Bubbles everywhere in China

Closer Look: Mad for Maotai

According to domestic media, the price of a bottle of 53 degree Feitian Moutai made by Kweichow Moutai Co., China's national liquor served at official occasions and state banquets, has ramped up to 2,000 yuan, almost double from the beginning of the year and more than three times its official factory price. Other middle and high-end liquors also witnessed price jumps pushed up by the hot demand before the Spring Festival holiday.

However, questions hang over how the brand was catapulted into luxury status. Behind the soaring prices, some say that the brand value of Maotai is not supported by real market demand but speculation and government spending.

Maotai has become a bit like Beanie Babies. People buy up Maotai and save it as a way to earn money, while the government has big pockets and spends lavishly for dinners. Or those currying favor with the government spend the money. As one friend told me, only if you are in the government will you taste Maotai.

China's National People's Congress saw delegates submitting proposals to ban Maotai and other luxury liquors at government banquets as a step to push forward reforms in government spending. The proposals pushed Maotai's stock price at a further downward trend.

After a two-year rise of stock prices in China's liquor industry since early 2010, prices of liquor companies started to fall in early December. So far, the stock price of Kweichew Moutai declined 14.6 percent from December 2. Another famous liquor brand Wuliangye also declined 13.9 percent from the beginning of December. A source from a securities firm said that the current public sentiment will bring a negative impact on the evaluation of liquor companies.

But Maotai's price-earnings ratio remains high. According to Wang Lan, a Caixin columnist, Maotai's PE ratio is 36.07 based on its December 27 share price, higher than luxury brand Louis Vuitton and Hermes.

Along with real estate, the Maotai bubble appears ready to pop.