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Wine in China: Future Market for U.S. Labels?

peopleWestern-style wines are a new product in China and, at this time, still considered a luxury. Wine connoisseurs remain scarce, and a public that yearns for Western products could provide fertile ground for U.S. wine promoters determined to educate future customers.

The average wine consumer in China is between 20 and 35 years old, relatively affluent and lives in an urban area.

Chinese consumers don't necessarily serve wine in the traditional way. Iced red wine is popular--white wine is often mixed with colas and red with lemon/lime sodas.

Regardless of differing ways of appreciating the product, domestic wine output in 1997 is on the rise, projected at 4.5 million hectoliters (hl.), up 50 percent from 3 million hl. in 1996. The future bodes well for Chinese vintners, who predict a yearly production of 26 million hl. by 2007. To accomplish this tremendous volume increase, producers would need to increase the current 163,000 hectares under grape cultivation to over 1 million hectares. Therein lies a potential opportunity for U.S. exporters.

Imports Rising Despite Tariffs

Beijing, Shanghai, Tianjin and Guangzhou report that imported wines have increased several-fold in the past few years. U.S. wine exports to China rose from just under $200,000 in 1995 to over $1.2 million in 1996, an increase exceeding 500 percent.

But there is a lot more room for growth. In China, per capita consumption of grape wine is 0.3 liter per year, compared to a world average of seven liters (24 liters in western Europe).

But the news isn't all good for foreign growers. Import tariffs and other taxes boost the price of wine about 120 percent. The cheapest import wine costs about $3 a bottle in Beijing. Imports have trouble competing with popular domestic wines such as Zhang Yu, a white selling for $1.20 per bottle. Other local beverages can be even cheaper; a bottle of Erguotou rice liquor retails for about $0.70.

Besides tariffs, U.S. wines face non-tariff barriers, import restrictions, government monopolies, currency restrictions and strict labeling requirements.

As with many luxury foreign items in China, there is widespread unofficial entry of wines into the country. Exporters also need to be aware of how easily knockoffs of their branded items can be produced and sold.

A further worry for importers-- rumors persist that the Chinese government, looking to protect its weak domestic producers, plans to impose quotas on imports soon.

The fledgling Chinese wine sector now has only 130 wineries, eight of them joint ventures. Only 20 of these wineries make more than 100,000 hl. of product per year.

A Point About Joint Ventures

Some foreign wineries see the joint venture method as the best way to compete in the Chinese wine marketplace. Bernard Taillan, France's second biggest wine group, has developed plans to sell its wines in the China marketplace and also to invest in a joint venture with Beijing Agriculture, Industry and Commerce United General Corporation.

Following an initial investment of $16 million, the French vintner and its Chinese partner are planting 30 hectares of grapes in suburban Beijing in the Fang Shan District. The first harvest is expected in 2000 by which time they plan to expand to 1,000 hectares.

Not content to wait 3 years for profits to roll in, the venture has already set up a factory in Beijing to bottle juice imported from France. With sales now at 500,000 bottles a year, production is expected to reach 3 million to 4 million bottles within 3 years.

Keep an Eye to Government Policy

China's government tends to support the domestic production of alcoholic beverages processed from food products that are not needed to feed its population. Consequently, depending on the success of its agricultural sector over the years, favored products have waxed and waned.

U.S. wine exporters wanting to enter this market should be aware of some unexpected consequences from this government manipulation of beverage production.

Whatever the drink favored by government policy, the Chinese people have demanded and received well-priced, high-quality varieties, with alcohol content adjusted to popular taste.

The author is an agricultural assistant with the Foreign Agricultural Service's Agricultural Trade Office in Shanghai, China. Tel. (011-86-21) 6279-8622; Fax (011-86-21) 6279-8336. E-mail: atos@public.sta.net.cn