Posts Tagged ‘China’
How will the emergence of China as a world player in the world of wine affect the drink we all love so much?
China has become a hot destination for global players in the wine industry with demand growing in excess of 20% annually for the past five years to around 1, 480.6 mn litres. That makes China a significant player in the wine industry.
And so with China’s elite investing in Bordeaux chateaus and setting new records for rare and collectible wines at auction, it’s no wonder that the wine industry is paying close attention to happenings in the middle kingdom. But what about wine drinkers? Are we giving enough thought as to how the newly minted middle and wealthy classes in China will change the world of wine? I don’t think so, but fortunately our editorial team is here to help.
First off, let’s put China’s foray into the wine industry into perspective. China is already the world’s leading market for luxury goods, and fine wines are no exception. China, including Hong Kong, became the world’s largest consumer of Bordeaux wines in 2010, importing some 33.5-million bottles at a cost of $475-million. The country now imports more than $1-billion worth of wine annually, a number that has quadrupled from about $250-million in 2004.
French wine occupies a commanding position in the Chinese market. The French have a significant market share and mind share lead over other regions. Partly this is because of their storied reputation and strong marketing, but French producers have also worked to form deep distribution partnerships since the early 1980s. And this matters since business in China is a patient endeavor and requires investing in long term relationships. This is something the French have done exceedingly well and so their dominant position isn’t likely to change anytime soon.
So with this in mind we wine drinkers can expect a few ripples on our side of the world. First off French wine and collectible wine will probably continue to set new records at auction in both Hong Kong and London. After all the industry is globally interconnected. Next, we can expect additional Chinese investment in Bordeaux and other French regions. This will divert more French product from North American shelves onto Chinese ones and will probably result in modest price increases here at home. This will most likely lead to a small decrease in the North American market share for French wine which should open up opportunities for other producers. And that’s probably good news for Spanish, German and Austrian winemakers.
In the years to come China will continue to change the world of wine and we will continue to bring you our thoughts on how this will affect you. We are stoked at the significant growth in the Chinese wine market and we think this is a very positive trend. So stay tuned because there’ll be more updates on this very dynamic region.
In the meantime what are your thoughts on how China will change the world of wine?
Those who’ve reveled in the streets of Beijing or Shanghai will remember their encounter with baijiu, a strong white liquor that may be called China’s national alcoholic drink. Visitors are often told by old Chinese hands not to sniff the stuff first. It is time-tested counsel, and the disregard of it can easily lead to the drink’s vapors causing the involuntary contraction of the muscles lining the throat. Such a whiff can derail the main event—when the clear liquid passes from mouth to throat with a burning surely only equivalent to that achieved by taking a pull on a bottle of industrial solvent, the watery eyes, the accompanying look of disgust, and the lingering flavor of some petroleum-derived fuel. It’s an acquired taste, as they say.
Fortunately for the palates of intrepid international quaffers, baijiu is not the only potent potable to have a long history in the middle kingdom. The Chinese have for centuries been growers of grapes and, people being what they are, drinkers of the fermented alcohol elixir that arises when those grapes are let to sit too long. And over the last century, Chinese vineyards have been working on their craft to produce wines that can stand on their own against others from around the world.
And in the last decade Chinese winemakers, now numbering some 400 across the country, have seen a boom in business. Demand is coming both from the burgeoning domestic middle class who see wine as a mark of success and elegance and also from foreign drinkers who are interested to try Chinese chateaux. Rising interest led the Chinese government in 2005 to plant more grape plants and provide greater acreage to wine production. That investment is beginning to pay off.
According to the Wine Institute, China made 14.5 million liters of the beverage in 2008, making it the seventh largest producer in the world and far surpassing any other Asian country. In fact, it produced more than Germany, South Africa, and Chile. That number also represented a rise in Chinese investment in the industry, with the country’s annual wine production increasing by almost 24 percent compared to 2004. An industry research group projected that Chinese wine production would increase by some 77 percent from 2011 to 2015, totaling 128 million cases per year by the end of the period.
