Chongqing Beer 100 million yuan "mine clearance"

Zebra Consumer Yang Wei

The legal tug-of-war between Chongqing Brewery and its equity-holding company Chongqing Jiawei is finally expected to end in a settlement.

According to the "Mediation Agreement," Chongqing Brewery plans to pay 100 million yuan to resolve contractual disputes with Chongqing Jiawei arising from the "Exclusive Sales Agreement" and other issues. The cooperation between the two parties will terminate after December 31, 2028.

Global beer giant Carlsberg entered the Chinese market early but missed opportunities due to strategic missteps. As Carlsberg's sole beer operation platform in China, Chongqing Brewery desperately needs a harmonious internal and external environment to catch up on lost time.

100 Million Yuan to Solve the Problem

After more than two years, the legal tug-of-war between Chongqing Brewery (600132.SH) and Chongqing Jiawei over contractual disputes—spanning lawsuits, counterclaims, first-instance trials, and second-instance trials—has finally reached a settlement through mediation, moving from local intermediate courts to the high court in Chongqing.

In October 2023, Chongqing Jiawei sued Chongqing Brewery in the Chongqing Intermediate Court, demanding compensation of over 630 million yuan for losses caused by violations of the "Exclusive Sales Agreement" over the years.

Evidence was exchanged in September 2024, with Chongqing Brewery submitting a "Civil Counterclaim" in court.

In March of this year, the Chongqing Intermediate Court issued a first-instance ruling, ordering Chongqing Brewery to pay Chongqing Jiawei a total of 353 million yuan in damages within ten days of the ruling taking effect.

Chongqing Brewery argued that the first-instance ruling was based on unclear facts and misapplied the law, promptly appealing to the Chongqing High Court.

Recently, under the mediation of the Chongqing High Court, the two sides agreed to sign the following "Mediation Agreement":

Within 10 days of the agreement taking effect, the listed company or its subsidiary will pay Chongqing Jiawei a one-time settlement of 100 million yuan (tax-exclusive) for all price and volume differences up to December 31, 2025.
After the agreement takes effect, neither party may claim that the other violated the exclusive sales agreement. Under no circumstances may either party make any claims against the other regarding the performance of the agreement up to December 31, 2025.

Additionally, the agreement details pricing and volume arrangements for the remaining term of the exclusive sales agreement (2026-2028). After the agreement expires on December 31, 2028, the two parties will no longer cooperate.

The agreement has been approved by Chongqing Brewery's board of directors and will be submitted for review at an extraordinary shareholders' meeting on December 31.

Previously, Chongqing Brewery had accrued estimated liabilities based on the first-instance ruling. Under the "Mediation Agreement," the company plans to reverse these accrued liabilities while recording a one-time settlement payment for price and volume differences. This accounting adjustment is expected to increase 2025 total profits by 37.1055 million yuan and net profit attributable to shareholders by 19.0796 million yuan.

Dispute Over Right and Wrong

In reality, the relationship between Chongqing Brewery and Chongqing Jiawei is not purely cooperative. Carlsberg Chongqing Brewery, a subsidiary of Chongqing Brewery, holds a 33% stake in Chongqing Jiawei as an equity-holding shareholder.

The root of the dispute lies in the "Shancheng" beer brand. Originating in Chongqing, Shancheng Beer has a history of over 60 years and is a well-known Chinese trademark and brand.

According to various sources, in 2009, Chongqing Jiawei and Chongqing Brewery signed a 20-year "Exclusive Sales Agreement," stipulating that Chongqing Jiawei could only produce Shancheng-branded beer, which would be exclusively distributed by Chongqing Brewery. From 2015 to 2016, the two parties signed supplementary agreements and memorandums.

From Chongqing Jiawei's perspective, Chongqing Brewery has committed multiple breaches since 2011, causing losses in volume, pricing, and reduced sales quotas. After Chongqing Brewery's major asset restructuring in 2021, changes in subsidiary scope led to certain products being excluded from the exclusive sales agreement, further exacerbating losses.

