Will China’s wine market bounce back?

Australian wine educator and critic Jeremy Oliver presented his latest opinion on the future of wine in China.

 

 

Red Obsession, the fascinating documentary that opened the eyes of many in the west to the thirst for wine in the east, is little more than a memory in real life. China, as it habitually does, has moved on. And on.

Much has been written of the central Government’s campaign to put an end to governmental excess and over-indulgence as part of its deep commitment to reduce levels of corruption at all levels. The government-based wine market, which includes the huge influences of State-Owned Enterprises (SOEs) and their previous ability to purchase wine and wineries in a fashion never previously seen on this planet, has been smashed.

Furthermore, the private market, not willing to be seen to be flaunting such a strong stance from central Government, has followed suit. It has been a bad year to be engaged in wine importing and distribution in China. A small financial loss over the last financial year can actually be seen as a massive win.

For several reasons I find myself totally behind the approach taken by the Chinese Government. Here is a Government seeking to ready China for a more even level of engagement with the western world that has recognised that its key business instrumentalities need to adopt practices more closely aligned with those with whom they will seek to do business around the world.

It is perfectly reasonable for Government to take a hard line towards its own organisations that are neither meeting world standards of practice nor whose management have been able to conduct themselves without the controls and expectations of similar entities in other places.

From a wine drinking perspective, credit is due to James Gosper, the outgoing General Manager Market Development at Wine Australia, for being the first to say to me that the recent changes in approach by the Chinese government has meant that the Chinese people who want to drink wine are less likely to be given it, and will have to buy it instead. In other words, Chinese wine drinkers will become more like wine drinkers in the rest of the world, and the Chinese black hole, into which so much wine has disappeared seemingly without trace over the last decade and more, will then begin to disappear itself.

This is good news for all involved in the legitimate wine industry in China, for it means that like those elsewhere, Chinese wine drinkers will need to focus more on brands they trust plus prices they believe are fair and real.
The whirlwind that is the Chinese wine market is rapidly becoming closer to ours. Initially wine was brought and paraded in China for face. The more expensive the price, the better, regardless of whether anyone drinking it with knew how to or could appreciate it.

Next, once the world took its wine to China in a fashion not entirely unlike the Old Testament God who took rain to Judea, Chinese wine drinkers became focused on the other end of the pricing scale. How good could a wine look and taste, and how prestigious could its reputation be, but for a minimal cost? There must be thousands of Chinese warehouses still filled with poor, faulty, badly packaged and cellared wine that is now even worse to drink than on the day it was bottled.

It’s all changed again. Some 618,000,000 Chinese people are now online. More than 70% of these people check out a product online – meaning its price and story – before deciding to buy it. So it’s a matter of time before the deluge of custom-made wine labels for companies and SOEs, copycat brands (of which there are hundreds) and genuine brands sold for many times their true world price in China dries up into a trickle.

Again, this is good for everyone involved in the legitimate wine business, because the most important factors in determining which wines are bought in China will become quality, reputation, narrative and price – the very things the rest of us base our purchasing decisions upon.

So what is the future of wine in China? As I have described, the industry is becoming more and more international by the month. The Wild West still probably has some years to run – especially in the country’s west and interior, before China quickly catches up in terms of sophistication and expectation.

Secondly, I wouldn’t under-estimate the ability of Chinese people to evolve new avenues and means by which they can exist within central Government’s new coda, but in a way that will facilitate the sales of more wine.

Thirdly, I expect that central Government, once it has satisfied itself that the core issues behind its crackdown have been dealt with, will gradually relax its view towards wine. Wine is indeed viewed by central Government as being of significant comparative health benefit when compared to the traditional Chinese ‘white wine’ or baiju (white spirit), and again I would have to agree entirely with this view. So I believe that before too long, there will again be some encouragement for Chinese people to move from one alcoholic beverage to the other.

Finally, China’s own wine industry is becoming steadily more important across several strata of Chinese life. It is seen as a profitable and stable form of agriculture that is able to respect and conserve its land. Wine is seen as a significant internal tourism and cultural asset, and in some provinces is expected (and in several I believe falsely) to become a pillar of the regional economy.

It is important for Chinese people to be able to show, share and export good quality Chinese wine. There is a lot of pride and face at stake. These are key drivers behind decision-making processes in China.

So I believe the Chinese wine market will steadily restore itself. It might yet take another 12-18 months, and you can be sure it will not come back in exactly the same way. The market will be more sophisticated, less closed, more brand and price-aware and more choosy. All of which is excellent news for Australia, given this country’s proven ability to create fine brands, keep their prices realistic and tell great stories around them.

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