According to a recent research report from Goldman Sachs, the most challenging inventory destocking phase for China's baijiu industry is now in the past. Accelerated supply-side reductions, stabilizing wholesale prices for key mid-to-high-end products, and healthier channel inventories indicate the sector is in the very early stages of a recovery. However, weighed down by macroeconomic uncertainties, a broader recovery in commercial demand still awaits confirmation, and the industry's long-term market size also faces structural contraction.
Goldman Sachs upgraded its rating on Anhui Gujing Distillery Company Limited (SHE: 000596) from Sell to Buy and on Jiangsu King’S Luck Brewery Joint-Stock Co.,Ltd. (SHA: 603369) from Neutral to Buy on June 23, setting 12-month price targets at RMB 105 and RMB 31 respectively, implying approximately 28% upside potential. The firm maintained Kweichow Moutai Co.,Ltd. (SHA: 600519) as its top sector pick, while retaining a cautious stance on Wuliangye Yibin Co.,Ltd. (SHE: 000858), Sichuan Swellfun Co.,Ltd. (SHA: 600779), and Jiangsu Yanghe Distillery Co.,Ltd. (SHE: 002304).
Analysts Leaf Liu, Christina Liu, and Valerie Zhou at Goldman Sachs noted in the report that the balance sheets of the two regional distillers have shown early signs of improvement, with current valuations at the bottom of historical cycles, making the risk-reward profile increasingly attractive.
Concurrently, Goldman Sachs lowered its profit forecasts for most baijiu companies for 2026-2028. Net profit forecasts for the ultra-premium segment (excluding Moutai) were cut by up to 10%, and for the mid-to-high-end segment by up to 52%. The firm also compressed target price-to-earnings ratios for some stocks by 4% to 19% to reflect the long-term contraction in the industry's total addressable market, which is projected to recover to only about 75% of 2024 levels by 2030.
Since Goldman Sachs downgraded the sector in July 2025, the CSI Baijiu Index has fallen approximately 30%, underperforming the MSCI Consumer Staples Index by about 12 percentage points. The sector is down an average of about 27% year-to-date and is currently trading at 19 times expected 2026 P/E and 16 times expected 2027 P/E, valuations comparable to the early recovery phase in 2015, with both P/E and P/B ratios near decade lows.
Current Phase: Worst is Over, Recovery Remains Nascent
Goldman Sachs characterizes the current state of the baijiu industry as "the very early stage of recovery, but stabilization signals are emerging," supported by three dimensions: supply-demand dynamics, pricing, and cash flow.
On the supply side, reduction efforts have accelerated notably this year: smaller producers are exiting, and major brands, including Sichuan Swellfun Co.,Ltd., have begun pausing capital expenditure plans, leading to a convergence of the industry's supply glut.
On the demand side, Goldman Sachs's macro dashboard model indicates that year-on-year declines in sales for ultra-premium and mid-to-high-end baijiu have been narrowing since Q1 2026, with the trough likely occurring in Q4 2025. However, a broad-based demand recovery for mid-to-high-end products remains slow, awaiting further reduction in channel inventories.
The report notes that, following typical industry cycle patterns, improvement in corporate financial statements is usually the last signal to appear. The industry is currently at a critical juncture transitioning from healthier channel inventories and stabilized wholesale prices towards demand recovery and share price repair.
Goldman Sachs continues to monitor the capital expenditure recovery cycle. Historical data shows a clear positive correlation between baijiu sector valuations/sales growth and periods of rising infrastructure investment. Fixed asset investment is expected to re-accelerate in the second half of the year, driven by AI-related spending, particularly in Anhui and Jiangsu. However, the boost from this capex cycle to baijiu demand for business banquets is expected to be weaker than in previous real estate-led cycles.
Wholesale Price Stabilization: Mid-to-High-End First to Bottom, Feitian Returns to Affordable Range
Goldman Sachs observes that since late 2025 through the first half of 2026, wholesale prices for Feitian Moutai and key mid-to-high-end products have shown a broad stabilization trend, including for Jiangsu King’S Luck Brewery Joint-Stock Co.,Ltd., Anhui Gujing Distillery Company Limited, and ZJLD's products. This change follows approximately three to four quarters of accelerated inventory destocking in channels starting from Q2-Q3 2025.
Taking Feitian Moutai as an example, its wholesale price as a percentage of the average monthly wage for urban employees has retreated from a high of nearly 60% in 2021 to around 28% currently, even below the affordable level of 2013, indicating a significant improvement in the value proposition of premium baijiu.
Goldman Sachs further points out that historically, sales growth for ultra-premium baijiu has been positively correlated with second-hand housing prices in first- and second-tier cities. An expected recovery in the property markets of some of these cities is anticipated to provide additional support for high-end products.
At the channel inventory level, dealer inventories for major brands are stabilizing, and brand owners are not imposing mandatory prepayment requirements on dealers, indicating continued improvement in channel health.
Cash Flow Improvement: Ultra-Premium Turns Positive, Mid-to-High-End Shifts from Negative
In terms of cash flow, Goldman Sachs's calculated adjusted sales data (including changes in customer prepayments) showed a significant rebound in Q1 2026. The ultra-premium segment returned to positive growth, suggesting early signs of recovery in order placement and distribution momentum, which may also reflect the effects of channel restructuring such as Moutai's direct sales reforms.
Regarding the operating cash flow/revenue ratio, the ultra-premium segment saw a slight increase in Q1 2026, while the mid-to-high-end segment shifted from negative in Q4 2025 to positive. The year-on-year growth rate of inventory days also began to slow from Q4 2025 to Q1 2026.
It is noteworthy that notes receivable rebounded in Q1 2026, indicating continued prepayment pressure in channels, and the paths to balance sheet improvement for the two segments show some divergence.
Goldman Sachs expects 2026 to remain a challenging year for most covered companies, with Kweichow Moutai Co.,Ltd. and Jiangsu King’S Luck Brewery Joint-Stock Co.,Ltd. being the exceptions. Operating cash flow growth for most companies is projected to gradually recover in 2027, with margin improvement being the core driver.
Market Size Contraction: Long-Term TAM Downtrend
Goldman Sachs projects industry volume to recover to only about 75% of 2024 levels by 2030, primarily due to the contraction of consumption scenarios related to business banquets, which account for about 30% to 40% of total baijiu consumption and an even higher proportion for premium products.
By category, Goldman Sachs expects ultra-premium product volume to recover to 2024 levels by 2030, while mid-to-high-end product volume may shrink by about 20% compared to 2024 levels by then.
Per capita baijiu consumption has already declined from an annual average of about 19 to 21 bottles (500ml equivalent) in 2012-2019 to about 12 bottles in 2025, with Goldman Sachs expecting a further long-term decline to about 10 bottles. The core consumer base (population aged 15-64) is also projected to contract at a rate of about 1% annually starting from 2028.
Overall, Goldman Sachs forecasts that covered companies' revenue/net profit will grow by about 2%/5% in 2026, with growth rates for 2027-2028 expected to recover to 7%-8%/8%-9%.
Regarding industry concentration, the market share of the top five companies by volume/sales has increased from 22%/56% in 2024 to 24%/58% in 2025. Goldman Sachs expects this to further reach 30%/68% by 2028, indicating an accelerated trend of market share consolidation among leading brands during this downturn.
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