Sun Hongbo, the general manager of Chateau Changyu, one of the world’s largest producers, said his company alone produces more than 30 million bottles of wine annually.
Some big names in the wine business have been helping the Chinese get up to speed in exchange for a lucrative foothold in the expanding domestic market. To name just one, Chateau Lafite Rothschild partnered in 2009 with a Chinese state-owned firm to grow grapes on 60 acres of land in Shandong Province.
But it almost goes without saying in the wine industry that quantity does not equate to quality. According to UK wine merchant and industry watcher Berry Bros. & Rudd, China is positioning itself not just to take the lead in production but also to compete in the quality category with some of the world’s great viniculture regions.
“China is set to establish itself as a leading producer of volume wine, but Berry believes China also has all the essential ingredients to make fine wine to rival the best of Bordeaux,” the company said in its annual Future of Wine report.
Jasper Morris, a holder of the British Master of Wine qualification, said in the Berry report, “I absolutely think China will be a fine wine player rivaling the best wines from France. It is entirely conceivable that, in such a vast country, there will be pockets of land with a terroir and micro-climate well suited to the production of top quality wines.”
As China’s President Hu Jintao visits the US we thought it’d be a good time to look at the phenomenal new wealth in China and how this translates to luxury goods and our favorite indulgence WINE.
For China’s expanding club of millionaires, luxury goods are no longer the trifles of the foreign bourgeoisie, they are the indicators of a life lived well.
The number of Chinese with accrued wealth totaling at least 10 million yuan is now hovering just below the million-person mark and a large number of them are showing that their parents’ forced frugality is not in their genes. Instead, they are opting for the brands that have defined the good life for many a well-heeled westerner.
Shanghai-based luxury publishing company Hurun Report conducted a poll in 2010 that found China’s wealthy covet familiar names: Louis Vuitton, Cartier, and Gucci. They want to drive Rolls-Royce’s Phantom and wear a Patek Philippe on their wrist. And when it comes to drinks, they’ll shell out thousands for Bordeaux reds and cognacs.
They are young, averaging just 39 years old. Their average wealth is growing faster than their foreign counterparts. They travel and they golf; they send their children to Great Britain for secondary school and to the U.S. for university. They spend an average of 1.9 million yuan a year on luxuries. They each own three cars and 4.4 luxury watches. They are educated about what they want—gone are the days of using a broad brush to paint Chinese luxuries buyers as the nouveau riche.
And there’s no plateau in sight indicating when the appetites of more and more Chinese citizens of means will begin to be appeased. Figures just released by International Wine and Spirit Research show that Chinese consumption of wine increased by 100 percent from 2005 to 2009. The good times are rolling for the new leisure class and they swallowed it down with nearly 96 million cases of wine last year. Reporting on the numbers, decanter.com said the country is expected to be drinking more than 126 million cases a year by 2014.
In Shanghai alone, wine imports increased by 51 percent in 2010 compared to the year before and the value of that imported product was 76 percent higher than the previous year, winechina.com reported.
While the country’s authorities proudly say that 90 percent of all wine consumed in China is produced domestically—a huge potential market pushing the biggest chateaux all over the world to try to gain a toehold by developing partnerships with Chinese vintners—that 10 percent remaining is still big stakes.
“We have an office in Hong Kong and I recently attended a team dinner there,” Gary Boom, with vintner Bordeaux Index, told The Daily Telegraph. “On every table in that restaurant was a bottle of wine. Young Chinese men and women were at the bar having a glass before their meal – 10 years ago they would have been drinking tea. We are selling £100,000 worth of wine a day to China.”
Vice-premier Li Keqiang just returned to Beijing from one of several high-level buying trips Chinese officials are making all over the world. At the same time, the country reported that its foreign exchange reserves had reached an all-time high of $2.85 trillion at the end of 2010—an unprecedented sum burning a hole in China’s pocket—Li’s delegation placed $20 billion in orders for European luxury goods. As just one example of the Chinese elites’ strong affinity for upmarket goods, the group penned a $7.5-billion deal with Spain to purchase, among other things, fine wine, ham, and olives. It seems that the makings for the finest tapas spread outside of San Sebastian will be in Shanghai or Shenzhen.
