The Lack of Market Integration in the Chinese Beer and Wine Markets: Evidence from Stationarity Test

Following the economic reform in China and subsequent economic growth, the country has witnessed interesting shifts in dimensions of supply in various subsectors. This has in one way or another, stimulated growth in national and per capita disposal incomes among other economic indicators. In particular, there has been rapid growth in both beer and wine consumption in the country. This chapter aims to examine the nature of the beer and wine industry. Specifically we investigate price related issues and the degree of integration of the Chinese beer and wine markets and the nature of price convergence/divergence across major markets. The study utilises a 10-day interval data of beer and wine retail prices from January 2005 to December 2012 provided by the National Development and Reform Commission of the People’s Republic of China. A series of unit root tests are performed to assess the price convergence. The empirical findings suggest that Chinese beer and wine markets are not well integrated, and there is no evidence of significant arbitrage activities in the wine and beer markets. Implications for policy development were discussed.