Beverage manufacturer Baiju was saved by Xi Jinping's anti-corruption campaign. (Photo : Getty Images)
The anti-corruption drive of President Xi Jinping has helped many Chinese companies rise from losses in revenue.
Baiju, and its premium label, Maotai, are alcoholic beverages mostly consumed by government officials. Maotai is the wine of choice and is asked to host social events for politicians.
As the Chinese economy revived, so did the beverage manufacturer. The company stopped hosting banquets and no longer gave under-the-table bribes.
The company no longer had to provide massive capital outlay to please the government.
According to Wei Zhang, the Shanghai-based founder of investment firm Yuanhao Capital, "Think of it as a tax cut for many Chinese companies. A tax cut off maybe 10 percent which flows right to the bottom line."
Zhang explained the government's anti-corruption drive helps Chinese businesses lessen operational costs the are used for bribes. Productivity is increased because companies no longer hired incompetent relatives of government officials.
Companies in the construction sector reaped a huge benefit from the anti-corruption campaign. Construction firms have to fight fiercely when it comes to winning contracts and face many layers of corrupt officials to acquire land.
Pharmaceutical companies also spend millions of dollars in bribes so that a particular brand of medicine will be used in government hospitals. These companies do not have to spend on procurement costs and paying off hospital administrators.
As for Baiju, the company is experiencing a resurgence in profits from retail than spending on banquets that were thrown for government officials before Xi came to power.
"We expect the re-rating of Chinese liquor stocks to continue, fuelled by sustainable and visible earnings growth," said analysts at Morgan Stanley.
They added, "Against a macro backdrop of rising private consumption as China transitions to a high-income economy our survey shows good acceptance of Chinese spirits by a younger demographic and an increasing tendency toward retail consumption and premium liquor has been taking share."
