The 2006 Spring Candy and Liquor Trade Fair.	Yushuqian Chairman of the Board Wang Xinhua.	A company news release on product upgrading.

When the Chinese government adjusted its policy on liquor consumption tax last year, many in the nation's liquor industry had their own sorrows to drown. The move pushed a number of the smaller players among China's 38,000 spirits producers towards bankruptcy, and forced many others to merge or regroup. In the struggle for survival in ever-fiercer competition, some state-owned distilleries went private in a bid to boost stagnant growth. This tide of privatization reached its height when Yushu Daqu Liquor Group, Jilin Province's flagship liquor producer, was auctioned in July 2005.

The group went private when a famous entrepreneur named Wang Xinhua gained control for the sum of RMB 35.1 million. Under the watchful eye of the entire province, Wang restructured the group into Jilin Yushuqian Liquor Co., Ltd, and invested some RMB 30 million in its expansion. Not only has he changed the company's ownership, but he's revamped its management structure and marketing concepts, too. These changes are well reflected on the balance sheet: despite a three-month transitional stand-down, the company reported record sales revenues of more than RMB 73.5 million in 2005, RMB 3 million over 2004.

Ancient Distillery on the Verge of Collapse

The company is based in Yushu, Jilin Province, along the banks of the Songhua River. The city is known as the "home of grain and beans." Its history can be traced back to the reign of Qing Emperor Jiaqing in the early 19th century. A local family called Zhu made a tasty, potent liquor using a secret recipe that had been passed down through generations, and gradually expanded the business. When a girl from the Zhu family married the heir to the wealthy Yu family, the workshop was renamed Juchengfa, meaning "prosperity after the union of the two families." And it did prosper, as it grew into Yushu Daqu.

In its heydays, Yushu Daqu was among the top 500 liquor producers in China, and a major contributor to the local coffers. As a large state-owned enterprise, the group had a plant that covered 220,000 square meters, 1614 workers, 10 modern bottling lines and advanced quality control equipment. It produced an annual total of 15,000 tons of liquor in a range of flavors and strengths. But in recent years, the group ran up debts amounting to more than RMB 100 million. Any attempts to revive itself were hampered by the burden of redundant staff. It was at last listed among the 816 key state-owned enterprises in Jilin Province that were given the green light to privatize.

Change for the Better

The Yushu Municipal Government executed the move with prudence. Concerned city residents meanwhile wondered what the new boss Wang Xinhua would bring to the age-old plant. Its employees, who had been promised a job for life, began to fret about a new wave of redundancies.

But Wang has rich life and work experience. He had served in the military and in a government department before he started his own business of two factories, a foreign language training agency and a gym, all with great success. But the liquor industry was for Wang uncharted waters.

After taking over Yushu Daqu Group, Wang didn't make the drastic personnel reshuffle that many had expected. When some suggested cutting costs through removing redundant workers, Wang replied, "We must be careful about letting our workers go, for losing their jobs will have a tremendous impact on their families. Our company must move forward, but we should bring our workers with us, not leave them behind. Our goal is to achieve harmony in the workplace, and consequently, in society."

The new company carried out a careful investigation, and actually reinstated more than 500 workers that had previously been laid off. Production was smoothly resumed after a three-month hiatus, much to the relief of the employees.

A new management system was established, combining market rules with humanitarian considerations. Training programs were set up to provide employees with the skills they needed to compete for posts. Salaries were raised, and motivation levels soared. Workshop chief Liang Xianfa has worked for the company for 20 years, and witnessed its improvement since privatization. "When owned by the state, the company was tangled up in equalitarianism. Growth was therefore slow. But since it has been privatized, we have nearly doubled output, and our success is mirrored in the employee's pay packs.

The staff show their appreciation by working harder than ever before. In the past, about 500 boxes of liquor would be produced every shift - now the workers produce 900. When orders poured in for the 2006 Chinese New Year, putting a strain on the production lines, many offered to work during the holiday instead of joining their families for the most celebrated event of the year. Such devotion is unprecedented in the history of the company, and guarantees greater achievement in the future.

Back to the Top

With its thousands of brands of spirits, the liquor industry has long been China's most competitive. Wang Xinhua studied hard before he decided to buy into it. He even secured a patent for producing liquor with soybeans, which feature higher levels of amino acids.

As soon as the restructuring phase was taken care of, Wang focused on upgrading the company's products. He launched the Yushuqian series - a set of spirits made of Chinese sorghum, honey, lotus seed, mulberry and other traditional Chinese medicinal ingredients, and processed using both traditional and scientific methods. The new brand is transparent, mellow, and has a lasting aroma. It became an instant hit in the market, and won awards at provincial and national levels as well as ISO9001-2000 certification. Other new products have also sold well across the nation.

Earlier this year, Wang made his boldest decision yet - shedding the company's low-end products, and concentrating on mid- and high-end markets. This means it will forsake a market share worth an estimated RMB 40 million - but that is a sacrifice Wang considers worthwhile. He argues that a company should be aware of its niche in the market, and then focus on becoming the best in that slot.

His strategy appears to be working. The Yushuqian sells in 13 provinces and cities in China, and its sales volume this year is expected to 10,000 tons. That is some improvement on last year's 600 tons, and income generated is expected to reach RMB 100 million. At least some of those sales will doubtlessly come from Wang and his employees, as they toast a fine year of success.