Diageo Untroubled by Stricter Chinese Regulation

LONDON -- Diageo (LSE: DGE  ) (NYSE: DEO  ) has eased investors' concerns that recently tightened rules on "gifting" in China will significantly affect its performance in the East.

Chief operating officer Ivan Menezes put fears to bed that the distiller's sales would suffer from a restriction on "inter-governmental luxury banqueting" that banned high-level military officials from indulging in alcohol during official visits. Speaking at the Consumer Analyst Group of Europe on Monday, Diageo COO Menezes stated:

Our business in China is not that dependent on the classic institutional sales and classic gifting, which is where the downturn is happening right now. While our Shui Jing Fang baijiu business is an ultra-premium business, it's less dependent on institutional sales than the big Chinese players. So we've taken less of an impact there. ... We were not that heavily reliant (on gifting) to begin with, and we're just at the starting stages of building the business in China."

The stricter regulation, which was introduced near the end of 2012, caused local competitors' share prices to fall -- including those of Kweichow Moutai, the distiller of popular Chinese beverage baijiu -- as the result of the tighter controls started to become apparent. Diageo, though, has continued its strong performance from the beginning of the year, with the shares having smashed through the 2,000 pence mark to sit at 2,020 pence at the time of writing.

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