Anyone who doubts that soft drinks are tough business in China should consider the melon cleaver confrontation that erupted in Guangzhou last year. Staff from rival drinks companies chose the same day to put up advertising posters in the same street.

Arguments turned into scuffles. Someone seized a cleaver from a nearby melon seller. Soon three employees of Jianlibao, a mainland company, had been stabbed. But later that day Jianlibao had its revenge; 50 of its staff stormed the offices of its rival, Kangshifu, a Taiwanese company.

Such is the competitive environment that Norman Kaplan, a US businessman with 23 years' experience in China, finds himself facing. As chairman of Calcol, a small soft-drinks enterprise on the outskirts of Beijing, Mr Kaplan, a former Harvard academic, is taking on market leaders Coca-Cola and Pepsi as well as an array of mainland, Taiwanese and Japanese rivals.

So far, however, the soundings have been optimistic. In the two years since it began operations, the company has succeeded in placing its products in 400 stores in 10 northern towns and cities. That number should grow to between 1,600 and 2,000 stores by the end of the year, Mr Kaplan says.

"The people who told me that I could not compete with Coke and Pepsi didn't know what they were talking about," he adds. Mr Kaplan has invested about $10m in the venture. China's soft drink's market, which doubled in size from 1997 to become worth Rmb117bn ($14.1bn) in 2002, is very sensitive to price.

"The difference between a nickel and a dime is more significant here than in the US," says Mr Kaplan, explaining that drinks sold under the company's Malibu brand are generally 20 to 30 per cent cheaper than equivalents sold by Pepsi or Coke.

Calcol's costs may also be lower. Whereas Coke and Pepsi sell concentrate to their joint-venture bottling plants at a mark-up, Calcol's concentrate is made at the Sanhe Meile bottling plant on the outskirts of Beijing, a 100 per cent subsidiary.

Coke and Pepsi spend huge sums on marketing, with Pepsi signing basketball star Yao Ming as an advertising icon. Calcol, by contrast, restricts itself to shop promotions in which customers taste the drink free of charge, or are given promotional samples.

"We only do store promotions, which is also what a little company called Krispy Kreme doughnuts does and they are doing OK," says Mr Kaplan, who is not above carrying cases of Malibu around to the food and beverage managers at Beijing hotels or to corner shops near his factory.

Since the acquisition last year of its partner China National Food Industry Corp's 20 per cent stake in Sanhe Meile, raising finance and agreeing a long-term business strategy has become more straightforward. "The joint-venture structure was holding us back," Mr Kaplan says, framing a complaint familiar among foreign investors.

Considerable expansion is planned and the extra volume should further reduce costs. Within the next 18 months two bottling plants will be built in Shanghai and Shenzhen to quadruple output to 25m cases and service the booming Yangtse and Pearl deltas.

So far Malibu appears to be receiving positive reviews from consumers. At Beijing's St Regis Hotel, a regular venue for state banquets, Malibu soft drinks have been served for several months and none of the US and UK diplomatic delegations or Chinese customers that drank it has complained, a manager at the hotel says.