Shanghai Guijiu’s Guarantee Crisis Deepens as Subsidiary Defaults on $7 Million Guizhou Bank Loan

Key Developments

Shanghai Guijiu (SHA: 600696), once a rising star in China’s baijiu sector, faces mounting financial pressure as guarantee liabilities trigger banking lawsuits:

• Guizhou Gaojiang subsidiary defaults on ¥50.3M ($7M) Guizhou Bank loan, triggering court-ordered repayment
• Accumulated bank loan defaults exceed ¥210M ($30M) across Agricultural Bank, Postal Savings Bank, and ICBC
• Cash reserves plummeted 97% since 2023 while debt ratio hit 71.98% versus industry’s 22% average
• ST-listed firm projects H1 2025 losses up to ¥75M ($10.3M) amid frozen operations

Mounting Legal Pressure

Shanghai Guijiu’s guarantee obligations have unleashed a cascade of lawsuits from state-owned and regional banks. The August 11 verdict against subsidiary Guizhou Gaojiang Liquor Co. marks just one front in this financial battle.

Guizhou Bank Lawsuit: The Trigger Point

Guizhou Bank secured a court order requiring Guizhou Gaojiang to repay ¥50 million principal plus interest within 15 days. Shanghai Guijiu bears joint liability, exposing it to asset seizures. This case exemplifies the firm’s risky 2023 decision to provide ¥500 million in guarantees for subsidiaries like Jun Dao Gui Niang and Guangnian Liquor.

Banking Sector Domino Effect

Multiple institutions have joined debt recovery efforts:

• Moutai Commercial Bank: Won ¥50.4M judgment against Guizhou Gaojiang in August 2025
• Agricultural Bank: Secured ¥28.2M verdict against Guangnian Liquor in December 2024
• Postal Savings Bank: Recovered ¥17.8M from Guangnian Liquor in July 2025
• ICBC: Currently litigating ¥30M claim against Jun Dao Gui Niang

These cases collectively represent over ¥210 million in defaults since 2023, with Shanghai Guijiu’s guarantee commitments amplifying exposure.

Financial Freefall

The debt crisis coincides with catastrophic financial erosion. From Q2 2023 to Q1 2025:

Cash Evaporation and Debt Surge

Monetary reserves collapsed from ¥632 million to ¥18.05 million – a 97.1% depletion. Meanwhile:

• Short-term debt remained at ¥273 million through Q1 2025
• Asset-liability ratio spiked to 71.98% versus industry’s 22.05% average
• Overdue interest to Ningbo Bank reached ¥1.83 million

This imbalance creates critical liquidity risks. As one bank credit officer anonymously noted: “Even after winning judgments, execution faces hurdles when corporate coffers are empty.”

ST Status and Performance Collapse

April 2025’s ST designation followed a disastrous 2024 featuring:

• 82.5% revenue crash to ¥285 million
• ¥217 million net loss
• ¥75.5 million operating cash outflow

H1 2025 projections show continued losses between ¥50-75 million. The company attributes this to:

1. Sluggish baijiu market recovery
2. Frozen dealer rebates and marketing funds
3. Mounting litigation costs from defaults

Per Shanghai Stock Exchange rules, failure to achieve ¥300 million revenue and positive adjusted net profit in 2025 could trigger delisting.

Strategic Missteps

Shanghai Guijiu’s 2019 pivot from real estate to baijiu via acquisitions planted seeds for today’s crisis.

Acquisition-Driven Expansion Flaws

The company rapidly acquired production assets including:

• Guizhou Gaojiang (base liquor capacity)
• Jun Dao Gui Niang (distribution channels)
• Guangnian Liquor (brand operations)

This expansion relied heavily on bank financing backed by parent guarantees. A securities analyst explained: “High guarantee ratios become landmines when subsidiaries struggle. Parent companies essentially co-sign bankruptcy risks.”

Industry Headwinds Amplify Crisis

China’s baijiu market faces dual pressures:

• Post-pandemic consumption downgrading
• Government austerity policies limiting luxury gifting

Mid-tier players like Shanghai Guijiu lack the pricing power of giants like Kweichow Moutai. With marketing budgets frozen and channel rebates unpaid, dealer networks have eroded – creating a vicious cycle.

Systemic Implications

This guarantee crisis extends beyond one firm, revealing sector-wide vulnerabilities.

Banking Sector Exposure

Lenders face multidimensional risks:

Regional banks like Guizhou Bank face concentrated exposure to local producers.

Investor Confidence Erosion

Market repercussions include:

• ST Rocks shares down 67% since 2023 peak
• Credit rating downgrades across affiliated entities
• Broader mistrust in cross-guarantee structures

As one fund manager stated: “When guarantee chains snap, they take stakeholder confidence with them.”

Pathways Forward

Shanghai Guijiu’s survival hinges on addressing immediate liquidity needs while restructuring operations.

Short-Term Firefighting

Critical priorities include:

1. Negotiating debt standstills with creditor banks
2. Securing emergency financing through asset sales
3. Halting new guarantee obligations

Company disclosures mention “active measures” to improve operations but lack concrete details.

Strategic Overhaul Requirements

Long-term viability demands:

• Portfolio rationalization: Exiting non-core subsidiaries
• Channel reinvestment: Restoring distributor confidence
• Product repositioning: Targeting mid-market consumption

Industry analysts suggest potential white-knight investors might require government mediation given the banking sector’s exposure.

Broader Lessons

This guarantee crisis underscores critical lessons for China’s consumer sector:

• Avoid overreliance on parent guarantees for subsidiary financing
• Maintain conservative debt ratios amid market volatility
• Diversify banking relationships to prevent concentrated exposure

Investors should scrutinize guarantee disclosures in financial statements, particularly when:

• Guarantee ratios exceed 50% of net assets
• Subsidiaries operate in cyclical industries
• Multiple banking relationships exist

For ongoing developments, monitor Shanghai Stock Exchange disclosures for *ST Rocks (600696). The resolution of this guarantee crisis will test China’s corporate debt restructuring frameworks and influence lending practices toward second-tier baijiu producers.