Photographer: Zhang Peng/LightRocket via Getty Images

Forget Wine. China's Booze Market Is All About ‘Liquid Cake’

  • CICC sees sales volumes growing faster than beer or wine
  • Anhui Kouzi and Jiangsu Yanghe among top sector picks at CICC

Forget beer and wine made from grapes. In China’s booze market, it’s all about another, equally old alcoholic beverage.

Yellow rice wine, sometimes known as liquid cake, dates back to the Shang Dynasty more than 3,000 years ago. It is the fastest growing mass-market alcoholic drink in China, with sales volume estimated at 8 percent last year, according to China International Capital Corp.

The brokerage known as the Goldman Sachs of China likes Anhui Kouzi Distillery Co. and Jiangsu Yanghe Brewery Joint-Stock Co. in the broader beverages sector, and highlights the three listed yellow rice wine producers: Zhejiang Guyuelongshan Shaoxing Wine Co., Kuaijishan Shaoxing Wine Co. and Shanghai Jinfeng Wine Co.

With beer sales dropping and sales growth in 2016 slowing for liquor and regular wine, yellow rice wine is seeing an uptick. It’s less alcoholic than the more famous baijiu liquor, which is popular with Chinese army generals and has seen consumption stymied in the past two years by President Xi Jinping’s crackdown on corruption and extravagance. It’s also seen as nutritious, hence the name liquid cake, as it contains eight types of essential amino acids, CICC analysts note.

Chinese consumers can easily identify the market position of yellow rice wines based on age, production region and taste, while imported grape wines are niche products and lack a clear hierarchical brand system in China, according to the CICC analysts. This leaves yellow rice wine better positioned to capture upgrades in consumption, they say, citing the shift in taste from Anhui’s 5-year-old Kouzijiao, which retails for about 80 yuan ($12), to its 6-year-old version that is more than 40 percent more expensive.

Golden Era

There’s also an expansion at shops selling a greater variety of yellow rice wine, according to CICC analyst Tingzhi Xing and colleagues who penned a 28-page report on what they’ve dubbed as the arrival of the drink’s golden era. More shop owners are applying for licenses to sell it, and the Internet, where there’s record revenue growth for booze, is home to flagship stores for the listed yellow rice winemakers.

The drink, which typically contains less than 20 percent alcohol, is made from water, cereal grains such as rice, sorghum, millet, or wheat and a starter culture. Shanghai and neighboring Zhejiang province are the heartlands of yellow rice consumption, though growth is picking up elsewhere, according to CICC.

Growth in beer sales volume has been hit by rising affluence and sophistication of consumers, while wine is slowing after a huge expansion in the early part of this century. Growth in yellow rice wine is faster, though coming off a smaller base.

To be sure, wine made from grapes may still have a prosperous future in China. Morgan Stanley analysts said investors are underestimating growth for Treasury Wine Estates Ltd. as a move away from beer and grain liquor boosts earnings at the Australian firm, which has raised prices at its Penfolds Bin range. For now, there may be space for different tastes.

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