China examines official spending on luxury alcohol amid rebound after earlier crackdown

A barman makes cocktails at the Capital Spirits Baijiu Bar in Beijing, on June 22, 2017.
A barman makes cocktails at the Capital Spirits Baijiu Bar in Beijing, on June 22, 2017. PHOTO: REUTERS

BEIJING (BLOOMBERG) - China's disciplinary watchdogs are examining official spending on luxury alcohol as President Xi Jinping steps up an anti-corruption campaign, just as premium liquor makers are regaining momentum after an earlier crackdown.

The Communist Party is asking local cadres to identify all the illegal spending on luxury liquor from January to August in 2017, including how much officials have spent and the names of those who attended banquets that included luxury alcohol, according to notices published on government websites.

Sales of China's premium liquor segment were hit hard after 2012, when Mr Xi's signature anti-corruption campaign focused on officials' lavish spending on entertaining.

However, the impact of the latest push may not be significant, as makers of the most popular luxury brands are seeing a surge in consumption in the mass market and the economy is showing signs of strength.

"The demand for premium liquor is very strong now in China, mainly from family and friend gatherings, and normal business needs," said Mr Qi He, a Shanghai-based fund manager at Huatai Pinebridge Fund Management.

"The sales contribution from government consumption has reduced much from more than 50 per cent years ago, to less than 20 per cent now in China."

Kweichow Moutai, the most valuable distiller in the world with a market value of about US$90 billion (S$123 billion), last month reported first-half profit climbed 28 per cent as Chinese consumers spend more on premium products.

Liquor makers led gains in consumer stocks on Wednesday (Aug 9), helping push a benchmark tracking the industry to a record high, amid signs of broad-based retail strength and economic buoyancy.

Data released on Wednesday showed China's consumer prices strengthened 1.4 per cent in July from a year ago, while retail sales jumped 11 per cent in June, the most since December 2015.

The government's campaign comes as the party prepares for its once-in-five-year leadership reshuffle, in which as many as 11 of the 25 members of the ruling Politburo could be replaced.