China's Wine Revolution

Wine Spectator by Mark Grahma
China has been in the news recently for its growing impact on the global economy. But little has been written about its rapidly evolving wine culture. Now we give you a unique perspective on a fascinating development in the world's most populous country.

At present, Chinese are making wine for and selling and serving it to an increasing number of Chinese wine lovers. It's still a small market, but recent growth has been dynamic.
Wine has actually been made in China for centuries, but efforts to produce Western-style wine only debuted in the 1980s.

Amazingly, there are reportedly more than 400 wineries in China today, and many are attempting to follow a Western model. Results so far are mixed, but clearly the potential is there.

Just as significant is the evolution of wine culture in China. Newly prosperous professionals in dynamic cities such as Hong Kong, Shanghai and Beijing are adopting wine especially high-end imported wines as a symbol of success. Luxury hotels, ambitious restaurants and expanding wine lists testify to the growing importance of wine in the Chinese lifestyle.

In 1983, China was a different place, and people thought Michael Parry was crazy. An English who owned a wine importing business and two wine bars in Hong Kong, Parry became convinced that mainland China could produce premium wines. He decided that the Shandong peninsula, outside Qingdao (the city famous for its green-bottle beer, Tsingtao), had the terroir to make stylish whites. He was met with baffled expressions from Qingdao city officials, but he persevered, eventually securing permission to build a chateaulike complex there, 300 miles southeast of Beijing. He named it Huadong, or Magnificent East.
"I always wanted to make wine," Parry told Wine Spectator in 1987. "You get caught up in the romanticism and then you find out later that things are not that easily done." Parry had to deal with the bureaucracy of the Chinese government, poorly trained workers, and grape farmers who did not understand why this insane Westerner wanted them to reduce yields in their vineyards.

Things quickly went from bad to worse. Parry imported vines from Europe, but a typhoon destroyed most of his plantings a year later. Still, he managed to produce 1,000 cases of Chardonnay in 1987. And by the time Parry died from cancer in 1991, his estate was known for its Chardonnays and Rieslings. His ashes were scattered over his vineyards.

Today, Parry's dream has blossomed. Huadong, situated under the gloriously named Nine Dragon Hill and now jointly owned by foreign investors and a state-owned firm, is currently undergoing expansion in anticipation of boom times ahead. Last year, it produced 350,000 cases,three-and-a-half times what it was making just a decade ago.

Actress Maggie Cheung was signed on for an ad campaign with Suntime Winery, which makes wine in the far reaches of the Gobi Desert

Throughout China, winemaking is still in its tricky adolescence. The booming economy and changing Chinese tastes have rapidly increased the demand for local wines. Today, there are an estimated 400 wineries in China, though the numbers are unreliable, and only 100 at most are serious producers of grape-based wine. Most Chinese wine is produced by state-owned corporations that value volume far more than quality. Still, a handful of quality producers like Huadong are trying to change that outlook. And as the Chinese learn more about wine and begin looking for better bottles, Chinese wine may enter maturity.

The Chinese were making wine by 212 B.C., according to archaeological evidence, and commercial wineries have existed since the end of the 19th century. But it wasn't until the economy opened up in the 1980s that serious production began. Early wineries were joint ventures between foreign wine corporations, including Remy Cointreau and Seagram, and state-owned companies. The foreign partners brought European vine cuttings and modem equipment into the country.

Today, Remy still owns 24 percent of large producer Dynasty Wines, but the Chinese are increasingly taking the lead at their wineries. In 1987, Frenchman Pierre Delair took charge of winemaking at Dynasty, leaving that post in 1998. Since then, winemaking has been supervised by Wang Shusheng, who has been at Dynasty since 1991 and has worked in wine production for two decades. Production has grown from approximately 3,000 cases in 1980 to 3.3 million cases last year.
Parry probably would have approved of the current energetic leadership at his Huadong. The vice general manager there today, Liu Hong Mei, received her MBA from Cardiff University in Wales, while winemaker Gloria Xia learned her craft from a succession of Aussie consultants brought in at crush time.
"Huadong is not the biggest winery, but I think it is the best, because of the quality," says Liu. "A lot of the wineries have no grape base, they import wine from overseas and then bottle it. Our selling point is quality, that our wine is a high-class product."

