How China's Anti-Corruption Campaign Hurts a Liquor-Producing Town

Welcome to Maotai, the Guizhou Province village where a crackdown on expensive booze has sparked an economic crisis.

Visitors to Maotai are greeted with a huge bottle of the town's famous liquor. (Adam Century)

In the mountains surrounding Maotai village in northern Guizhou province, the smell of baijiu, China’s popular sorghum-based liquor, is dizzyingly strong. Visitors claim that they can get drunk simply by catching a whiff of the fiery beverage, which runs between 40 and 60 percent proof, while locals brag that they have baijiu flowing in their veins. And just in case the smell wasn’t pungent enough, Kweichow Moutai Company, China’s largest baijiu producer, erected a massive, seven-story building in the shape of its signature product. Now, a red, white, and blue bottle protrudes from the peak of a nearby mountain, ushering visitors into China’s baijiu heartland.

There are more than 800 registered baijiu businesses in this town of 49,000, but one brand reigns supreme: Moutai (written as maotai in Chinese), a state-owned enterprise valued at $23.5 billion. For years, villagers in Maotai have piggybacked on the company’s success, benefitting as it rose to the top of China’s $76 billion liquor market.

“Everyone who works in Maotai village lives and breathes baijiu, especially the Moutai brand,” said He Yuan, a farmer who harvests sorghum in this northern corner of Guizhou, China’s second-poorest province. “If it weren’t for baijiu, we would live a very tough life.”

But Moutai’s exorbitant price—roughly $300 for a premium bottle—combined with its longstanding links to China’s governing elite have made it an ideal target in President Xi Jinping’s mounting campaign against corruption and extravagance. Though Moutai is officially recognized as China’s “national liquor,” often served at state functions, it is priced beyond the reach of average consumers. And because of this high price, Moutai is commonly used as a currency in bribes, prompting the popular saying: “Those who buy Moutai never drink it, while those who drink it never buy it.”

Nowhere have the effects of Xi’s anti-corruption campaign been felt more acutely than in Maotai village. Dozens of baijiu shops that line National Liquor Avenue, the town’s main commercial street, are now shuttered. A local vendor with the surname Zheng estimated that one-third of these shops have gone bankrupt since Xi came to power. In 2012, local GDP growth in Maotai village declined for the first time in more than 20 years; it is expected to fall further in 2013.

U.S. President Richard Nixon and Chinese Premier Zhou Enlai toast with shots of Maotai liquor during Nixon's 1972 visit to Beijing. (Wikimedia Commons)

And Xi’s crackdown on luxury goods shows no signs of abating. Last week, at a meeting leading up to this weekend’s Third Plenary Session of the 18th Party Central Committee, top government officials approved regulation to fight waste and extravagance among Party and government departments.

“In recent years, some Party and government departments occasionally competed for ostentation and extravagance, which led to huge spending and waste as well as strong reactions from the people,” read an official statement released after last week’s meeting.

The shock to the baijiu industry has been sudden, but many industry analysts suspect that the ripple effects could be even more severe. In China, baijiu is more than a mere beverage—business deals and government contracts are rarely sealed without celebratory toasts of the liquor.

“When my company has important meetings or conferences, there is always Moutai to keep things running smoothly,” said Zhu Jianhui, a recent hire at a major state-owned enterprise based in Beijing. “I quickly learned that I would need to learn to drink baijiu if I wanted to survive life in a major state-owned enterprise.”

Moutai is even said to have played an indispensable role in China’s diplomatic history. Long-time premier Zhou Enlai—who is rumored to have once downed 25 cups of Moutai in one sitting—used the beverage to entertain Richard Nixon and Henry Kissinger during the state banquet for their landmark visit to China in 1972. At the time, Kissinger reportedly said: “If we drink enough Moutai, we can solve anything.”

During the Long March, the historic 1930s Red Army retreat across China, Communist soldiers spent several days in Maotai village, using the local liquor supply to clean wounds, fight diarrhea and calm their wartime nerves. “The Long March was a success in large part due to Moutai,” Zhou Enlai later told historians.

Given Moutai’s unique place in Chinese history, it has long flown above the domestic competition. This took on literal form on October 1, 1950, the first anniversary of China’s founding, when Premier Zhou requested that the Party Secretary of Guizhou province airlift crates of it to Beijing in order address a shortage.

Nowadays, Moutai’s place in China is far less assured. Facing pressure from traditional government revenue channels, which accounted for roughly 40 percent of total sales in 2012, many industry experts speculate that Moutai may have to start facing the open market, catering to the tastes of China’s younger consumers. Moutai has already taken steps in this direction, lowering prices and introducing alternative, more affordable beverages.

But when asked about the anti-extravagance measures at a recent news conference, Moutai vice president and general manager Liu Zili pushed back against the company’s perceived crisis. “I have a question for you—if the government does not drink Moutai, what will they drink? If Moutai is banned, do you really think the government will start drinking Chateau Lafite?” said Liu, referring to one of the world’s most expensive red wines.

Many within the government have also written off the Moutai crackdown as insufficient to affect the beverage market in the long term.

“As long as there is business in China, there will be baijiu,” said Huang Xi, a senior manager at a state-owned contracting company in the municipality of Chongqing, just north of Maotai village. “Last week I was at a banquet where officials smuggled Moutai into the room using plastic water bottles. Expensive baijiu is in a rut, but it will certainly be back.”