“The last decade could be characterized by the three words, ‘made in China’,” Gerard Lyons, the chief economist and group head of global research at Standard Chartered, told the Mail & Guardian. “In this next decade it will be ‘owned by China’.”
The headline of China’s national English language daily the Global Times screams, “Fake Wine Stuns Nation” and all we can say is why? China is notorious for food scandals, knock offs and dishonest accounting so why would this surprise anyone? The fact that this is news and is actually being reported is more of a shock than the admission that several of China’s largest wine producers were purposely tainting their wine. We applaud the government for taking action and doing the right thing by bringing this scandal to light.
If China is to be taken seriously in the world of wine it first has to take itself seriously and that means producing a quality, verifiable and transparent wine that meets all normal international standards. Until then they’ll remain a curiosity at best and that is a waste. We had the privilege of spending several weeks in China touring the depth and breadth of the nascent wine industry and in that time we found a lot of passionate and intelligent wine lovers, producers who REALLY cared about delivering a great product, excellent terroir and tremendous promise. To waste this potential would be a shame.
And so as a media group that loves finding new producing regions and as wine lovers who are passionate about making wine a universal pursuit, we really hope that this scandal helps the government, wine industry and most importantly, Chinese consumers to ask more questions and demand a better product. There’s no doubting that China which is world’s 7th largest wine producer and 7th largest wine consumer is the new wave of wine, but what impact they’ll have on the wider world remains a question. We think the middle kingdom could become a great influence and a very positive contributor to the industry we all love so much.
In a funny sort of way a scandal like this, with the right government, industry and consumer response, is exactly what the Chinese wine scene needs to make sure it becomes a truly world class haven for wine lovers. Every region in the world has had growing pains and so here’s to China’s wine industry getting past hers.
We remain big supporters of wine in China and think 2011 should be a seminal year for wine lovers.
As a follow up to our blog yesterday, UK merchants are reporting selling out of Chateau Lafite Rothschild 2008 following the news that the bottles will carry the Chinese symbol for 8 when the wine is bottled next year.
On Tuesday morning UK time, the price of a case of Chateau Lafite Rothschild 2008 was trading at £8,500 on trading platform Liv-ex. By Wednesday lunchtime it had risen to £10,160, a rise of just under 20%.
The message is clear, major European producers understand that the Chinese market represents a huge opportunity. But what we find most exciting as we’ve travelled across China and spent weeks in Hong Kong is that the region is emerging as a hub for production as well. As the years go on China will be a collector, consumer and producer, and that legitimizes the market.
Congrats to Rothschild for getting in early.
As Wine Portfolio’s episode on Wine in China proved there is a large and ever growing market for fine wine in the Middle Kingdom. The rapidly expanding economy, Chinese love for luxury brands, and a new appreciation for wine (especially French wine) make the market attractive for foreign investment. And Chateau Lafite Rothchild has responded in a big way demonstrating that they understand the direction of the global luxury market for the next 20 years.
A spokesperson for Lafite owner Domaines Barons de Rothschild said Chateau Lafite Rothschild’s 2008 bottle is to feature the Chinese symbol for the figure eight in celebration of the First Growth’s new vineyard venture in China. The symbol reflects Lafite ‘s partnership with CTIC, China’s largest state-owned investment company. The company has acquired 25 hectares in a joint venture on the peninsula of Penglai in Shandong province, an area we featured in our Chinese episode that is said to be China’s Bordeaux.
The spokesperson explained the reasoning for adding the auspices figure to their bottles was to, “remind all those who will have the pleasure of drinking these wines in a few years of this exciting undertaking.”
As Jody and the team saw when we visited Penglai, China is an emerging consumer of wine and wants to be an emerging producer. Lafite clearly gets this.