Belgian beer maker Interbrew, the world's third-largest brewer by volume, said it will buy a 50 percent stake of Malaysian Lion Group's brewing operations in China.

The deal, expected to close in the first quarter of 2004, will position Interbrew as the third largest brewer in China in terms of production volume by achieving almost a 9 percent market share.

John F Brock, Interbrew's chief executive officer, said the company will spend US$131.5 million for the 50 percent stake in Lion Group, bolstering its presence in a country with the highest potential growth rate for beer in the world.

Interbrew will take management control of Lion Breweries in China and have the option to buy the remaining 50 percent for another US$131.5 million any time a year after the deal is closed.

Most of Lion's beer is sold in brands like Zhujiang, Jinlongquan, and Double Deer in China.

Brock said Interbrew will see its expansion into three new provinces, namely Hubei, Hunan and Shandong, through the deal.

Through its various partnerships and acquisitions, Interbrew now holds a No. 1 position in Guangdong and Zhejiang provinces, and a top three position in Jiangsu Province.

In 2002, Interbrew acquired a 24 percent share in Zhujiang Joint Stock Company, China's fifth largest and most profitable brewer, and a 70 percent stake in KK Group's brewing business, based in Zhejiang Province.

Analysts said Interbrew's deal is just one phase of an acquisition binge the foreign brewing giants have been on in China to tap the rapid growth of the Chinese beer market.

Not familiar with the Chinese market, beer makers from abroad suffered great frustration when they first entered the Chinese market 10 years ago, said Tang Min, a researcher with the Beer Association under the Chinese Food Industry Federation.

Now they seem to be following the right path by cooperating with local producers rather than depending on themselves, Tang added.

China, which produced approximately 24 million tons of beer last year, has surpassed the United States to become the world's largest beer producer.

Despite the fact China's beer market is one of the fastest growing in the world with an average of 6 percent growth a year, it is dogged by cut-throat competition between more than 400 breweries all over the country, Tang said.

"This means large room for mergers and acquisitions," Tang said.

The world's second largest brewery, SABMiller, made a big deal in June to buy a 29.6 percent stake in the fourth biggest domestic beer maker Harbin Brewery.

The local big brewers are not waiting to lose their shares.

Beijing Yanjing Brewery announced in July it would spend 362.4 million yuan (US$43.8 million) on a 38.15 percent stake in the Huiquan Beer Group Co, the biggest beer maker in the eastern province of Fujian.

Tsingtao Beer, China's largest brewer, spent 103 million yuan (US$12.5 million) in August to buy a 45 percent stake in Huashi Beer Group Co, the largest brewer in Central China's Hunan Province.

"With more foreign investments, Chinese beer producers will witness another round of acquisitions," said Jin Zhiguo, Tsingtao's general manager.

(China Daily September 8, 2003)