Chinese wine sector attracts growing interest
margins of China's burgeoning wine market are beginning to dip
their toe in, writes Anthony Fletcher.
According to the China Daily for example, Hong Kong-based Macro-Link Holdings paid CnY154 million ($18.6 million) for 40.7 million shares in leading wine producer, Tonghua Grape Wine.
This has given it a 29 per cent controlling stake in the Shanghai-listed company.
The acquisition consolidates Macro-Link's involvement in the sector. The group acquired the Yunnan Shangrila Winery three years ago, and has also invested CnY200 million in a vineyard in Shandong province.
Investors such as Macro-Link believe that they are on to something. China's per capita wine consumption of half a litre a year lags still some way behind the average global consumption of 7.5 litres per annum. But wine consumption in China is growing rapidly.
From 1994 to 2000, while global wine output grew by a respectable 6.5 per cent, China's wine consumption increased by an incredible 61.8 per cent. And according to a market survey carried out last year by leading domestic wine producer Changyu, market demand for wine products in China is set to continue to grow by an average of 8 to 10 per cent a year.
The biggest consumers of wine in China in 2003 were people aged between 35 and 44. The age group that drank the least wine was the over-55 age group.
CITIC Guoan Group is another investment company with eyes on the Chinese wine industry. According to www.xinhuanet.com, the company increased its investment in Sun Time International Winery by CnY500 million to expand its shares in the winery by 49 per cent. It has also invested in vineyards in Shandong Province.
China claims to have over 160,000 acres of vineyard, but much is in remote areas, like north of Tibet near Kazakhstan. But, the future for wine making, most believe, is in Shandong Province, which lies, roughly along the same parallel as California's esteemed Napa Valley.
Most domestic wine is produced from domestic grapes blended with cheap imported bulk wine, which in the past has often resulted in low quality wines. But as domestic grape production has increased and wine production techniques have improved, the importation of bulk imports for blending has dramatically decreased.
In addition to capital investments, international wine producers are also looking to export their products to an enthusiastic consumer base. China recently reduced tariffs on wine from 65 per cent to 14 per cent under the WTO agreement, which allows better access to imported wines and foreign suppliers.
This has led to frenetic activity within the wine world. For example, France's largest wine and spirit producer and retailer, Les Grand Chais de France, announced last month that it plans to sell its range of J. P. Chenet products in China.
These foreign imports, along with growing investment in domestic production, have given the Chinese wine market an air of sophistication. There more foreign wine imports available in restaurants and shops, and the variety and quality of domestic wines has improved.
Price is a major consideration to most Chinese, and imported wine is out of reach to most consumers. A domestic bottle of wine may retail for as little as $3 while imported wine is generally $10 to $20 a bottle or more.
According to a Datamonitor report Wine in China: a market analysis, the influence of western eating and drinking habits, along with rising incomes, have been the keys to market growth.
Wine therefore looks well placed to consolidate its position as the current fashionable drink for China's metropolitan wealthy young elite - something that both investors and wine exports should note.
