Sauvignon blanc in China Low-key now but the potential to shine in the future

By Pedro Ballesteros MW , Jan 2016
China is known as a red wine country. White wines account for less than one fifth of red wine consumption. Theoretically, therefore, there is not much to say about Sauvignon blanc. However, China is a huge country with one common trait: despite its diversity, alcoholic beverages have long been at the very heart of its food culture and food is extremely important to the Chinese. Indeed, China is probably the country with the longest documented culinary history in the world, though maybe the statement should be taken with a pinch of salt as the Chinese, like the Greeks, tend to claim that anything good was invented by their ancestors a few millennia ago!

The significance of food, though, makes research into Sauvignon blanc in China a worthwhile endeavour and one which may throw up some pointers as to its prospects for the future.

Wine fits within a strategic framework

For some reason, there are some strange perceptions in the Western world about China’s wine scene. Many people believe in a stereotype whereby China is a consumer country that used to import huge volumes of real and fake Bordeaux wines at extravagant prices, until President Xi launched a witch-hunt to tackle corruption. Others, slightly more informed, are aware that China produces a lot of wine, but tend to think that Chinese wine is as cheap and low quality as Chinese garments or plastic toys.
Both assumptions are quite far from the reality. Firstly, China imports less than 20% of its wine consumption. Having produced 153.5 million 9-litre cases in 2012, the country is indeed the world’s fifth producer of wine. It overtook Argentina in 2010 and is expected to outstrip the USA by 2017. At which time, only the three leading producers that are France, Italy and Spain will be producing more wine than China, and nobody knows for how long…Only 10 years ago, China was insignificant in terms of wine production.
This incredible growth is by no means a reaction to demand, but a deliberate policy with long-term goals. It is worth insisting on the fact that China is not a free market society. It is, in its leaders’ words, a “socialist market economy”. As such, most market developments are intentional with a top-down perspective. In most cases, a new market responds to a strategic economic development plan. This is particularly true for agriculture, including vineyards. Wine production and wineries are also the consequence of long-term government planning.

Similarly, the wine industry is an instrument of economic development. As mentioned by anthropologist Björn Kjellgren, the recent huge investments in Ningxia and Xinjiang are intended to iron out some of the economic disparities between the affluent eastern provinces and China’s underdeveloped western inland areas. China’s old wineries are all situated in the north-eastern part of the country, but with preferential policies, promises of cheap labour and low taxes, labour-intensive
wineries are now being set up in Xinjiang and Yunnan, lending credence to the fact that politics are as important as climate in this business.

A planned wine economy

China is, to the best of my knowledge, the only country on Earth that can precisely pinpoint the date at which its wine market started. In 1978, the country changed its economic system. In the early 1980s, national wine standards were set up. In 1987, the National work meeting for alcoholic beverages, a planning body for the industry, scheduled four forthcoming changes, including the shift from distilled drinks to non-distilled, and the transition from grain-based to fruit-based drinks. The official blessing came in 1996, when the then Premier Li Peng went public with the same message during the Spring Festival celebrations, toasting with wine, as all Chinese leaders would do from that point onwards. There should be no doubt that the party-state rather than the industry or consumers decided that China would become a wine-drinking nation.

Chinese wine policy is formed of three elements components. Firstly, nature. Vineyards are the most intensive agricultural crop in terms of profit and job creation. Also, they can be planted on land of little interest for grain crops because of low soil fertility required. Vineyards are indeed not only a vector for economic development but also a much better alternative to beer and grain spirits, both for food policy and for land management.
Secondly, wine is prestigious. The Party uses wine to convey a positive image of the country, mirroring its accession to the world’s elite. Recent, institutionally sponsored academic efforts to demonstrate that wine has been produced and drunk in China for more than 6000 years, are indicative of this trend. Wine’s Chinese-ness is an important aspect of wine policy.

In third place, wine is intended to be developed just like any other commodity. Wine imports are considered a necessary evil, soon to be more than compensated for by wine exports. The original export industry plans to use Chinese restaurants abroad as global emissaries for Chinese wine have somewhat lost steam, for reasons we will see below. The trend now is to concentrate on sheer quality and press and public relations, sometimes using slightly clumsy tactics, but always with a clear determination to put China at the vanguard of the world’s wine producers. This strategy is structured around international wine competitions focusing on Chinese winners, regular visits by prestigious wine critics and a variety of other marketing gimmicks. There are also impressive investment efforts in highly visible vineyards and wineries, resulting in wines with a similarly impressive price tag.

