BEIJING—Product-safety officials found excessive levels of a potentially toxic chemical in a sample of an alcoholic beverage called baijiu, putting increased scrutiny on China's favorite tipple and the fast-growing $47 billion industry that makes the white spirits.
The General Bureau of Quality Inspection in central Chinese Hunan province said on Wednesday that it found 1.04 milligram a kilogram of a chemical called a plasticizer in baijiu made by Jiugui Liquor Co. 000799.SZ +0.42% The finding is more than three times China's permitted limit, according to the China Alcohol Association. In a statement on a government website, the Hunan regulators urged Jiugui to further inspect its products.
Jiugui, which makes many varieties of baijiu that vary by alcohol content, plans to run additional product tests, according to an investor-relations representative for the company, adding that preliminary tests didn't show any toxic chemicals. Its shares, which trade in the southern Chinese city of Shenzhen, have been suspended since Monday following a local media report that a testing firm independently of the government had found the chemical in a Jiugui liquor sample.
Plasticizers, also called phthalates, are often used to soften plastic food and beverage containers. They have been shown to affect the reproductive system of laboratory animals, while more research is needed to assess the impact on humans, according to the U.S. Centers for Disease Control and Prevention.
Baijiu is a clear, potent drink usually made from sorghum that is taken in shots and known for having a fiery taste. Baijiu is most famous in the West for being served to President Richard Nixon during his historic 1972 visit to China. Television reporter Dan Rather then famously described one variety as tasting like "liquid razor blades."
Jiugui was the only company cited for plasticizer levels. Nonetheless, shares of China's premium-white-spirits producers have taken a hit due in part to consumer sensitivities to food and safety issues after years of industrywide scandals. The share price of Wuliangye Yibin Co000858.SZ -0.66% ., one of China's largest liquor companies by market share, has dropped nearly 7% since Monday, down to 28.80 yuan ($4.49) at the close of trade Wednesday in Shenzhen. Sichuan Swellfun Co600779.SH -2.21% ., which is 40% owned by a company majority owned by U.K. liquor giant DiageoDGE.LN -0.14% PLC, has dropped 9% in the past three days, closing at 19.88 yuan in Shanghai Wednesday.
Representatives at Wuliangye Yibin, Diageo and Sichuan Swellfun didn't respond to requests for comment.
The China Alcohol Association said Monday that most of China's domestically produced white spirits contain plasticizer emanating from plastic lining on caps or from production piping, but levels are within allowable limits.
Baijiu is widely consumed across the country, accounting for 32% of China's alcoholic drinks market and totaling 295.9 billion yuan ($47.47 billion) in sales in 2011, up 14% from a year earlier, according to research firm Euromonitor International. That makes it about 20 times bigger than the Chinese market for whiskey.
Jiugui holds a 0.2% market share in the diffuse market for white spirits, where no one name holds more than 3%, according to Euromonitor.
The alcohol is also gaining popularity for export. China's largest baijiu maker by market capitalization, Kweichow Moutai Co., 600519.SH +1.25% distributes to duty-free shops in airports across the world. The company's stock has dropped 2.5% in trading since Monday, closing at 218.80 yuan Wednesday on the Shanghai Stock Exchange.
The growth has attracted some foreign interest. Diageo in 2010 offered to increase its stake in Sichuan Chengdu Quanxing Group, which owns the 40% stake in Sichuan Swellfun, to 53% from 49% for $21 million.
Alcohol is among the wide number of products facing quality issues in China, where food safety issues are rampant and a market for buying empty liquor bottles has emerged for the purpose of reselling them with fake alcohol. Companies such as Diageo make special caps that prevent people from refilling their liquor bottles.
Retailers, including Wal-Mart Stores Inc., WMT -0.14% said they are still selling Jiugui and other white spirits in China but are monitoring the products and watching for government guidance.
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