Amid the legal battle, both sides have taken firm stances, sparking a fierce public relations war outside the courtroom.

In August 2024, Chongqing Jiawei issued a public appeal via its official WeChat account titled "Save the 'Shancheng' Beer Brand," elevating its commercial dispute with Chongqing Brewery to a matter of national brand survival.

In the lengthy post, Chongqing Jiawei stated that, through its collaboration with Chongqing Brewery, Shancheng Beer grew rapidly, surpassing 1 million tons in production and sales in 2013, capturing over 95% of the Chongqing market and over 65% of the southwestern region.

Chongqing Jiawei accused Carlsberg, after taking control of Chongqing Brewery, of systematically suppressing and dismantling the Shancheng Beer brand to maximize its own profits, reducing annual production and sales to less than 100,000 tons.

In March of this year, however, Chongqing Brewery's "Statement" told a different story.

Chongqing Brewery claimed that Chongqing Jiawei, having long benefited from the exclusive sales agreement, remained unsatisfied and sought to exploit litigation pressure for further gains, accusing Chongqing Jiawei of transforming from a contract manufacturer into a "blood-sucking parasitic system" dependent on the listed company.

Carlsberg Sheds Its Burden

The recent mediation between Chongqing Brewery and Chongqing Jiawei, facilitated by the Chongqing High Court, represents a compromise within acceptable limits for both parties.

For Chongqing Brewery—and especially Carlsberg—it is crucial to secure a harmonious internal and external environment for its development in China. In the fiercely competitive Chinese beer market, Carlsberg has already lost too much time and must now focus on catching up without distractions.

Carlsberg was one of the first global giants to recognize the potential of China's beer market. As early as the 1970s, Carlsberg established a Hong Kong subsidiary to oversee operations in Hong Kong and mainland China, but it did not deeply engage with the mainland beer market.

Unexpectedly, domestic Chinese beer brands rapidly rose to prominence, while international giants like AB InBev made significant inroads. It wasn't until 1995 that Carlsberg belatedly entered the market.

By then, Tsingtao Brewery had already grown strong, and AB InBev and China Resources Beer had launched aggressive acquisition campaigns. Carlsberg played a minor role in this wave of consolidation, securing only Shanghai Brewery.

In 2000, Carlsberg abandoned its sole foothold, selling its 75% stake in Shanghai Brewery to Tsingtao Brewery and even considering a full exit from China.

Ultimately, Carlsberg chose to stay but maintained an exceptionally cautious strategy toward the Chinese market.

It avoided the crowded eastern markets, focusing instead on the west. Unlike the aggressive acquisition strategies of competitors like China Resources Beer and AB InBev, Carlsberg positioned itself as a strategic investor, aiming to share in the growth of China's beer market with minimal direct involvement.

Carlsberg formed strategic alliances with listed companies such as Lanzhou Huanghe, Hops, and Tibet Development, investing in their beer subsidiaries to support brands like Wusu, Huanghe, Qinghai Lake, and Lhasa Beer.

This "invest without control" approach cost Carlsberg its initiative in the Chinese beer market. Many of its invested companies later encountered problems, but without control, Carlsberg had limited recourse.

Despite setbacks, Carlsberg could not easily abandon the world's largest beer market. Starting in 2008, it gradually acquired and increased its stake in Chongqing Brewery, taking full control in 2013.

In 2019, Carlsberg finally consolidated all its Chinese beer operations under Chongqing Brewery, forming a brand portfolio centered on Carlsberg, Tuborg, 1664, Wusu, and Chongqing.

The integrated Chongqing Brewery surpassed 10 billion yuan in revenue and achieved sustained growth. However, it still lags behind AB InBev Asia Pacific, China Resources Beer, and Tsingtao Brewery—and has even been overtaken by Yanjing Brewery this year.

With the settlement with Chongqing Jiawei and the impending resolution of the years-long dispute over the 50% stake in Lhasa Brewery, Carlsberg can finally shed its historical burdens and fully engage in the next phase of China's beer market competition.