A French Bordeaux…an Oregon Pinot…an Argentinean Malbec…a Chinese Merlot?
When you think of top wine producing and consuming nations, you think of France, Italy, the United States, etc. European history is steeped in wine, as is the United States, South America, and Africa in more recent history. However, due to its incredible economic boom within the past few decades, China is now looking to be the next “big boy” in the wine business, and could potentially dominate the industry as it has for so many other industries.
This week wraps up with an article looking at business and marketing strategies of the new economic giant, China, and how it has come to be at the forefront of wine production and exporting, with predictions on how the world of wine as we know it will or will not change.
As a result of China’s booming economy, the demand for wine has increased, thus giving wine producers in other countries access to a new market that was not there before, and they are exporting more than ever. With a population of over 1.3 billion people (in 2009), and a 4th in the world GDP ranking (in 2009), wine sales in China have increase significantly. Not only have sales of imported wine gone up significantly, but wine and grape production in China has also significantly increased. Therefore, the question arises: will China rely mostly on imported wines from other countries to satisfy their consumer needs; or, will domestic production increase to a point where there is no demand for foreign wines, and they export more to dominate the world wine market?
Grape and Wine Production
Grapes are not a new agricultural crop in China. They’ve been growing in the region for thousands of years, though wine production was next to nothing prior to the formation of the People’s Republic of China. Once China’s economy took hold and started to grow rapidly, grape production also began to increase (though it is still behind the consumer demand for wine). Several varieties of grapes are currently grown in China. For whites, Chardonnay, Italian Riesling, Ugni blanc, Chenin blanc, Gewurztraminer, Sauvignon blanc, Semillon, white Riesling, and Rkatsiteli are grown. For reds, Cabernet Sauvignon, Cabernet franc, Merlot, French blue, Muscat, Hamburg, Pinot Noir, Syrah, Carignan, and Saperavi are grown. Unlike a lot of other places in the world, China does not seem to have any phylloxera pest issues, which makes growing grapes successfully and to full ripeness much easier than in other places in the world.
In 2005, Chinese vineyards produced 487 million liters of wine from 1,150 thousand acres of grape vines, which exceeded the production of Australia, Chile, and South Africa combined! Total vineyard acreage in China has grown over 113% between 2004-2009, which makes it the fastest grape growing country in the world. In China, grapes are now the 5th most produced fruit in the country. Even though this growth is impressive, per capita production of wine is still relatively low. Therefore, China still relies heavily on imports, though if growth continues the way it has, that all may very well change. Even so, China is the world’s fastest growing wine producer, backed by government campaigns urging the Chinese consumers to switch from rice wines to grape wines, in order to preserve the nation’s supply of rice for food production.
How much wine do the Chinese drink compared to the rest of the world?
As a result of the rapidly growing economy in China, more and more Chinese citizens are choosing to drink wine on a regular basis. Wine consumption in China has been increasing by about 10% or more per year during this economic boom. Chinese people are used to drinking spirits distilled from sorghum and maize (corn), but consuming a variety of alcoholic beverages (including wine) is the new trend for the Chinese culture. By 2006, China made up about 6% of the total world wine market (in consumption), compared to 11% by the United States. That statistic shows how quickly China is catching up to the Western world regarding the consumption of wine.
One place where China is currently lagging is in per capita consumption. This is likely due to the fact that there are significantly more people in China to divide all of the wine between, however, the fact of the matter is this value is still at a low point, though is likely to increase dramatically in the coming years. For example, in 2009, per capita consumption of wine in China was a mere 1.12 liters, compared to 54 liters per capital in France, and 49 liters per capita in Italy. This leaves a lot of room for increasing consumption, but based on the current growth patterns in China, it is likely to occur.
To Import, Export, or Produce One’s Own…
At this point in time, the demand for wine in China is far greater than the supply of Chinese wine in the domestic market. The question remains: will foreign exports dominate the wine supply in China? Or will the domestic market grow to satiate that need, and potentially export to become a dominate player in the world wine industry? It’s all well and good for foreign importers at the moment. They are making a lot of money off of Chinese citizens demanding their wines. What’s going to happen when the grape and wine production of China grows enough to alleviate the need for foreign imports?
Some advantages China has over the rest of the world in regards to wine production (and most other products, for that matter) are their low-cost skilled employees, huge agricultural land holdings, and huge financial reserves, which make for an overall low cost of production, and ultimately low sticker price on the store shelves. China has equipped themselves with the best technology available, and have the marketing and business skills necessary to become a world leader in wine production.
For example the Longhai International Trading Company, Ltd, a Chinese real estate group, in 2009 acquired Château Latour Languens, which is a vineyard/winery in Bordeaux, France that produces upwards of 160,000 bottles per year from 30 hectares of vines. The main reason for this purchase was to master the techniques of wine making in France, and to become a legitimate wine trader.
As China becomes more serious about the wine industry and moves further away from “half-juice” wines, companies such as ChangYu are moving up in price point, focusing more on mid- to high-end wines. In 2001, the company joined with Castel, a well-known French wine group, to further prove how serious they are about the world wine industry. In 2006, the company joined forces with the Canadian Aurora Ice Wine Company, which were successful in planting 300 hectares of ice grape vines in China. The ChangYu company also created a chateau in New Zealand (ChangYu Kely Estate of New Zealand), collaborating with the Karikari Estate of New Zealand to build a wine distribution network at 100 golf courses throughout China. The wines produced by this company currently target foreigners, which therefore already shows how powerful a competitor China is and will become in the world wine market.
In 2007, ChangYu was ranked 10th in the world wine industry with sales revenue of $695 million USD. This marked the first time in history that an Asia winery was listed as a Top 10 winery in the world. Not only does China have some award-winning wines, but also have the cheap labor and low production costs to inundate the world with Chinese wines. In May of this year, their 2009 Bordeaux-style blend (named Jia Beilan) made by the winery, Helan Qingxue, took home the top prize for the Middle East/Far East/Asia category for red wines over 10 pounds. Though this competition wasn’t exactly The Judgment of Paris, shows how Chinese wines are starting to become higher in quality compared to wines throughout the rest of the world.
Will everything be “Made in China?”
So what happens when you have mid- to high-quality wines at the low low prices that China can produce? Will it cost so much less for stores to carry them that they feature primarily Chinese made wines? Will Bordeaux and Burgundy be a thing of the past? I predict that China will become a major player in the world wine industry, much like the Yellow Tails and Penguins of Australia have become, however, with quality consistently high and the history rich, I don’t see French, Italian, American, or other European wine producers going out of business any time soon.
What do you all think? Please leave your comments below. I’d love to hear what you have to say!
The full citation for the article used for reference during this discussion:
Mitry, D.J., Smith, D.E., and Jenster, P.V. 2009. China’s role in global competition in the wine industry: A new contestant and future trends. International Journal of Wine Research 1: 19-25.
I am not a health professional, nor do I pretend to be. Please consult your doctor before altering your alcohol consumption habits. Do not consume alcohol if you are under the age of 21. Do not drink and drive. Enjoy responsibly!