The July 2008 merger of Belgian brewing giant InBev with America's Anheuser-Busch has upped the stakes in the battle for the Chinese beer market, say analysts.

Growing dominance of multinationals

The merged company, Anheuser-Busch InBev (AB InBev) is now the world's largest brewer accounting for approximately one quarter of global beer production and sales of US$ 36.4 billion.

In China, apart from owning the Budweiser brand, AB InBev has inherited dominant positions in the southeast where InBev had 33 breweries, and the northeast where AB owned Harbin Beer.

The world's second largest brewer South African Breweries (SAB) owns Shenyang Snowflake Beer and Sichuan Blue Sword Beer as well as a 49 percent stake in China Resources Breweries.

Western China's beer market is dominated by Carlsberg Beer, which owns the Kunming Huashi Beer Company, Chongqing Brewery and the brewing division of the Xinjiang Hops Company.

In China as a whole, Yanjing Beer and Henan Jinxing Beer are the only two domestic brewers without foreign partners.

In 2007 the combined production of AB and InBev was 9.88 million kiloliters, compare with the 6.9 million kiloliters produced by South African Breweries (SAB) and Yanjing’s 4.2 million kiloliters.

Ding Feng, director of the Investment Advisory Professional Committee for National Food Industry Productivity Center says the fast growing China market, comprising the world's largest population of consumers, is shaping up as a major battleground for the multinational brewing giants.

Domestic brewers under pressure

Fierce competition, brand clutter and excessive concentration on the low end of the market are creating difficulties for domestic producers, say analysts. Last year's high prices of barley and hops, the global financial crisis and a domestic price war have put smaller domestic breweries under severe pressure. Large and medium-sized brewers are resorting to mergers and reorganizations to cut operating costs.

Financial Crisis has affected AB InBev

Not everyone agrees that AB InBev will move quickly to consolidate a dominant position in the market. Some analysts say the global financial crisis will slow the integration of the companies' operations on the ground, and point to the sale of 262 million Tsingtao shares to Asahi to pay off debt incurred to finance the merger.

Prepare to pay more for your beer

But Ding Feng believes that the long-term future of the beer market lies with the multinational giants and as the market matures and people's expectations improve, the market share of high-end, high-priced brands will grow.

Immediately after the merger AB InBev made a strategic decision to divide its Chinese beer brands into three levels, with Budweiser is positioned at the high-end. Some analysts believe the company's strategy is to focus on China's high-end beer market.

According to marketing website just-drinks, the global high-end beer market will reach 65.5 million kiloliters by 2013, an increase of 74.7 percent over 2006. In Asia-Pacific, beer production will reach 13.5 kiloliters, an increase of 125 percent. The website says the Chinese market will be one of the main drivers of growth.

(China.org.cn by Wu Huanshu February 12, 2009)