New Opportunities for Baijiu Going Global!
In the current context of increasingly fierce competition for market share, many liquor companies have chosen to "go global" with baijiu. This move is set to become a significant growth pole for these companies, as well as a necessary path for them to join international competition, expand into the global market, and achieve high-quality development. However, issues such as tariff trade barriers, cultural differences, and competition from international liquor companies have long plagued the internationalization of baijiu, with some even calling it a "pseudo-proposition."
On October 16th, Hong Kong Chief Executive John Lee delivered the "2024 Policy Address" in the Legislative Council Complex in Hong Kong, announcing a reduction in the import duty on spirits priced above 200 yuan from 100% to 10% to promote the trade of spirits.
Analysts point out that the reduction in Hong Kong's spirits tax will enhance the overall market competitiveness of Hong Kong's spirits trade and help promote China's high-quality baijiu culture to the world stage.
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Affected by this, both A-shares and Hong Kong stocks of baijiu companies saw a short-term lift in the market today. In the A-share market, Huangtai Liquor's stock price surged by more than 3% at one point, while Luzhou Laojiao and Jinhui Liquor both rose by more than 2%, and Shuijingfang and Jiugui Liquor both increased by more than 1%. In the Hong Kong stock market, Weiyang Liquor Holdings' stock price soared by more than 34%, and Zhenjiu Lidu's stock price rose by more than 8%.
Hong Kong Adjusts Import Duty on Spirits
As an important part of operating costs, the rationality and stability of taxation are directly related to the profitability and competitiveness of liquor companies. Previously, Hong Kong imposed a heavy 100% tax on alcoholic beverages with an alcohol content of more than 30% vol, higher than neighboring Macau and Mainland China, making it the highest in the Asian region.
As a world-renowned free trade port, Hong Kong's heavy tax on alcoholic beverages with an alcohol content of more than 30% vol affected the development of spirits, resulting in relatively low import amounts of spirits. Data shows that in 2023, the total import amount of brandy and whiskey in Hong Kong was only about 395 million US dollars.
To promote the trade of spirits, multiple political parties and groups in Hong Kong have called on the Hong Kong government to exempt or reduce the spirits tax. In September of this year, multiple sources indicated that John Lee planned to release his third policy report since taking office in October, which might announce a reduction or even removal of the spirits tax.
On October 16th, when John Lee delivered the "2024 Policy Address," he stated that Hong Kong currently imposes a 100% tax on the import price of spirits (alcoholic beverages with an alcohol concentration of more than 30%). To promote the trade of spirits and drive the development of high-value-added industries such as logistics and storage, tourism, and high-end catering consumption, the government, drawing on the successful experience of取消ing the wine tax to boost wine trade, announced that from now on, the tax rate on the portion of the import price above 200 yuan for spirits priced above 200 yuan will be reduced from 100% to 10%, while the tax rate for the portion at 200 yuan and below, or spirits with an import price of 200 yuan or less, will remain unchanged.Reducing the tax rate on spirits in Hong Kong undoubtedly benefits consumption and economic growth in the region. "Previously, Hong Kong imposed a heavy tax of up to 100% on spirits with an alcohol content higher than 30%. Under the influence of high taxes, the price of spirits in Hong Kong remained high, which inevitably suppressed the purchasing intentions of some consumers. Now that the tax rate on spirits has been reduced, the most direct impact is the decrease in spirit prices. According to the most basic economic logic, when prices drop, sales increase. This is a major benefit for both consumers who enjoy spirits and for business entertainment needs. There is no doubt that it will stimulate the market to increase consumption of spirits." Bao Xiaohui, Chairman of Changli Assets, told the Securities Times reporter that the reduction in spirit prices will directly drive the prosperity of related consumption scenarios. According to American experience, a decrease in alcohol tax rates will directly drive the prosperity of bars, restaurants, and other related consumption scenarios, thereby promoting the development of the overall consumer market.
