China’s crackdown on its workplace drinking culture is a problem for the world’s largest liquor company

China’s quest for office sobriety is not going down smoothly for Kweichow Moutai, the Chinese liquor giant and the world’s largest liquor company by market capitalization.

The stock price for Kweichow Moutai has fallen nearly 10% since last Tuesday when China’s top anti-corruption watchdog, the Central Commission for Discipline Inspection (CCDI), criticized drinking behaviors in Chinese offices.

The CCDI issued the statement on Aug. 10 in response to online furor regarding an account of a rape case at Chinese tech giant Alibaba. In the incident, a female employee at Alibaba reported that her boss, Wang Chengwen, forced her to go on a business trip in late July, pressured her to drink to the point where she blacked out, and then raped her, the employee wrote on an internal company message board.

The employee’s account went viral on Chinese social media, prompting Alibaba to fire the employee. (In an initial probe, local authorities in China’s eastern city of Jinan described the case as “forcible indecency” and not rape, but their investigation is still ongoing.)

But the case sparked a broader backlash to drinking culture at Chinese companies.

In a note to his employees, Alibaba chief executive Daniel Zhang vowed to rectify an “ugly forced drinking culture” that was plaguing the company. In the Aug. 10 statement, the CCDI said that it would strengthen oversight of Chinese companies to combat toxic work cultures in which employees are pressured to drink.

But if and how regulators will do that remains unclear. Pressuring others to drink is a behavior that is deeply entrenched in China’s business culture. It is seen by many as essential to striking deals, hosting banquets, or even conducting a job interview.

The million dollar question is, does this mean there’s going to be a lot of regulation that will follow [the CCDI statement]… Or is this problem with irresponsible drinking something [that China will] address over time, says Euan McLeish, a managing director and senior equity analyst at Sanford C. Bernstein in Hong Kong. McLeish explained that potential regulatory measures could include increased taxes on alcohol, education campaigns to limit drinking, and giving more power to servers to cut off drunk customers. “[This uncertainty] is why the liquor market is pretty jumpy at the moment.”

The share price for Kweichow Moutai competitor Wuliangye is similarly down nearly 8% since the CCDI announcement.

Kweichow Moutai is the most prominent and one of the most expensive makers of the Chinese liquor baijiu, a clear, strong liquor that is often distilled using sorghum or other grains and was famously a drink of choice for China’s founder Mao Zedong. Kweichow Moutai’s elite status has made it a symbol of wealth and power as well as a mainstay at business banquets across the country.

It’s not something that a business would serve day-to-day, says McLeish. But it still is consumed very much on business occasions, when [businesses] are celebrating or there’s someone they are trying to impress.

Kweichow Moutai’s popularity has made it one of China’s largest companies with a market capitalization of over $313 billion, nearly three times the size of Belgian alcohol giant Anheuser-Busch InBev, and powerful enough to help prop up the finances and fund public infrastructure of Guizhou province, the underdeveloped province in southern China where Kweichow Moutai is headquartered.

Moutai’s size and status within China may make the company relatively immune to the CCDI’s warning about drinking culture. The company withstood a regulatory crackdown once before, notes McLeish. In the early 2010s, Chinese President Xi Jinping launched an anti-corruption campaign that targeted the lavish spending habits of public officials.

But Brock Silvers, chief investment officer at Kaiyuan Capital in Hong Kong, says that Beijing’s latest campaign against drinking culture could spell trouble for Kweichow Moutai, given that Chinese authorities are currently cracking down on the power of many of the country’s largest firms.

“In this atmosphere, any regulatory attention will be taken seriously. China’s recent crackdown on workplace alcohol culture is thus an important matter for [Kweichow Moutai],” says Silvers. “It’s likely to affect the company’s bottom line and perhaps even scare investors sober.”

Leave a Reply

Your email address will not be published. Required fields are marked *

%d bloggers like this: