Anheuser-Busch plans to build $63 million brewery in China

ST. LOUIS - For the first time, Anheuser-Busch Cos. will build a brewery from scratch outside the United States: a $63 million facility to brew Budweiser and Harbin beer brands in southeastern China.

It's the latest salvo in a struggle between huge international brewers trying to hitch their beer wagons to China - the world's biggest beer market.

Until now, A-B's strategy in international markets has been to buy stakes in strong local breweries.

A-B says the new brewery in the city of Foshan, in Guangdong province, ascribes to its confidence in the Chinese beer market.

The brewery will be able to produce about 2.2 million barrels annually once construction is finished in late 2008. A barrel contains 31 gallons.

A-B hopes the facility will help supply beer for a nationwide expansion. It wants to double Budweiser's distribution in China in five years, pushing it into 100 additional cities with populations of more than 1 million.

A-B plans to introduce Harbin, brewed in northeast China by a wholly owned subsidiary, in 33 new markets in China this year.

"China remains one of our most important international priorities," Anheuser-Busch Chief Executive August A. Busch IV said in a statement. "The Foshan brewery allows us to increase the availability of Budweiser and Harbin."

A-B has been brewing Budweiser for 11 years in a brewery in the city of Wuhan. Its 13 other Chinese breweries, operated by subsidiary Harbin Brewery Group Ltd., are spread across northeastern provinces.

But A-B wants to get more Budweiser and Harbin beer flowing into the southeast and across the country.

The new brewery "is very much in line with their existing strategy," said Robert van Brugge, senior research analyst with Sanford C. Bernstein & Co. in New York. "It's a modest investment - it's worth a try."

As beer demand cools in the U.S. and other developed countries, brewers have cast their eyes toward China.

Retail beer sales volume in China has grown by nearly 78 percent since 1997, according to London-based Euromonitor International.

Brewers expect the country's rapidly rising personal income to boost per-capita beer-drinking, which lags far behind that of the United States. American adults drank 31.3 gallons on average last year, while Chinese adults consumed 7.7 gallons, according to Euromonitor.

A-B's new brewery raises the stakes in a competition between A-B and other foreign brewers over Chinese sales. In 2004, A-B outbid London-based SABMiller PLC for Harbin Brewery Group, paying a total of $694 million. A-B also has a 27-percent stake in Tsingtao Brewery Co., one of China's largest brewers.

But competitors also have made big bets in China. SABMiller, for example, already has a one-year-old brewery in Guangdong province, and it is building a brewery in the city of Harbin. A joint venture between SABMiller and China Resources Enterprise also produces Snow beer, which was China's No. 2 brand by retail sales in 2005, and reportedly grabbed the top spot last year.