KWEICHOW Moutai, the Chinese State-owned producer of expensive liquor that is often a favorite at government officials’ dinner tables, reported net profit growth last week of just 3.6 percent for the first half of 2013. That is the slowest growth since the company’s listing in 2001 on the Shanghai Stock Exchange, sending its stock price tumbling by more than 10 percent in one day.

    Kweichow Moutai’s revenue growth slid to 9.5 percent, compared with 39 percent in the first half of 2012. Second-quarter sales were particularly hard hit and dropped 3.6 percent year-over-year. Given that 40 percent of the company’s sales can be attributed to government consumption using public funds, as the chairman revealed in May, the weak performance reflects the Central Government’s resolve to tackle government overspending.

    After only weeks in office, President Xi Jinping issued “Eight Regulations” earlier this year to warn officials against hosting lavish fetes, which sent government departments and State enterprises in a rush to tone down or cancel their annual celebrations at the last minute, and to reroute restaurant dinners to dining halls. Soon after, alcohol was banned at reception events in the military. That triggered an immediate plunge of stock prices for high-end liquor producers such as Kweichow Moutai, Wuliangye and Luzhou Laojiao.

    Although reports emerged about how officials tried to beat the policy by drinking expensive liquor out of spring water bottles, the sharp decline of Moutai’s growth suggests that the impact was substantial — if only for the short term, given that the company’s annual income is still projected to grow 31 percent for 2013. Comparatively, producers of cheaper distilled liquor haven’t been affected as much. Dukang Distillers, for example, made Asia’s 200 Best Under A Billion list this year with a 40 percent spike in net profit for the quarter ended March. Its stock price has climbed up 30 percent since November.

    The new policies were part of a broader campaign to clamp down on corruption.

    Ripples of the anti-corruption campaign are felt beyond the liquor industry, in sectors that heavily rely on China’s gifting culture and the lavish lifestyle of the privileged for growth.

    Swiss watch exports to Greater China, for example, dwindled 14 percent from January to April this year and another 19 percent in May, according to a June report by Citi Research. The trend corresponds with Chinese netizens’ growing interest in valuing the watches that officials are seen wearing — or not seen wearing, as was the case of a county chief who accompanied Premier Li Keqiang on an inspection tour and whose wrist had a visible watch mark. Netizens alleged that he wore a Vacheron Constantin watch worth more than US$30,000 on previous occasions.

    Macao’s casino industry also slowed down, as VIP gambling accounts for 68 percent of the total gambling revenue and many VIP customers come from the mainland. Macao’s landmark Casino Lisboa, operated by SJM Holdings, recorded near-flat VIP gambling revenue growth last year. Although growth rebounded to 11.6 percent in the first half of 2013, SJM’s smaller competitors are not recovering so quickly. For the same period, Galaxy Macao and StarWorld Hotel, both owned by Galaxy Entertainment, were able to boost their VIP gambling revenue by only 3 percent.

    (SD-Agencies)