Tsingtao said Wednesday it has signed a negotiation agreement for a possible tie-up with the St Louis-based Anheuser-Busch, the producer of top-selling Budweiser.

Terms of the partnership are still being finalized. Anheuser-Busch currently has a 4.5-per-cent stake in Tsingtao.

"China is a strategically important global beer market and we are committed to playing a significant role there," said Patrick Stokes, president and chief executive officer of Anheuser-Busch.

China is the world's second largest beer market after the United States, with a yearly consumption of 220 million hectoliters and annual growth rate of 6 per cent.

Anheuser-Busch owns 98 per cent of the Budweiser Wuhan International Brewing Co in Wuhan, where Budweiser for the China market is brewed.

In the planned alliance, Anheuser-Busch will support Tsingtao in maintaining its industry lead, expanding the Tsingtao brand, learning from the market leader, Stokes added.

Li Guirong, chairman of Tsingtao, said that Tsingtao's production bases and sales network in the Chinese market and its successful operational experience will help Anheuser Busch share in the rapid growth of the Chinese economy.

Tsingtao now holds 11 per cent of the China beer market.

Foreign breweries have had a tough time in China because of fierce competition from legions of cheap local brands.

Some foreign brewers like Carlsberg and Australia's Foster have sold part or all of their operations in China.

In the case of Anheuser-Busch, its capital and management resources will make Tsingtao even more powerful, Li added.

Tsingtao has said it wants to mark its 100th anniversary in 2003 by expanding annual output to 3.6 million tons, making it one of the world's top 10 beer producers.

Its goal this year is for 3 million tons, up from last year's 2.51 million tons.

Although China has one of the fastest growing beer markets in the world, an average of 6 per cent a year, it is dogged by cut-throat competition, which is behind the consolidation drive in the highly fragmented industry.

Three beer giants - Tsingtao, Yanjing, and China Resources - haven't halted their acquisition drive in the past three years.

China now has 500 breweries, about one for every three counties, but 80 per cent have an annual production capacity of less than 50,000 tons and most have operational difficulties.

This has spelled opportunities for the three heavyweights, experts say.

This past April, Tsingtao revealed that it had acquired Xiamen Silver City Co, one of Fujian Province's top three beer producers.

Its rival, Beijing-based Yanjing Beer Co, followed suit in July by buying Liquan Beer, a big brewer in the popular tourist spot Guilin.

Not to be left out, China Resources has acquired 13 breweries across China.

Still, in spite of its having the second largest market in the world, China still has a long way to go because per capita beer consumption annually is only about 15 liters, compared to 84 liters in the United States.

(People?s Daily August 1, 2002)