Tsingtao Brewery buys U.S. stakes in 2 China breweries

Tsingtao Brewery buys U.S. stakes in 2 China breweries

BEIJING (Reuters): Tsingtao Brewery Co Ltd, China's largest
beer maker, agreed on Friday to buy two U.S.-controlled breweries
in Beijing, marking a further retreat from the glutted market by
foreign companies.

Tsingtao will pay Asian Strategic Investments Corp (ASIMCO)
US$22.5 million in cash for its 63 percent stake in Beijing Five
Star Beer Co and its 54 percent stake in Beijing Three Ring Asia
Pacific Beer Co, Tsingtao officials said.

That represents a hefty loss for ASIMCO, which paid more than
500 million yuan ($60.39 million) for Five Star in 1995.

"I'm not thrilled with the way things have gone," said Tim
Clissold, president of ASIMCO, whose beer investments were
underwritten partly by U.S. number two beer conglomerate Miller
Brewing Co, and the pension fund of General Electric.

Cutthroat competition, rampant protectionism and a rising beer
lake have already forced Denmark's Carlsberg and Foster's of
Australia to scale back in the once-vaunted China market.

Beer is now cheaper than bottled water and local breweries
exert heavy pressure on distributors to keep rival brands off
store shelves.

Few, if any, of the roughly 60 foreign breweries in China are
profitable and most of the 500 or so domestic breweries are
losing money.

Tsingtao -- probably China's best known brand overseas -- is
expanding its hold on the fragmented market.

Foster's sold two joint venture breweries in China in 1999
after heavy losses.

Carlsberg agreed this month to sell 75 percent of its Shanghai
joint venture brewery, also to Tsingtao, for 153.75 million yuan
($18.56 million).

Clissold cited chaotic distribution and management woes at the
Five Star brewery as reasons for the sale and said ASIMCO wanted
to focus its attention exclusively on its automobile parts
business.

"In order to be a consolidator in the beer market you must
have A) economies of scale, and B) capital," he said. "It makes
more sense to continue investing in the auto sector."

ASIMCO has a thriving business producing auto components in
China, with roughly $300 million in 18 joint ventures.

Another ASIMCO executive said Five Star's financial problems
stemmed partly from a decision by the Chinese joint venture
partner to bow to a government edict requiring brewers to buy
expensive shatter-proof bottles from specified suppliers.

Competitors ignored the new requirement, the executive said.
He added that Three Ring was performing well.