Summary of Key Issues in the Baijiu Industry
The baijiu industry is facing a triple crisis: high inventory levels, inverted prices, and companies continuing to expand production despite declining demand. Dealers are losing money on every sale (with almost all categories experiencing price reversals, except for Feitian Moutai), and the total industry inventory exceeds one trillion yuan—more than the annual production volume expected for 2025. This excess inventory is akin to “completed buildings that remain unfinished” and accumulates in warehouses. Meanwhile, leading baijiu companies are still aggressively expanding their production capacity (with construction projects increasing by eightfold in the past five years). Behind this trend lie factors such as strategic inertia, local interests, financial manipulations, and unregulated practices. Dealers have become the scapegoats, trapped by inventory and deposit requirements, while government subsidies only exacerbate the price collapse, making a recovery for the industry seem increasingly unlikely.
The Dilemma of Dealers
Dealers are in a precarious position: they lose money on every bottle sold, and without sales, they face even greater losses. The so-called “inverted prices” mean that the cost of purchasing baijiu from manufacturers is higher than the price they can charge to consumers or wholesalers—for example, selling 43-degree Moutai, Wuliangye, or Guojiao results in a loss per unit sold. In the past, market subsidies from manufacturers (such as rebates and promotional fees) helped offset these losses, but now these subsidies have diminished, and even inflated expenses are insufficient to cover the deficits.
The situation is worsened by the “deposit trap”: manufacturers require dealers to pay deposits to control prices, which can be deducted if they sell at lower prices or across different regions. Without sales, dealers are unable to make payments for new inventory, forcing them to sell at reduced prices and incurring further losses. This creates a vicious cycle of price cuts leading to even more financial pressure. Subsidies also contribute to the problem by encouraging dealers to sell at lower prices, which further drives down market prices.
Inventory Exceeding One Trillion Yuan
The baijiu industry’s inventory crisis is akin to unfinished real estate projects: products are produced but not consumed, accumulating in warehouses. Data shows that:
- Listed companies hold 4.1 million tons of finished and semi-finished baijiu, 550,000 tons more than the total annual production expected for 2025 (3.55 million tons).
- At a price of 207,600 yuan per ton, the inventory value of listed companies alone amounts to 850 billion yuan, and when combined with the inventory of non-listed companies and dealers, the total exceeds one trillion yuan.
- Dealers’ inventory takes an average of 900 days (about two and a half years) to sell out.
This situation is similar to unfinished real estate projects, except that the baijiu has already been produced but remains unsold, straining dealers financially.
Why Are Companies Still Expanding Production?
Despite soaring inventory levels and declining demand, companies continue to invest heavily in new production facilities and storage capacity. The reasons include:
1. Strategic Inertia and Local Pressure: Expanded production was planned during the industry’s boom years, and stopping now would damage their reputation. Many baijiu companies are state-owned enterprises, and expanding capacity helps boost GDP and create jobs, so local governments do not want these projects to halt.
2. Unregulated Practices: Construction projects generate much higher profits than dealing with dealers (projects can cost hundreds of millions, while dealer commissions are only in the tens of thousands). The long supply chain and high professional barriers make it easy for fraud to occur (as seen in cases involving corruption within certain companies).
3. Financial Manipulation: Uncompleted construction projects do not require depreciation, which improves financial statements. Once converted into fixed assets, depreciation reduces profits—for example, converting all of Wuliangye’s facilities would result in an additional annual depreciation expense of 1.3 billion yuan, accounting for 14% of its 2025 net profit. Therefore, companies deliberately slow down the completion process to avoid this financial impact.
Excess Production Capacity: Is There Really a Need for So Much High-End Baijiu?
The utilization rate of production capacity varies among companies: Moutai and Luzhou Laojiao are near full capacity, while Wuliangye uses only 63% of its capacity, and Yanghe’s main brand has an even lower utilization rate of 32%. Despite this, companies still plan to expand by another 47.3 billion yuan. The question is whether the market will be able to absorb such excess production in five years. Even Moutai struggled with overcapacity, which led to a price drop from 4,000 yuan to 1,485 yuan in 2021 (below its official guidance price). Other companies, lacking Moutai’s brand strength, will find it even harder to sell their products.
The Future of the Industry
If dealers cannot sustain this situation, the risks will eventually affect the companies themselves. Goldman Sachs suggests that the toughest phase of inventory reduction may have passed, but 68.5% of industry participants expect prices to continue to decline in the second half of 2026. The current reduction in inventory may merely be a shift from one channel (dealers) to another (e.g., from offline to online sales) without actually increasing consumer demand.
As long as dealers can hold on, the risks remain within the supply chain. However, if a large number of dealers go bankrupt, the impact will hit companies directly: reduced revenue, idle capacity, increased depreciation costs, and potentially significant inventory write-downs. The “growth stories” promised during the boom years may ultimately prove costly for the companies themselves. For now, they continue to expand production, while dealers are trapped in a situation akin to unfinished buildings with no clear way out.
In summary: The core problem in the baijiu industry is the excessive expansion during periods of prosperity, followed by a lack of demand during downturns. Companies are reluctant to stop expanding, and dealers are unwilling to suffer financial losses. Consumers, for now, are not yet affected, as the baijiu remains unused and accumulating in warehouses.