Nestle, one of the world largest food and beverage companies, agreed to sell its China water business to Tsingtao Brewery Group on Friday, to focus on its high-end water business in China while allowing Tsingtao to diversify its portfolio.

The recent transaction comprises of the transfer of the local brand Dashan Yunnan Shan Quan and three factories located in Kunming of Yunnan province, Shanghai and Tianjin.

Tsingtao Brewery group will also produce and market the Nestlé Pure Life brand in China pursuant to a licensing agreement between the parties.

Nestlé will transfer its water operations in China to Tsingtao Brewery group, through the transfer of all its shares in Nestlé Sources Shanghai Limited, Nestlé Sources Tianjin Limited and Yunnan Dashan Drinks Co Ltd to Tsingtao Brewery Group.

The move is in line with Nestle's new strategic direction for its waters business that has prioritized its iconic international water brands, especially its leading premium mineral water brands and functional water products.

Mark Schneider, Nestle CEO, said in June, "This strategy offers the best opportunity for long-term profitable growth in the category, while appealing to environmentally and health-conscious consumers."

Nestlé's water business in China includes the global brand Nestlé Pure Life and the local brand Dashan Yunnan Shan Quan.

The company will maintain and continue to sell its iconic international brands including Perrier, S. Pellegrino and Acqua Panna to Chinese consumers.

The two companies stated that this strategic cooperation will achieve complementary advantages and resource sharing.

Jason Yu, general manager of Kantar Worldpanel China, said in recent years, the beer market in China is experiencing stagnant growth and Tsingtao clearly wants to diversify its business portfolio.

"Expansion to the nonalcoholic drink sector is clearly a route to growth," he said.

Yu added that packaged water is one of the large sectors within the soft drink market and the per capita consumption in China is still relatively low compared with other developed markets, so it has more potential to grow.

Euromonitor International said bottled water in China will have a market value of 219.5 billion yuan by 2022. The figure for 2019 was 169.4 billion yuan.

The top bottled water brand in China's domestic market is local player Nongfu Spring, taking up 9.8 percent of the domestic market.

Next is C'est Bon of China Resources Holdings Co Ltd at 8.6 percent and Ganten of Shenzhen Ganten Industry Co Ltd at 8.3 percent.

Danone's Mizone is fourth at 4.6 percent and Master Kong of Ting Hsin International Group at 3.4 percent.