China: Get Thee To A Winery

Posted by Dan on October 13, 2006

The People's Daily recently published an article reporting both wine production and wine consumption in China have grown about 10 percent per year over the past decade.  China is working hard to expand its importation of vintages from major wine-producing countries: Italy, France, Chile, the United States and Australia, to satisfy the evolving tastes of Chinese consumers.  Wine connoisseurs are, of course, more interested in the development of China's own wines, which are, for the most part, still in their infancy.  The article asserts that:

The 500 or so Chinese wineries account for 80 percent of the domestic market, but they lag behind their foreign counterparts in terms of management, technique and quality.

Other sources report to the contrary.  A Business Week article published this week, entitled, "Potations From Chairman Mao," reports the new Grace Vineyard in Shanxi province is making "surprisingly good wine:"

Grace's $10-a-bottle Chardonnay has melon and baked apple flavors, and its $80 Chairman's Reserve -- a blend of cabernet sauvignon, merlot, and cabernet franc -- is complex enough to rival many top-quality Bordeaux.

The reason for this may be that Shanxi is on the same latitude as the Bordeaux region of France.  Its climate and soil are similar, "making it ideal for growing cabernet sauvignon, Chardonnay and merlot grapes."

In another part of China, forty miles northwest of Beijing, a French-Chinese joint-venture vineyard, the Sino-French Demonstration Vineyard, is attempting to build interest in wine and wine-making techniques.  USA Today reports that local authorities hope to market tasting tours within the next year along the road connecting the Sino-French Vineyard with others in the area.  The idea is to create a Chinese version of California's Napa Valley.

China still has a long road to travel before it gains the reputation and respect of its foreign competitors.  Many of the country's current vintages are blends of Chinese grapes and imported bulk wines from Chile and Australia.  China's wine industry also lacks any formal system of control of origin like those in Italy and France.  China has become the hot spot for counterfeiting historic wine labels, such as Sassicaia, Chateau Mouton Rothschild and Penfolds Grange, which slows down its climb to credibility overseas.

Chinese wine imports in the first seven months of this year were up 88.8 percent over the same period last year.  Even though domestic wine production represents only one percent of China's alcoholic drinks market, with 359,000 hectares and 3.34 million hectoliters in volume, China is currently the 6th largest wine producer in the world.  The International Herald Tribune reported in an article last month that shares of Fen Wine and Changyu Pioneer, China's largest wine producer, have doubled in value this year.  The time may soon come when Chinese wine is as well-regarded as its premier Tsingdao beer.  Wine, which used to be regarded as strictly a luxury good, is becoming increasingly popular as people's incomes and living standards improve.  This blog has six Chinese language blogs on its blogroll.

Dan:

Last year I brought a nine dollar bottle of Changyu Carbernet to Thanksgiving dinner so my younger brother, a true oenophile, could try some.  I solicited his opinion without telling him how much I had spent.  He told me it tasted like a good ten dollar bottle of wine.

My firm has been contacted a number of times over the years by Washington State wineries interested in going into China.  All of them were eventually deterred by what they saw as the high cost of going in.  My own understanding of the Chinese import wine market is that Australian and French wines are taking the lead and once grabbed, it may be quite difficult for U.S. wineries to catch up.  Due to the surplus of American wines (can you say Two Buck Chuck?) it seems American wineries are missing an opportunity. 

I have also had social conversations with American wine distributors about their importing Chinese wines into the United States, both for retail and for sale at Chinese restaurants.  They look at me as though I have two heads. 

Comments (22)

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Chris - October 14, 2006 9:16 PM

Great post! I live in the middle of Central California Coast wine country. This information will help my students better understand the wine market in China and the (now small) role of grape wine in Chinese culture and society.

In traveling in China, I have been amazed at the lack of a California wine presence (including Napa) in wine shops, Carre Fours, restaurants, etc.; and have wondered if/when California wineries will get into the game in the PRC.

It seems to me that they ignore this market at their peril.

China Law Blog - October 14, 2006 9:58 PM

I completely agree. My concern (not that I know the first thing about wine marketing) is that by getting here first, the Australian and French wines will always be favored.

I see opportunities for American wine companies on both the high and low end. Chinese consumers love American products and I do not see why wine would be any different.

Why are American wine companies acting so slowly here? Is it because they tend to be privately held, and therefore somewhat conservative? Is it because they lack international experience?

Chris - October 15, 2006 10:10 AM

It may also be because of distribution issues. I suspect that like in the US, mastering the monopoly/protectionist, er, I mean wine and spirits distribution game is also key in China (perhaps even more so).

From what I have been told by my friends here in the wine industry, the guanxi issue as it relates to wine in China intimidates the heck out of them and they are at a loss of where to even start and how to jump into the game.

Having said that, the Australians have been buying up a number of wineries in my neck of the woods as of late, so maybe in time that will change a bit with their more advanced comfort level in the PRC.

China Law Blog - October 15, 2006 10:17 AM

I completely agree, BUT .... There is no doubt that distributing wine in China is not going to be easy or cheap, and that, I think, is what caused our potential clients to clutch. But, these difficulties hold equally true for the Australian and French wine producers and even for virtually ever other company selling product into China. Yet, because others are there, I think in asking why American wineries are not we have to look to them more than to the Chinese market.

Chris - October 15, 2006 10:42 AM

Good point.

