Thursday, June 7, 2012

Ping-Pong Socialism and Wine

Most people who have a little gray hair remember when the Chinese were really Communists, living behind a wall and carrying little red books. You can debate what they are now if you like, but nobody will argue China is the same as it was in 1971. That's when Former President Nixon's Ping-Pong Diplomacy forever opened the world to the Chinese and their people, and their people to the world. Interestingly, if you ask a person on the street in Beijing about that event, they point to America's sponsorship of China in the world as being a galvanizing point for their country. They are grateful for our part and even teach about our impact in their history classes as I was told by two young women I met there while traveling.

On the other hand, that event for Americans is a dimming part of history made even murkier by sentiment about the circumstances surrounding President Nixon's departure from office. Forty years later, most Americans still wonder who is the Chinese consumer, and for wine producers: Is there a market for US wine in China?

That's why about 4 years ago I jumped at a chance to join the Napa Vintners Association in an Asia Trade Mission where we spent time in Hong Kong, China, and Japan. As is often the case, when you put a face on any preconceived ideas and meet the people, you will come away with a changed view and I was certainly changed. That trip is memorialized in the photo above. I'm pouring wine, standing-in for a vintner in a trade event held just outside the Forbidden Palace. The funny look on my face is because someone wanted a picture with me. They were shouting, "Mr. Viader, look this way!" They understood about as much of the US Fine Wine Industry as I understood about them. (The other story was when I was in Tokyo I wore a badge at a consumer event that said I was Robert Mondavi ...... but that's a story for another Blog.)

China is a unique mix of Socialism and Capitalism, so it was with great interest that I read a Bloomberg article today that focused on a drop in their interest rates. More interesting to me from a social perspective - the Banks in China are now being given latitude in their very controlled banking system, to make choices about the rates they charge and offer customers. That is a very big deal to see and it's another move away from strict government control. Why the actions? Probably many reasons, but a look at the chart above shows one of the main ones: The Chinese economy is cooling off. Europe is sneezing and the world is catching a cold including the Chinese. The actions go to stimulus in their economy, and the wider latitude allows more drilled down regional targeting of economic need.

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. It's 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 with a weakening currency and declining per capita consumption.

I don't think we will see much change in exports from the US Fine wine producers to China in the intermediate-term. Why? Because while we are interested in the Chinese, we are preoccupied with our own markets. We sell all our own wine here and with a looming grape shortage, we aren't going to notice the increasing imports from the EU. But what happens 7-12 years from now when supply catches up with domestic demand? Will US producers just be slaves to our own market, or will they emerge from behind our own walled-off thinking with a world view and be ready to move US Fine Wine into the mainstream of world consumption?

Think of him how you will, but President Nixon had a long view of the Chinese market and the opportunity that a capitalistic China brought to the world. Do we as US producers of fine wine share that world view 40 years later, or do we remain behind a wall of our own?

I never answered my own question: Is there a market for US Fine Wine in China?

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