March 9, 2011 / 4:34 PM / 9 years ago

Rising price of fiery national liquor unpalatable

BEIJING (Reuters) - Chinese leaders used it to toast Richard Nixon, Kim Il-sung, Margaret Thatcher and Ho Chi Minh, as well as the founding of the People’s Republic of China.

A Chinese waitress yawns as she stands next to a giant bottle of Maotai, one of the most famous liquors in China, during an exhibition in Guangzhou, Guangdong province in this picture taken July 18, 2004. REUTERS/China Photos

But a 20 percent price rise this year of China’s national liquor, Maotai, on the back of tight supply and rising raw material costs has got Chinese consumers hot under the collar, especially as Beijing tries to tackle growing inflation.

Now the Maotai debate has found its way into the annual meeting of China’s rubber stamp parliament, normally a much drier affair with hand-picked delegates taking turns to outdo each other in praising government policy.

“As the ‘national spirit’, it’s quite understandable the price adjustment for Maotai has attracted such attention,” Guizhou provincial governor Zhao Kezhi told a news conference. Maotai is made in a remote part of the southwestern province.

The cost of raw materials for the fiery drink — which is essentially composed of mountain water, sorghum and grain — had gone up by 28 percent, Zhao said.

One lawmaker proposed this week the government should step in and put a stop to the price rise, according to state media.

Zhao did not appear to take that bait.

“This is a company decision,” he said, though added the government would, as a general principle, “strengthen management of prices.”

The central government has imposed a series of price controls, though mainly on more mundane items like vegetables and cooking oil, in an effort to control inflation, which hit an annual 4.9 percent in January.

Another important reason for the price jump was demand outstripping supply, Zhao said, with increasingly affluent Chinese consumers turning their attention to what was once a niche luxury good reserved for senior officials.

Kweichow Moutai, which makes the fiery drink, posted net profits of 4.17 billion yuan ($634.9 million) for the first three months of 2010, up one-tenth on the year-ago period. Full-year results come out later this month.

Bringing more capacity online in a short time would be impossible, due to environmental constraints and quality concerns, Zhao said. It is aged for a minimum of five years.

“Maotai’s production requires special techniques and is closely connected with the area’s special environment. It’s not possible for them to ramp up production and market supply in a short period of time,” he said.

“There are strict quality controls,” Zhao said. “The company will produce 29,000 tonnes this year, or maybe 30,000 tonnes if it does well, but only 11,000 tonnes will be on the market this year, which is to say, what will be sold this year was made five years ago,” Zhao added.

Though it traces its origins back two millennia, Maotai has been the drink of choice for generations of Communist leaders.

Legend has it Chairman Mao Zedong first tasted the drink while leading his rag-tag army through Guizhou on the Long March, in flight from Nationalist forces in the 1930s.

“Guizhou is a top grade production base for liquor,” governor Zhao said. “We will continue to support Kweichow Moutai to increase production capacity.”

($1=6.568 Yuan)

Additional reporting by Zhou Xin; Editing by Nick Macfie

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