The Pacific : Chinese Colas Go Flat as U.S. Brands Take Over : Trade: The country’s soft drink makers say they can’t compete against Coke and Pepsi, which now have 20% of the market.

From Reuters

On a scorching afternoon at Blue Island, one of this city’s biggest department stores, the long line is not for rows of warming Chinese colas and fruit juices but for refrigerator-cooled Sprite, Fanta and Coca-Cola.

To the dismay of Chinese soft drink makers, who have seen many of their brands die, the U.S. cola invasion is in full swing.

Official figures show Coca-Cola Co. and PepsiCo. last year sold 700,000 tons of soft drinks in China. They accounted for 20% of the country’s carbonated drinks market, with Coke having 15% and Pepsi 5%.

Worse is to come, with each U.S. giant setting up 10 new plants in China.


“On our own, we do not have the capital or technology to compete,” lamented Li Jingwei, general manager of Jianlibao, one of China’s biggest soft drink makers with output value this year of $345 million. “We need preferential loans from the government to expand production, improve technology and develop new markets. There should be appropriate controls on the expansion of foreign brands in the Chinese market.”

He said joint ventures enjoyed preferential treatment in supply of capital, raw materials and exports.

His firm, by contrast, was hit by a sudden recall of $9.2 million in loans that shut down one of its can-making companies this year, causing millions in losses.

Tighter curbs on foreign borrowing make it harder to raise money from abroad to make up for the domestic cash shortage.


But if it’s down, Jianlibao isn’t out. The company exports 35,000 tons a year, with 8,000 of that sold last year in the United States.

Still, many famous Chinese brands have disappeared under the U.S. onslaught. The most poignant loss came last January, when Pepsi bought a 60% share of Tian Fu Cola, which had been the great hope of the nation’s soft drink industry.

Pepsi executives exulted in their triumph, but it was a bitter moment for Tian Fu Chief Executive Li Peiquan, a longtime campaigner against the foreign cola invasion. After the takeover, Li resigned.

“I want to apologize to the entire work force,” he said bitterly.


It was because of pressure from him and the seven other big domestic makers that the national cabinet and the Light Industry Ministry was persuaded in 1987 to issue guidelines limiting the number of new plants foreign soft drink makers could establish in China.

The effort failed, however. Domestic makers--hobbled by debts, poor management, lack of capital and an abundance of counterfeits--failed to rise to the challenge. Many closed and others set up joint production with Coke or Pepsi.

A Light Industry Ministry official said the days of the closed door are long over: “Our policy is to develop both local and foreign brands. With competition, Chinese brands will become stronger, like Jianlibao.”

The consumers at Blue Island, however, see the victory of the U.S. colas as a triumph over poorly organized competition.


“I drink Coke every day with meals,” said one 25-year-old man. “It is cool and stimulating. Its advertising is very impressive, such as during the (soccer) World Cup.

“There is no exact Chinese competitor. Look here: All the Chinese drinks are warm, not cold. The quality of the Chinese goods is not stable, and there are many fakes.”

A can of Coke costs 40 cents, against 34 cents for Sprite or Fanta and 40 cents for Jianlibao, a fizzy honey-flavored drink.

A 45-year-old engineer said foreign products are more fashionable than domestic ones. “If you have guests, you must serve foreign beer or soft drinks. It is a question of face.”


Outside the front entrance of Blue Island opposite the McDonald’s outlet is a large advertisement of entertainer Michael Jackson inviting people to try Pepsi.

Pepsi and Coke are seeking still more sales. In February, each company signed a memorandum with the Light Industry Ministry allowing it to set up 10 more factories in China.

Pepsi plans to spend $350 million over the next seven years to double its sales in China, and Coke intends to bring its investment here to $500 million over the next two years.

“The number of Chinese firms able to compete with the foreign brands is dwindling,” commented the China Economic News. “Apart from the excellent Jianlibao, there is only young Hainan Coconut Juice.”