Competition Will Help Chinese Wine Industry

POSTED ON 13/09/2012

Sunshine brings a little happiness into our lives or so the theory goes. Right now though, two products requiring the sun for their existence are threatening to cause widescale misery: wine and solar panels.

Reacting to a possible probe by the EU regarding China’s solar panel exports, the China Alcoholic Drinks Association has asked the Ministry of Commerce to launch an investigation into wine imports from the EU.

According to Wang Zuming, secretary-general of the association’s wine branch, “we have noticed a clear intention to sell European wines in the Chinese market at below-cost price.”

The idea of a trade war could just be the ritual posturing of two giants flexing their muscles with no actual intention of changing the status quo. I don’t pretend to know anything about solar panels, or why, if it’s true, China might be creating problems for European firms by selling solar panels at a loss.

There’s little doubt though that overseas wine imports into China have grown and continue to increase with such rapidity that their expansion is threatening to put the noses of China’s home-grown industry seriously out of joint.

Given its relatively short history of wine consumption, the recent transformation of China into a wine-drinking nation is an astonishing phenomenon.

It’s in part the government’s enlightened promotion of wine as a healthy alternative to baijiu (distilled alcoholic beverage) that has created this burgeoning interest. The China Wines Information website reports that wine production in China is expected to double to 2.2 billion liters by 2015 with 830 billion yuan (US$131.33 billion) in sales for the liquor-making industry by 2015.

An annual growth rate of over 10 percent would give the home-grown
wine industry a significant boost. It needs it because it’s faltering. Little more than two decades ago, 99.8 percent of all wine consumed in China was produced domestically.

Today that figure has gone down to 75 percent. The big brands led by Changyu, Dynasty and Great Wall have had it all their own way until recently, but poor performances
over the past year coupled with the discovery of residual germicides in some Changyu products is changing perceptions for the worse.

Unfortunately the values of quality, flavor and character sought by sophisticated wine consumers in the West have played second fiddle to purely commercial considerations. Wine was sold because it was cheap, because it was attractively packaged for gifts and ceremonies or because it was sold as a brand with a safe and familiar name.

In other words China’s wine producers were not so much building a Great Wall as a flimsy castle in the sand ready to crumble in the face of a flood tide of imported wines.

According to China Briefing’s survey of national trade associations, while French imports grew 24.5 percent last year (from higher overall market penetration), Australia increased its market share by 32 percent in 2011, with the US up 39 percent, Chile 53 percent, Spain 56 percent, Italy 80 percent, South Africa 80 percent and New Zealand 180 percent.

When hardly a day goes by without a success story by one or another importing country, it’s small wonder that Wang should grumble that “almost all domestic wine companies are saying their businesses have been hit hard.”

The queen of the foreign cheerleaders is France. Indeed the Chinese themselves have been assiduous in acquiring Bordeaux châteaux hither and thither, sending Bordeaux wines back home in a competitive practice that must have sent shivers down the collective spine of a beleaguered domestic wine industry.

An array of new distribution outlets, wine education facilities and the exposure of China’s affluent middle classes to overseas travel have all played a part in creating a growing market for wines that taste good and won’t break the bank.

According to David Andrews, general manager of ASC Fine Wines, imported wines are now entering second-tier cities and are primarily sold through Chinese restaurants and large Chinese-owned and operated supermarkets and department stores. The rush to buy superior quality wines has changed the Chinese perception of acceptable prices for premium wine.

Not surprisingly, analysts are predicting that imported brands could soon grow to represent 50 percent of China’s wine consumption. Yet despite the problems experienced by China’s wine giants, there are encouraging signs of a narrowing gap between cheap home-grown plonk and superior quality imports from Europe and the New World.

Spearheaded by joint ventures such as the CITIC-Chateau Lafite project in Shandong Province, the Moët-Hennessy development in the mountains of Yunnan Province and the involvement of Torres in Grace Winery, China’s home-produced premium wine market is growing.

The trend is symbolized by the success of the Ningxia-based winery Helan Qing Xue’s 2009 Jia Bei Lan Cabernet Dry Red made by Li Demei. To dropped jaws and raised eyebrows, it won China’s first international trophy at last year’s Decanter World Wine Awards.

This success has been built on with Ningxia-based wineries taking the top spots at the Ningxia versus Bordeaux Challenge in Beijing, by the success of Grace and Silver Heights in Shanghai’s 2012 China Wine Challenge and, only last week at this year’s Decanter Awards, the award of the international trophy for Red Bordeaux Varietal Under 10 Pounds to Chateau Reifeng-Auzias’ 2010 Cabernet.

Li Demei himself is one of a confident new breed of Chinese winemaker involved in the drive toward quality and the discovery of new locations from which China can produce wine to rival Europe’s finest.

If any giant Chinese brands are thinking of resting on their laurels then, not only do they have the burgeoning growth of imported wines to contend with, but the Trojan horse in their own backyard. Yet the fact is that it’s only from such competition that the development of a modern quality-oriented Chinese wine industry will make headway.

It may stick in Wang’s craw to admit it, but in the long run it may just bring a little sunshine into his life.

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