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China brewers shake off funk with Q1 growth

Stronger focus on higher-end beers boosts China Resources, Tsingtao and Yanjing

Higher-end beers line the shelves at a shop in Dalian, Liaoning Province. Such offerings are boosting earnings at Chinese brewers.

DALIAN, China -- China's largest brewers appear to be pulling out of their recent funk, with powerhouses China Resources Beer, Tsingtao Brewery and Yanjing Brewery, which control about half the market, all thought to have racked up better earnings for the quarter ended in March.

Recent moves to focus more on mid- to high-end products are helping them offset the dampening effects of a slowing domestic economy.

Net profit at No. 2 brewer Tsingtao rose 9% on the year to 579 million yuan ($85.2 million), while sales rose 3% to 7.04 billion yuan.

At Yanjing, the fourth-biggest player, net profit climbed 14% to 53 million yuan, on a 2% increase in sales to 3.17 billion yuan.

Industry leader CR Beer has not disclosed its results for the quarter, but it is thought to have also performed better.

China is the world's largest beer market, but it has been shrinking since its 2013 peak, hobbled by a slowing economy and a crackdown on lavish spending by the administration of President Xi Jinping.

Production has slowed for three straight years, falling to about 45 million kiloliters in 2016.

CR Beer, Tsingtao and Yanjing are feeling the squeeze, with all three logging smaller profits for the year ended December and the latter two also recording weaker sales.

Yanjing fared particularly poorly, with net profit plummeting by about half to a 10-year low.

But recent housecleaning efforts have helped them repair their bottom lines. Instead of their traditional strategy of chasing profits through high-volume sales of discounted low-end products, the brewers have begun targeting fatter margins by focusing more on higher-end beers.

The first to reap tangible benefits was CR Beer, which saw sales grow for 2016. Tsingtao, meanwhile, recorded a 3% increase in sales volume for the January-March.

Plenty of risk factors 

A key political factor is working in the companies' favor: the Chinese Communist Party congress. Beijing is working hard to ensure that the autumn event is held in an atmosphere of social stability. That includes trying to goose the economy by pumping more cash into public works and other infrastructure projects. All that construction makes for thirsty workers.

But not all factors out of the brewers' control work in their favor. Last year, the country was ravaged by floods and other natural disasters, particularly in the summer -- peak beer season. This is a risk that the companies have to contend with every year.

Other challenges include addressing diversifying consumer tastes, especially among younger Chinese; replacing or upgrading aging factories; and dealing with the growing presence of foreign players, such as Belgium's Anheuser-Busch InBev, the No. 3 player.

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