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A cartoon by a Chinese media outlet illustrates the unprecedented crisis facing China’s baijiu industry. / The Beijing News

Baijiu, a liquor that many Chinese take great pride in, has recently been selling at an unprecedentedly weak pace, pushing the industry itself into crisis. If the situation does not improve, the baijiu industry could eventually become a major burden on the Chinese economy.

Recent reports by The Beijing News and other media outlets show that Chinese baijiu producers have been actively promoting the liquor overseas. One example is Xifeng Group, based in Baoji, Shaanxi Province, which recently invited foreign journalists and overseas liquor industry representatives on a tour to promote Xifengjiu, one of China’s four famous baijiu brands. The move reflects the industry’s broader ambition to turn baijiu into a global brand.

That ambition is also supported by many local governments, which have long provided substantial subsidies to baijiu producers in their jurisdictions in an effort to develop them into internationally recognized brands. In that sense, baijiu can reasonably be described as a source of national pride in China. At the very least, it would be expected to remain highly competitive and sell strongly in its home market.

That was indeed the case until just a few years ago. Now, however, the situation has changed dramatically. Baijiu’s once seemingly unassailable position has weakened sharply, signaling that the industry has already entered a severe crisis.

The numbers make that clear. Combined revenue at the top 20 baijiu companies, including Kweichow Moutai, totaled 200.44 billion yuan, or about 40.09 trillion won, in the first half of the year, down 6.65% from a year earlier.

Even more strikingly, second-quarter revenue fell by more than 17% year on year. Expectations that sales could decline further as time goes on are therefore hardly unfounded. Under these conditions, strong operating profits are also difficult to expect. In the first half, net profit at the top 20 companies fell 8.28% from a year earlier. Against that backdrop, it is perhaps not surprising that only two of the 20 companies avoided posting losses.

There are several reasons why baijiu has gone from a source of pride to something of a burden. One is the ban on official banquets and drinking imposed on public officials nationwide over the past several years. The prolonged economic slowdown, with no clear sign of a strong recovery, is another factor.

The most decisive factor, however, appears to be the growing tendency among younger consumers, a key demand group, to avoid drinking and especially strong liquor. That makes the conclusion that conditions could worsen further a natural one.

The baijiu industry is trying a wide range of measures to overcome what has become an unprecedented and largely unexpected crisis. These include aggressive price cuts and highly unconventional promotional campaigns. But once momentum has been lost, reversing the trend is far easier said than done.

It is becoming increasingly difficult to deny that baijiu, often regarded as China’s “national liquor,” and the industry built around it are facing their most serious crisis ever.

                                                                                                            Hong Soon-do