disappear completely.

So sometimes the protection of local companies is not always about politics and economics, is it?

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