Lonnie - October 16, 2006 3:16 AM

I was stunned by the dearth of wines in the mainland and the huge selection just across the border in Macau....

There is a very modern and well-stocked group of wine shops now opening in Guangzhou near my home...They are in a very high rent district so they will have to do well...I will keep you posted...

There are a couple of domestic wines I enjoy here, but for the most part they remind me of an old cartoon I saw with the Gallo family all gathered around a dying founder's bed and quarrelling over what step to take next. One of the younger characters said, "Well, we could always use grapes."

Great post!

China Law Blog - October 16, 2006 7:43 AM

Lonnie --

Thanks for checking in.

I am not a wine connaisseur, but it seems that the selection of mid-range and low-end wines is pretty good at the Carrefours throughout China, mostly of completely mainstream (i.e., bigger name) French, Australian, and Chinese brands. So is your complaint the lack of smaller wineries? Higher end wines? I just realized that I have yet to see a wine shop anywhere in China, but since I have never looked for one, this is pretty meaningless.

Alfonso - October 25, 2006 8:24 PM

some news about wine from China in the US...
Wine from China? Why not?
http://www.dallasnews.com/sharedcontent/dws/fea/taste/stories/DN-nf_chinasilk_1025liv.State.Edition1.3e75702.html
(subscription required)

China Law Blog - October 25, 2006 10:44 PM

Alfonso --

Salut -- What a great article. Thanks for passing it on. I see another post coming ....

China Law Blog - October 31, 2006 12:36 AM

Alfonso --

Thanks for checking back in. You beat me by an hour.

Beijing Boyce - November 6, 2006 2:23 AM

Coincidentally, I just got an SMS about a wine tasting being held by the California Wine Institute, in downtown Beijing at Icehouse Bar... Will follow up on this...

Beijing Boyce / www.beijingboyce.com

China Law Blog - November 6, 2006 9:51 AM

Beijing Boyce --

Thanks for checking in. I would love to hear more.

China Law Blog - November 6, 2006 9:54 AM

Beijing Boyce --

I just really checked out your site and I like it. It is amazing to me how little there is out there on the local scene in Beijing/Shanghai, etc. One would think (and there really should be) way more blogs on this. Where are the restaurant reviews, etc. I know there is Shanghaiist, and That's Beijing, etc., but considering the size, the tourism, the ex-pats, etc., I would expect much more. Glad you are filling a corner of this necessary "space."

Beijing Boyce - November 7, 2006 5:09 PM

Thanks for visiting! You probably just doubled the number of hits...

I agree there should be more out there about the scenes in Beijing, Shanghai, etc. Print coverage tends to be ephemeral (review a bar once and never mention it again), short (a few hundred words) and smart-alecky (style over substance). Blogs can overcome all of these problems.

Re Lonnie's comments, there is an excellent selection of wine in Beijing. One distributor offers 800 different wines alone. I've been to their storage facility, which is a huge hangar filled with endless pyramids of cases of wine. It seems like the kind of place where the good people go when they die (I guess the evil ones go to Guangzhou!). Outlets are few, but it's easy to order wine online. In Guangzhou, you could try ASC Wines: http://www.asc-wines.com/

Cheers, Beijing Boyce / www.beijingboyce.com

China Law Blog - November 7, 2006 6:25 PM

Beijing Boyce --

Thanks for checking in. So in return for our doubling your hits, can you list the best places in Shanghai? Do you have a name that is alliterative with Shanghai?

Beijing Boyce - November 30, 2006 7:11 AM

I spent three days there and went to more than 20 bars. I'm not trying to be evasive, but it's tough to make any calls based on that, and I'm not trying to be self-promotional, but here's what I found during the three days:

Thursday
http://www.beijingboyce.com/2006/10/the-shanghai-edition-thursday/

Friday
http://www.beijingboyce.com/2006/10/the-shanghai-edition-friday/

Saturday
http://www.beijingboyce.com/2006/10/the-shanghai-edition-saturday/

By the way, re Chinese wines, the Ritz-Carlton here served Grace Cabernet Sauvignon 2005 at a recent function. I ordered a few bottles today from Torres Wines (it's around 60 kuai per).

Cheers, Boyce

China Law Blog - November 30, 2006 7:41 AM

Beijing Boyce --

Thanks for checking back in and providing us with your three (packed days) in Shanghai bar tour. One question and a comment. Are there really any Mongoligan hedge funds? Of course curling is a sport, it is shuffleboard in the winter and it is the sport for Canadians and upper Minnesotians who cannot do anything else.

Jennifer - February 28, 2007 12:19 AM

There's actually quite a grouping of new wine shops popping up in Shanghai lately. They are concentrated around Da Gu lu. My favorite is JustGrapes. Their sales associates get customers interested in wine by educating them about the different flavors of wine instead of just judging a bottle based on where it's from or what some pretentious "experts" say.

China Law Blog - March 1, 2007 6:15 AM

Jennifer --

Thanks for checking in and thanks for the good advice.

John - March 13, 2007 6:39 AM

I was watching an incredible presentation by Jay Scott on ASQ blog. Most of the findings were about China's rapid growth concluding which I have no doubts on claiming that China is going to be the next level Best Wine Producer of the World. These Chinese are simply amazing.

China Law Blog - March 13, 2007 12:19 PM

John --

Thanks for checking in. I could not find the presentation to which you are referring, but I think it woefully premature to proclaim China the next great wine producing country. Many have tried, few have succeeded.

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