Swellfun shares were suspended for two days by the Shanghai Stock Exchange (SSE) in early October due to rumours of a possible acquisition.

On October 17, the company announced it had been in talks with many international spirits manufacturers over its export channels.

Zhang Jie, an analyst from Xiangcai Securities said although baijiu is popular in the domestic market, it might not appeal to overseas consumers for taste reasons.

Swellfun was established in April 2000, based on the combined assets of two State-owned enterprises: Chengdu Quanxing Distillery and Sichuan Pharmaceutical Factory.

The liquor maker has targeted the high-end market since its establishment. One of its products is sold at 1,600 yuan (US$204) per bottle, 30 per cent higher than Kweichow Moutai and Wuliangye, the most well-known baijiu brands in China.

The 43 per cent share purchase "is only a start," said Wu Jianhua, an official from the China Brewing Association. "Diageo may enlarge its stake in the future."

The Economic Observer newspaper earlier quoted an expert saying that the deal might bring a major change to the baijiu sector.

"The baiju industry is the last national industry that foreign capital has not entered," the newspaper quoted a senior official from one of the major domestic alcohol makers as saying.

Leading high-end baijiu brands such as Maotai and Wuliangye enjoy a good reputation and popularity among consumers, but haven't really met competition from foreign brands.

(China Daily 12/13/2006 page11)

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