China Tsingtao to reduce costs to preserve profits

BEIJING, Aug 6 (Reuters) - Tsingtao Brewery Co. Ltd. (0168.HK), China's number two beer maker, said on Wednesday it would focus on reducing costs to maintain profit margins as there was little room to raise product prices as market growth slows.

Tsingtao (600600.SS) in April posted an 18 percent slide in 2007 second-half earnings as strong sales failed to offset higher tax rates and barley prices.

"Our focus will be on cost reduction," Chairman Jin Zhi Guo, told reporters.

"We will make some adjustment in prices of our premium brands, but I can tell you the extent will not be large," he said.

ABN AMRO said Tsingtao's average barley price could increase this year by 50 percent in China, the world's largest beer market by volume.

"This is the winter for our industry," said Jin, on the sidelines of an event to mark Tsingtao's sponsorship of the Olympics, which open on Friday.

Jin said rising cost of production was a challenge for many companies but for firms like Tsingtao it was an opportunity to upgrade their operations, reduce costs and become more efficient.

"This pressure from rising costs is a good opportunity for Chinese industry to become more efficient, weed out the weak and let the strongest survive," he said.

The maker of China's most famous beer brand is struggling with soaring costs as are rivals Heineken (HEIN.AS), Carlsberg (CARLb.CO), and China Resources Enterprise Ltd (0291.HK), which runs a joint venture with SABMiller Plc (SAB.L).

Tsingtao is 27 percent-owned by top U.S. beer maker Anheuser-Busch Cos. Inc. BUD.N, which agreed in July to be acquired by Belgian rival InBev NV INTB.BR for $52 billion, creating the world's largest brewer.

The combined Anheuser-InBev would have annual net sales of $36.4 billion and brew a quarter of the world's beer.

Jin said the purchase of Anheuser-Busch was a part of a global trend, while its impact on his company still needed further study. (Reporting by Kirby Chien; Editing by Paul Bolding)