Helped by steady economic growth and increasing disposable incomes, China's consumption of beer increased by around 6% in 2002. However, a report released today said the traditionally strong urban market could finally be reaching maturity. As a result, producers may have to turn their attention towards targeting consumers in rural areas.

A report from the research analyst Canadean claims that although China boasts the largest population on Earth, and beer consumption is particularly strong in urban areas among 25-45 year olds, the explosive growth seen prior to 1997 has now slowed.
But rural per capita consumption is almost 60% lower than that in towns and cities, offering significant potential for expansion.

"Chinese consumers have a very strong affinity with domestic brands which account for an estimated 96% of all beer consumed. This said, production capacity exceeds consumption by some 40%, resulting in an inevitable price war. Furthermore, the cost of imported barley has risen and with reduced margins, many smaller producers are finding it increasingly difficult to survive. Half of the country's 500 breweries are facing bankruptcy," the report says.

The problems are compounded by exceptionally high transport costs which restrict the sale of most beers to within a limited radius of the production plant. Meanwhile, the well documented SARS epidemic has seriously affected restaurants, tourism and the entertainment industry.

Locally produced standard beer is easily the largest sector, enjoying a market share of almost 90%. Consumers are however becoming more sophisticated, and are developing a strong taste for premium beers. Fuelled by a recent boom in pubs and bars, premium beer is the fastest growing sector, increasing by 34% in 2002 alone.

"As margins are squeezed ever tighter, competition between domestic and foreign brands in the Premium sector is reaching fever pitch. A myriad of new products have been launched as producers attempt to establish a foothold," Canadean said.

"Although it has many obstacles to overcome, the Chinese beer market offers plenty of cause for optimism. China has recently overtaken the USA as the world's leading producer of beer, and thanks to Taiwan lifting a ban on goods imported from mainland China, 2002 exports rose by a very encouraging 54%. The upgrading of equipment and technology has greatly improved beer quality and huge new distribution channels have been provided by the continued expansion of supermarkets and cash and carry outlets."
Overall, Canadean predicted a slight increase in 2003 with further modest expansion expected in the short term.

"A word of warning does though lie in the fact that the "one child per couple" policy was introduced 20 years ago. As such, it has not yet impacted on the core beer drinking audience of 25-45 year olds. When it does, the picture could be an altogether different one," said Canadean.