MARKETS

Difficulties in the Chinese beer market continued unabated in recent years. Prices in general continued to decline due to aggressive competition and over-capacity. It is estimated that nearly half of the total beer production capacity in China was idle. There are about 600 breweries left in the market in China. Larger national beer group are still vigorously conducting their expansion plans in China through merger and acquisition in an attempt to consolidate and broaden their market share in China.

Many breweries compete by selling their products at very low margins and have switched their focus to cheaper local brands in their product portfolio in order to maintain their production and sales volume.

Management anticipates that the market demand for higher-priced foreign premium labels will continue to be stagnant as consumers shift to lower-priced but improved quality local beer products. The competition among major Chinese breweries to maintain market share under the current market conditions is also expected to exert continuing pressure on the Company's operating results during 2003. Management has responded to changing market conditions by consolidating and rationalizing the production and operations of the two major breweries in Zhaoqing through the pooling of management resources, by broadening its product line and expanding its distribution efforts. The Company is taking steps to maintain its premium beer market share and to develop a new range of medium-to-low priced products under separate labels to suit the market's changing needs.

COMPETITION

Of the brands comprising the foreign premium sector, Budweiser, Suntory, Pabst Blue Ribbon and San Miguel are the major market leaders. Tsingtao, Yanjing and Zhujiang are major mainstream local premium brands. Other companies seeking to develop market share in the Chinese market include Heineken, Carlsberg, Beck's, Asahi, Miller, Foster's, Kirin, and Stella Artois.