China’s wine market, part I: Tapped out, or just getting started?

Editor’s note: This story is the first in a two-part series on China’s wine market. Read tomorrow's edition for part II. One of the most volatile corners of China’s luxury market is its wine sector, which has seen stratospheric growth and precipitous decline over the past two decades, providing a crucial opportunity and a cautionary tale for winemakers. A decade ago, the mainland China market was irresistible for wineries in search of global expansion — and for good reason. From 2005 to 2017, China’s share of global wine imports surged fourfold, underpinned by an increasing appetite for wine among Chinese consumers, fueled by rising incomes and the allure of wine as a marker of sophistication and status. However, the upward trajectory in per capita wine consumption peaked in 2012, according to some sources, while imports have remained relatively static since 2011. According to IWSR, China’s wine market has seen a significant shift both pre- and post-pandemic, with sales volume dropping by 26% between 2021 and 2022 and a -16% compound annual growth rate (CAGR) for wine sales from 2018 to 2022. This year and in the near term, the wine industry faces continued challenges, although the sector is expected to see a more moderate decrease in sales, with a projected CAGR of approximately -2% extending into 2027. While Meininger’s holds that individual wine consumption has been on a decline in China for the last 12 years, the jury is still out on whether there is any association between wine consumption and import data. According to Edward Ragg MW, co-founder of Dragon Phoenix Wine Consulting, “People wrongly associate a decline in imports with a decline in consumption. I think China for a long time was overstocked with wine, so declining importation doesn’t necessarily mean a decline in consumption.” Ragg adds that accurate data on China’s total wine consumption remains elusive, noting that we can piece together an idea of what enters the country, yet actual consumption is poorly measured. While the pandemic did impact the industry — with wine sales suffering a 47% reduction from 2019 to 2022 — other beverages like spirits and beer saw sales decline 17% and 3%, respectively. Much of this had to do with wine’s primary association with social gatherings in China. As Ragg notes, “Obviously, the pandemic had an effect in this country because as we all know, when most people consume wine in China, they do so in a social context. And that, of course, all disappeared with not many people not drinking much wine at home. They were spending money on health products and other kinds of things.” However, the challenges for China’s wine industry began well before the pandemic and continue to persist in 2024. Part of this can be explained by the backdrop of deeper, structural changes in the People’s Republic of China since Xi Jinping assumed leadership in 2012, including shifts in government policy discouraging lavish consumption and a realignment of consumer preferences towards “quality over quantity” or domestically produced goods. This translates to a wine market that has been scooped out over the past four years, with wine import values remaining relatively stable but consumption (potentially) dropping. This indicates that less enthusiastic or younger wine buyers are cutting back on their drinking or simply opting for other beverages, while premium wine lovers and collectors continue to spend on higher-priced bottles. The Australian experience China’s imposition of tariffs of up to 200% on Australian wine amid a diplomatic dispute between the two countries in 2020 disrupted a bilateral wine trade flow worth approximately $750 million annually at its peak. This paved the way for other wine-producing countries to fill the void and shifts in consumer tastes and preferences. Since 2020, Chinese consumers have shown a growing inclination towards accessible bottles from countries like Chile and South Africa, while imports from wine powerhouse France have remained relatively flat for the past decade. “China’s wine has gotten really, really good” Meanwhile, Chinese consumers are becoming more aware of locally produced wine, specifically from regions like Ningxia, Shandong, Shanxi, and Xinjiang. This reputation has quietly, yet steadily, increased on the world stage as well. This evolution is part of guochao (“national trend”) that favors domestic products over imports, which has gained traction across various sectors but has not yet significantly uplifted domestic wine production, which has been on a decline since its peak in 2013. Part of this comes down to the great expense of building and operating wineries in China. “I don't think people realize how capital-intensive the wine business is, and how a return on investment could be 50 years down the line,” says Ragg. “It is worth remembering that the vineyard area planted [with] wine grapes in China is still very small. Even with the scope with which Ningxia and Shandong are trying to increase their plantings, still looking overall in the country, if they fulfill those targets, the overall planting area won't be much bigger than Bordeaux,” he adds. Export data holds this out. In 2022, China’s wine exports amounted to a relatively paltry $43.1 million, led by Hong Kong ($26 million) and followed by Singapore ($3.7 million) and the United States ($2.24 million). For reference, that same year France exported some $13.1 billion in wine. Although global exports are far from a priority, Chinese wines are attracting more interest on the world stage. In their recent article, “China’s Wine Has Gotten Really, Really Good,” Mike DeSimone and Jeff Jenssen note that China’s domestic wine market has seen a flood of outside investment, with almost 500 wineries now scattered across 12 regions. As DeSimone and Jenssen put it, “the fact that Louis Vuitton-Moët Hennessy, Domaine Baron de Rothschild (D.B.R.) Lafite, and Penfolds are in on the action makes even the most hardened snob sit up and take notice.” According to Ragg, “Some of the most interesting wine [in China] comes from Shangri-La in Yunnan, which I think is a world-class place in particular for its Cabernet and Cabernet blends.” Wine critic and writer Jancis Robinson, in a recent tasting challenge orchestrated by Austrian viticulturist Lenz Moser, noted that although some of the Chinese bottles included in the tasting were less refined compared to their global counterparts, others, like the 2016 vintage of Chateau Changyu Moser XV’s “Purple Air Comes from the East,” demonstrated notable quality. China now produces a wider array of wines that veer off the beaten path of big Cabernets and ganhong (干红, i.e., dry red wine). As Ragg notes, “There’s decent Malbec being produced here and marselan blends that are interesting.” He also observes growing consumption of white wine in certain cities on the eastern seaboard and southern China, and even a rising demand for sweet wine, a category long considered irrelevant in China. Says Ragg, “There are some younger winemakers making inroads here and experimenting. That's pretty exciting. I really feel China can make world-class wine.” Despite growing international recognition, China’s burgeoning premium wine market remains primarily focused on the domestic market, with many of its top-tier offerings destined for the enjoyment of local connoisseurs rather than the international market or the auction block. For many observers, China’s premium wine market suffers from a pricing problem, with some bottles selling for tens of thousands of yuan and dissuading more casual drinkers. “I think one of the things that is unfortunate in the current industry is that the prices of many domestic wines are simply too high,” Ragg says. Ragg sympathizes with frustrated Chinese wine drinkers, agreeing that “Chinese wine doesn't have the best xingjiabi (性价比), it doesn't have the best quality-price ratio.” He adds, “If people are producing wine, if they have sufficient resources behind them and can price sensibly, then the industry might grow meaningfully.”

China’s wine market, part I: Tapped out, or just getting started?

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Published April 04, 2024

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China’s wine market, part I: Tapped out, or just getting started?