Liquor shares slump on Li’s austerity promise

Chinese high-end liquor producers saw their shares slump Monday after newly elected premier Li Keqiang vowed Sunday to put the government on a tight budget "to win the trust of the people."

High-end liquor maker Kweichow Moutai Co dived by 4.25 percent to hit its one-year low at 169.45 yuan ($27) a share Monday, while the benchmark Shanghai Composite Index closed down by 1.68 percent.

Wuliangye Yibin Co, another top Chinese liquor firm, saw its shares fall by 4.54 percent; Jiugui Liquor Co lost 4.1 percent and Anhui Gujing Distillery Company shed 7.88 percent. Calls to the companies went unanswered Monday.

Market analysts said the sudden stock plunge was triggered by China's new premier Li Keqiang declaring his determination to fight corruption and curb government expenditures.

"Within the term of my government … spending on official hospitality, overseas trips for official business and the purchase of official vehicles will decrease, not increase," Li said Sunday when he met the press for the first time as China's premier.

"What the premier said certainly has a direct negative impact on liquor stocks, especially for high-end companies," Yang Qingshan, an independent liquor analyst, told the Global Times Monday, noting that high-end liquor is usually viewed as a necessity for official hospitality, so any rules to limit government spending will reduce sales.

It is not the first time that liquor makers' stocks have dipped suddenly.

In December last year, the Central Military Commission of the Communist Party of China ruled that receptions for high-ranking officials would no longer feature liquor or luxury banquets.

The news dragged down shares of liquor makers over the following days.

"The military is considered a big consumer of high-end liquor in China. The rule hit the country's liquor makers, but also presented a push for them to change their targeted customers from governments to ordinary consumers," said Yang, noting that he personally is still very optimistic toward long-term development of the Chinese liquor industry, which has already become a cultural tradition in China.