Sauvignon hampered by technical and economic factors

White grape varieties account for more or less 5% of the area under vine; the percentage is much higher if table grapes are included. According to the renowned expert Zhu Li, the four most planted white grape varieties in China are, in this order, Chardonnay, Italian Riesling, Muscat of Hamburg and Longyuan (Dragon’s Eye). According to the University of Adelaide’s statistics, reportedly only one hectare of
Sauvignon was planted in 2010. My impression is that the real figure is higher, because I have been told about small vineyards in Shandong and Xinjiang. Whatever the true figure, there is no denying that production of Sauvignon blanc is virtually non existent in China.
There are technical and economic reasons behind Sauvignon’s irrelevance on the domestic wine production scene. The most important wine region in China is the province of Shandong. It is here that Zhang Bishi created in 1892 what is now the largest winery in the world, Changyu. At the time, he introduced more than 30 grape varieties from Europe, including Sauvignon Blanc. But Sauvignon was poorly suited to the climate here, with over 1300 mm of rainfall per year, most of it during the growing season, resulting in high incidence of botrytis and mildew. Also, soils tend to be quite sandy, and until recently there was little expertise for growing the variety. Consequently, the small amounts of Sauvignon produced in China used to be quite green, with infamous cat’s pee aromas. It was soon abandoned.
The economic reasons are related to a fact that is unique to China: the wine industry generates the highest profit margins in the drinks sector. A bottle of decent Chinese-grown table wine today comes at almost prohibitive prices (in purchasing parity terms), much higher than ordinary grain-based spirits and usually about twenty times the price of beer. Margins are achieved at the expense of diversity. Production is concentrated on Cabernet-based wines. Cabernet vines give reliable yields and are well known by producers. There is not yet the motivation to test other varieties.

Is the growth of sparkling wines a good harbinger for Sauvignon?

However, the Chinese market develops quickly. For instance, only two years ago, China was considered a desperate case for sparkling wines. Many assumed that the austerity policy signalled the end of the market. Contrary to expectations, sales of sparkling wines in fact rose by 60% by volume and 27% by value in 2014. Spanish cava was the driver of growth, increasing its sales by 170% in just a year, at relatively cheap prices. Now a group of Chinese producers is starting to switch over to sparkling wine. Watch this space: it seems highly likely that in 3 years’ time, China will be a prominent producer of sparkling wines.
Nobody can therefore say now that white wines will not be a major item in the medium term. The myths about Chinese people being superstitious about the colour white seems more like a joke than a serious statement. Legend has it that the colour white in China is linked to death, whilst red is related to joy. This is true, but it has nothing to do with wine. In actual fact, in the last century, the Chinese wine industry tried for over 15 years to shift people’s attention from white to red wine. The biggest challenge facing vintners in contemporary China is baijiu, a distilled grain spirit whose name means ‘white wine’.
Last but by no means least, China is the most concentrated wine market in the world. Five companies control 70% of the market. They coexist rather than compete with each other. All of them are state-owned. There are different companies because they have established technical cooperation agreements with different Western companies. In some cases, they are the instruments for regional development policies, but they
have absolute power in the marketplace. Nothing moves unless they say so. As they do not produce Sauvignon, they do not promote its sales.
To complete the picture, in China all land belongs to the State. Private players lease the land for relatively long periods, and trade those leases, under scrutiny by the State. Little room is left for free spirits dreaming of planting Sauvignon….
The key barrier to greater penetration of Sauvignon blanc in China is the lack of Sauvignon vineyards in the country. They will not be planted until the following conditions are met:

  • Greater market maturity, calling for more diversity
  • Price competition with smaller profit margins
  • Development of technical abilities for growing the variety in the most appropriate regions

 

Barriers to white wine penetration across China

With consumption of 155.41 million 9-litre cases of red wine, equivalent to 1.865 billion bottles in 2013, up 136% compared to 2008, China including Hong Kong now dominates the global market for red wine, followed by France, now in second place with nearly 150 million cases and Italy with 141 million.
China reached the top position in record-breaking time, with an exclusive focus on red wine: according to Vinexpo, between 2008 and 2013, Chinese red wine consumption soared by 175.4%. White wine, including Sauvignon, did not follow the same trend. There are a number of possible reasons for this.
Despite the levelling effect of the government system, China is not a homogeneous wine market. There is a great difference between wine markets in first tier cities in the East – Shanghai, Beijing, Shenzhen – second tier cities in the centre and the rest of the country.
Shanghai is a metropolis with the most sophisticated consumption patterns, where top quality Sauvignon is relatively easy to find in many wine bars. It is also quite prominent in supermarkets. Most Sauvignon consumption occurs in first tier cities.
However, in most cities inland, Sauvignon faces a problem common to all white wines: most restaurants do not chill drinks. While a beer at room temperature is not very enjoyable for most Western people, it is still drinkable, whereas warm Sauvignon is quite unpalatable, to put it mildly. This problem, compounded by lack of wine drinking experience, is a great barrier to the penetration of white wines.
In first tier cities, Sauvignon is quite fashionable, probably because of the marketing efforts of leading companies such as Villa Maria from New Zealand. Charlotte Read, Villa Maria manager for China, claims that almost 70% of their sales are Sauvignon blanc. She believes people buy her wines based on the brand rather than the grape variety. She is quite optimistic that their efforts will overcome the powerful mindset focused on red Bordeaux.
Wine education is a crucial issue in accelerating market maturity. This is advancing fast. China is the first country in the world in terms of WSET students. Charlotte cites her education programme in hotels and restaurants as a key to her success with Sauvignon, as well as the firm’s communication strategy via Weibo, China’s version of Twitter. Most Villa Maria consumers are middle-class and affluent young people, aged 25 to 40 who are interested in understanding about the quality of wine.

