Buyback plan boosts Moutai stock price

China's high-end liquor producer Kweichow Moutai Co saw its shares surge Wednesday after the firm issued a major share-buying plan to calm investors' qualms about its recent contamination scandal.

Kweichow Moutai closed up 4.72 percent in Shanghai Wednesday, the biggest gain this month.

The world's second largest liquor producer after UK-based Diageo suspended trading Monday after a Sina blogger with the handle shui jing huang posted a test result by an unnamed Hong Kong testing agency, claiming that a sample of the company's liquor contained excessive amounts of DEHP plasticizer, a chemical that may harm human immune and reproductive systems.

"Some people exaggerate food safety issues and use them to create public panic, to hit China's liquor industry and damage investors' interests," Yuan Renguo, board chairman of Kweichow Moutai, announced at a press conference in Guiyang, capital of Southwest China's Guizhou Province.

Yuan also thanked shui jing huang because he said his actions "remind our liquor industry to pay more attention to food safety and product quality."

"But I also want to remind him that the country's liquor industry, with a history of thousands of years and a deep cultural background, will not stop (developing) or die due to one event," said Yuan.

Investors are not fully convinced. "I think today's share jump can be better described as a temporary rally, which can not last long," Zhao Yong, an industry analyst with Haitong Securities in Shenzhen, told the Global Times, noting that the company's buyback plan is a critical factor in the stock rally.

According to a statement the company filed to the Shanghai Stock Exchange late Tuesday, it will increase its shareholding over the upcoming six months to 61.8 percent from the current 61.76 percent, to boost market confidence in shares which have been declining since last month.

In the past two years, several companies have been exposed for using plasticizers as a food additive to make beverages thicker and more appealing, according to media reports.

"Liquor doesn't need to be thickened to taste good anyway," Liu Yuan, secretary general of the China National Association for Liquor and Spirits Circulation, told the Global Times. He suspected that some people might have made a lot of money on the recent fluctuation of liquor shares.

The contamination scandal sent shares sliding for many listed liquor producers in China, as consumers wondered whether others in the sector might have the same problem.

Jiugui Liquor Co, another high-end liquor producer in China, announced on November 27 that it would halt some of its production in order to rectify the excessive content of plasticizer, which was exposed by the media in mid-November.