China sets the pace for growth in the wine industry

I recently spent some time in Beijing and was fascinated to see how much wine has become part of urban Chinese life since my last visit ten years ago; specialist wine shops, wine bars and boutiques have sprung up across the city. In 2011 China became one of the world’s top five wine–consuming nations, overtaking the UK. It’s a phenomenal feat for a country often considered to be a tea-drinking nation!

The current spat between the EU and China, initially over Chinese solar panels, has escalated to a point where the Chinese have launched a reciprocal attack – an anti-dumping probe against European wine. The Chinese accuse the Europeans of dumping cheap wine, particularly from Spain, into the Chinese market; Chinese importers are scrambling to import as much as they can, as quickly as they can fearing imminent higher import tariffs for European Wine. If taxes on European wine go up, Chinese consumers will simply switch to wine from other countries; Chile and New Zealand will be in line to benefit since both have a bilateral free-trade agreement with China for wine.

Share of imported bottled wine into China 2012

China has both the largest wine market and the fastest-growing market in terms of volume and percentage, a reflection of the increasingly affluent and aspirational middle class. In 2012, according to International Wine and Spirit Research, China imported 266 million litres of bottled wine, an increase of 10% compared to 2011. More than two-thirds came from the EU, in particular France which was the source of 48% of imported bottles and was the first country to export wine to China at the beginning of Chinese economic reform.

THE-WINE-MARKET-IN-CHINA-500-px2-v2

France dominates the imported wine scene and wine from Bordeaux is particularly prized for its status symbol name and its history, as much as for the taste. Red Obsession is a BBC documentary narrated by Russell Crowe which looks at the dramatic impact of China’s growing fascination with fine French wines.

The new President of China, Xi Jingping, recently announced austerity measures discouraging banquets and categorising high-end wines as ‘unacceptable’ presents. The high-end hospitality industry has already felt the impact and there has been a knock on impact for imported fine wine. Bordeaux wines are the most affected; it’s not certain how many bottles were bought as gifts but it’s likely to be substantial, up to 50% of sales.

For new world producers, the size of Chinese opportunity looks particularly promising when compared with falling sales in Western markets and slashed profit margins caused by the trend for rock bottom priced wines. South Africa isn’t totally absent from the scene although it only accounts for 3% of Chinese imports despite its geographical advantages in terms of shipping. Some wineries are producing innovative new vintages designed to accompany Chinese food; Leopard’s Leap are doing just that under the brand name ‘L’Huguenot’ designed to highlight South Africa’s wine history and the French immigrants who brought their winemaking experience with them.

But reaching the Chinese consumer directly isn’t all that easy. China’s domestic production has escalated and according to Vinexpo about 85% of wine consumed in China is ‘produced’ in China either from locally grown grapes or from imported bulk wine. Wine has been produced in China for millennia but the modern wine industry is about a hundred years old and initially produced wine for the expat market. The majority of local wine ten years ago tasting like paint stripper but the quality has improved dramatically although there’s still some way to go before they catch up with the French (and South Africans!). It’s predominantly red wine (red is a lucky colour in China) although there are signs that the market is becoming more interested in white wine as sales are slowly edging up. Wine production in China is expected to rise a whopping 54% from 2011- 2015 according to Vinexpo taking China from the spot of eight largest wine producer to number six in the world ahead of both Australia and Chile.

Dynasty

Next week I’ll blog about trends in Chinese wine drinking culture.

Sources and further reading:

Vinexpo – Chinese winemakers target Europe through Vinexpo

Hein on Wine – Perfect wines of South Africa L’Huguenot labels

Global Post – China let them drink wine

China Briefing – China exploding wine consumption

Wines of South Africa

China Daily – China will set pace for wine industry growth

The Chinese Wine and Spirits Market

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