Yao Xusheng, a wealth manager at Paipai Network, also said in an interview with the Securities Times that reducing the spirit tax will lower spirit prices, thereby stimulating consumer demand and increasing sales in the catering industry. This may have a positive impact on Hong Kong's night economy and catering industry, driving the development of related wholesale and retail, hotels, and small and medium-sized enterprises. In addition, reducing the spirit tax may attract more wine imports and enhance Hong Kong's position as a hub for the Asian wine industry. This could increase Hong Kong's competitiveness in the global spirit trade market and attract more foreign wine merchants and investments.
Chinese Baijiu Faces New Opportunities to Go Global
Chinese baijiu companies face many types of taxes in overseas markets. When these taxes are combined, they make the tax burden cost of baijiu relatively high in overseas markets.
Data from the General Administration of Customs shows that in 2023, the export volume of Chinese baijiu was about 15,000 kiloliters, accounting for only 0.2% of the total output, with an export value of $800 million, equivalent to less than 6 billion yuan in RMB. These figures indicate that although Chinese baijiu has a large market share domestically, its share in the international market remains low. How to tap into the potential of the overseas market has become a focus of attention for many liquor companies.
The reduction of spirit import tariffs in Hong Kong will undoubtedly be beneficial for baijiu to compete in the global market. Yao Xusheng said that Chinese baijiu companies have been actively seeking international development, and Hong Kong, as an important channel for Chinese baijiu to go global, its adjustment of tariff policies will directly affect the export competitiveness of Chinese baijiu. This will bring significant benefits to the Chinese baijiu industry and enhance the overall valuation of baijiu stocks.
Baijiu going global is an important strategic direction for the Chinese baijiu industry under the background of globalization, aiming to expand the international market and enhance the brand's global influence. Yao Xusheng said that baijiu is an important part of Chinese culture. By promoting culture, it can increase the recognition and influence of Chinese baijiu in the global market. With the development of the global economy and the diversification of consumer demand, the potential of Chinese baijiu in the international market is gradually being released. Baijiu companies are actively exploring new markets and consumer groups to adapt to the needs of the global market.
Bao Xiaohui also believes that baijiu companies can use Hong Kong as a platform to strengthen brand promotion and improve the reputation and recognition of Chinese baijiu in the international market. This will enhance the internationalization level and competitiveness of Chinese baijiu companies and create a true Chinese baijiu brand. At the same time, as an international financial and trade center, Hong Kong's superior geographical location and developed trade network also provide convenient channels for baijiu to enter other countries and regions.
However, Bao Xiaohui also pointed out that the phenomenon of homogenization in domestic baijiu products is quite serious. Many baijiu brands have similarities in product taste, packaging design, and marketing strategies, lacking differentiated competitive advantages. How to use differentiation to maintain their own product characteristics while making localized adjustments for the corresponding export areas has also brought new thinking to the globalization of baijiu.
Leading liquor companies are expected to enhance their competitiveness.In recent years, the market concentration of the liquor industry has been continuously increasing, especially in the high-end liquor market, where leading companies such as Moutai and Wuliangye have captured a significant market share. Hong Kong's adjustment of the import tax rate on spirits will be beneficial in further enhancing the competitiveness of leading liquor enterprises.
"Reducing the spirit tax will attract more spirit importers and distributors to enter the Hong Kong market, promoting the development of the spirit trade. As a hub for finance and logistics in Asia, Hong Kong can easily explore new markets," said Bao Xiaohui. At the same time, lowering the spirit tax helps Hong Kong to become a trade hub for the liquor industry in the Asian region, enhancing its competitiveness and influence in the global spirit market, while also driving more customs, personal tax, and corporate revenue for Hong Kong.
Leading companies such as Moutai and Wuliangye, with their brand advantages and market influence, continue to lead market development. Yao Xusheng stated that with the increase in residents' income levels, consumers' demand for high-quality and high-added-value liquors is growing, which has driven the trend towards high-end liquor in the industry. The high-end liquor market will further expand, with brand premium and product quality becoming key factors in competition.
He also pointed out that the liquor industry faces challenges such as intensified market competition, changing consumer tastes, and uncertainties in the policy environment. It is necessary to continuously adjust strategies, optimize product structures, and enhance brand value to cope with market changes and competitive pressures. Shifting from competition based on quantity to competition based on quality, high-end and branding have become the future development trends of the industry.