Food and wine pairings lack relevance to the Chinese

Most people living in the country, and most Chinese people, agree on one point: wine and food pairing is not very relevant to increasing wine consumption, even less so for white wines. China’s culinary culture is by no means inferior to Western culture. Western insistence on matching food with wine sometimes seems a bit pointless. Alcoholic beverages are shared through toasting (gan bei) rather than enjoyed at serious tastings. Wines, as well as bai jiu, are appreciated as status gifting or sharing, more than for their taste profiles.
Besides, Chinese meals are simultaneous, while their Western counterparts are sequential. Westerners eat one dish after another, trying to look for harmony in each dish whereas the Chinese are served as many as 30 dishes at the same time, and are supposed to act politely by trying all of them. Contrast is as much of a pleasure for them as harmony is for Europeans. However, their culinary approach excludes any food & wine pairing. Finally, large tasting glasses are quite inappropriate for gan pei, while more than one wine for a meal is considered unnecessary. As red wine is unavoidable, white wine is therefore in a challenging position. Sauvignon blanc would thus seem to be more a wine for socialising and for aperitifs than for the table.
A few years ago, Sauternes producers launched a campaign demonstrating how well their wines matched some Chinese delicacies. It worked well with some dishes, but not at all with an entire Chinese meal. Indeed, no wine can pair with a complete Chinese banquet. This, together with the comparatively high price of Sauternes, would seem to be the major barrier for these wines in the Chinese market.
The myth that sweet wines are not enjoyed by Chinese people is not borne out by the facts. China is for instance one of the key world markets for Canadian ice wine and is becoming a large producer of this kind of wine itself. The reason for the style’s success is social. The Chinese are the largest minority in Canada, where almost 1.5 million Chinese people live. Many of them came into contact with ice wine, and developed confidence in this kind of wine. It was particularly easy to export such wines to mainland China, since the trust factor was already there.

Active support needed from the major market players

Caves Maître, one of the main importers in the Chinese market, is undertaking efforts to popularise Sauvignon blanc. Daniel Li and Ezequiel Franco market two branded wine ranges, a Master Sommelier series and a Wines of the World, which include Sauvignon blanc from the Loire and New Zealand, respectively. They claim successful results in first tier markets, while penetration in inland markets is
advancing more slowly. Oaked styles are less relevant for them, even though the Bordeaux name attached to some of the wines should be a clear advantage. Sauvignon is broadly considered as a fashionable wine, quite distinctive, indicative of a certain lifestyle. This is key to its future.
In China, the market is slowly transitioning toward drinking rather than gifting or investing, as more people discover wine and existing drinkers develop personal preferences and more self-confidence. Sauvignon can only progress in such a market. However such progression is not natural, it needs the active support of the major market players. They feature three characteristics that make them unavoidable in the foreseeable future.
The three top players, Changyu, Great Wall and Tonghua, produce 49.2% of the wine in China. The main producers follow vertical integration strategies – they own vineyards, wineries and distribution. Changyu, Great Wall, Tonghua and Dynasty have more than 50% of the total market, a unique degree of concentration. To complete this picture of total domination, the firms enjoy unheard of customer loyalty: repeat purchases for Changyu are 56,7%, for Great Wall 72.6% and for Dynasty 56.3%.
By way of a conclusion, the future of Sauvignon blanc, just like the future of any wine, is entirely dependent on the decisions of a reduced number of players, who ultimately follow government instructions. China is an extremely interesting place to follow, a very prominent business hub, a country with a huge potential for producing wines of great quality and variety, but it is not a wine market with common market rules. Most economic theories about supply and demand come up against the relentless practice of political power. Sauvignon’s prosperity in China will be decided by politicians rather than by the business community. Let’s hope they like it….