Clearly their consumers are growing in their taste for wine. As producers they are now 5th in World Production. Today in their 10 growing regions, there are more than 800 wineries. Seventy percent produce less than 60,000 cases. The largest 6 wineries are responsible for 70% of total Chinese production.
Hong Kong with a serious lust for wine dropped its import duty to 0% about 5 years ago. Since then the volume of wine traded in the region has spiked, and as demand has grown some of that wine has made it into China without the 41% duty required for imported wine to the mainland which is raising eyebrows among the protectionist ruling party.
What else is evolving besides more potential consumers?
- China also has a well-deserved reputation for not protecting trademarks and that extends to wine. A recent article in Decanter estimated that 30% of wine sold in China is not what the label represents it to be. Recently the Government did decide to protect the Napa brand so there is slow progress.
- There is change over in the Leadership of China that is presently underway, leading to a long debate about how the new leaders will balance fiscal policy, protectionism, and personal freedoms.
- Economically the country is seeing a slowdown that is mirroring the rest of the world. Unable to sell to Europe as before, there is more and more discussion about the conversion to moving back from a pure manufacturing economy and transitioning to more of a consumer economy.
- Wine consumption is evolving. After the last decade of using first growth wines for gifting, many of the younger Chinese are developing a taste for the grape and are starting to expand into other countries wines.
- Chinese investors are looking at methods to spread out their wealth and are investing in distribution, plantings and wine producers over the world and in their own backyard as you can see in picture at left where this facility is hoped to be the largest bonded warehouse for wine in the Southwest of China.
When we put the puzzle together of a faltering Europe, a slowly improving US climate, and the continuing evolution in China, what I see is both opportunity and threat. Its an opportunity to begin building wine brands in China with an emerging wine consumer there and potentially a weakening US dollar over time relative to the Chinese currency. At the same time there is a threat from Europe, Chile, and Argentina with wekening currencies. The wine exporting countries want our counsumer and they are supported in that with weaker currencies. China has a weaker currency, but is rapidly strengthening even if its being artificially held back.
|Both a Threat and An Opportunity|
Its the Wild West these days in the Far East. There is opportunity but its buyer beware given the wholesale change in consumers, regulation, the leadership, economy, etc. There is so much upside given the growth in their consumer palates and the size of the populace, but how can you predict anything? In my mind, its time to seriously dip a toe given the shift I see, but its hard to say the water is fine.