The other high-end producers tend to be based on dreams similar to Parry's. Grace Vineyard, generally agreed to be the home of China's best reds, was founded in 1997 by C.K. Chan, a Chinese-Indonesian businessman with a passion for wine and a determination to produce vintages worthy of his homeland's rich history. To do that though, he needed outside help, seeking advice from his French friend Sylvain Janvier on what the best locations were, and hiring Bordeaux native Gerard Colin as chief winemaker.

Chan built his winery on a plateau near the Yellow River in Shanxi province, southwest of Beijing. Most of China's wineries and vineyards are located in two areas: the fertile Yellow River Valley provinces south and west of Beijing, including Shandong, Shanxi and Hebei, and the coastal provinces east of the capital. Other producers are exploring more arid sites such as Inner Mongolia and the desert oases in western China).

The dry climate od the Gobi region helps to promote healthy grapes at harvesttime at vineyard oases.

The dry climate od the Gobi region helps to promote
healthy grapes   at harvesttime at vineyard oases.

At Grace, Colin now oversees a production of about 17,000 cases a year for the mass market and 25,000 cases of premium wine; varietals include Cabernet Sauvignon, Chardonnay and Pinot Noir. He works hard to keep standards high and to teach local grape farmers what those standards mean. "For me, there are two ways to make wine: like any other industry, or with feeling,'' he says. "To do it with feeling, you need to have a team that understands what you are trying to do."

But not all of China's winemakers have Colin's exacting standards. The wine industry is young, demand is growing rapidly and production regulations are almost nonexistent. That can lead to wines that are good, bad or just plain ugly.

When is a Chinese wine not Chinese It sounds like a question worthy of Lao Tze or Chuang Tzu, the ancient Taoist sages. But a good portion of wines labeled as Chinese contain only a small amount of Chinese wine; most are made by blending imported bulk wine, the majority of it from Chile,with Chinese wine. Quality is often suspect; not only are many of these wines blended with foreign bulk wines, some are mixed with fruit juice or water.

Most Chinese wine is red and cheap, meant to be slugged back or mixed with other beverages. Until recently, it was common to find Chinese wine on store shelves packaged with, or even simply taped to, a bottle of Sprite or tonic water. Other wines are placed in elaborate gift boxes, with a corkscrew, two glasses and a satin pillow for the wine to be presented on. Wine is a popular present, and these boxes are often re-gifted several times. Imported wines are popular with the nouveau riche in China's cities, but most Chinese wines are bought by people further down the income ladder, usually for special occasions like New Year's. Sometimes bottles are displayed on a kitchen shelf, where they will remain for years as symbols of their owner's sophistication.

Four big, state-owned companies Dynasty, Changyu, Great Wall and Tonghua dominate the industry, controlling an estimated two-thirds of the market. The big producers tend to focus on certain market segments. Tonghua and China Red are popular in northeastern cities;
Dynasty sells well in Shanghai. Great Wall and Qingdao target young adults, while Duke Dry Wine aims for middle-aged drinkers. Great Wall is popular with Chinese who have lower incomes. Actually, three different wines are named Great Wall; they're made by three different branches of a state-owned food conglomerate, which are supposed to be allied and focused on different market areas, but which in reality compete with each other.

Despite the "anything goes" mentality toward winemaking, one state-owned producer is trying to prove that quality Chinese wine can be made in large volume. The founders of Suntime Winery picked an unlikely place to do it, halfway across Asia, on the far side of the Gobi Desert.

Much of the Xinjiang Uyghur Autonomous Region, which is closer to the Afghan capital of Kabul than to Beijing, lies in the forbiddingly expansive Gobi and Taklamakan deserts. But the region has been renowned for its table-grape production since the days the old Silk Road ran through it, and is home to the independent Lou Lan Winery, which made much-admired Cabernet Sauvignon under the supervision of now-departed Frenchman Gregory Michel.

The aim of Suntime is pretty straightforward: Make quality bulk wines with China-grown grapes, using modern viticulture and equipment. To do that, it has spent $175 million on building winemaking facilities at four spots in the remote desert region and has channeled water from the melting snow and ice of the majestic Tian Shan mountain range into a sophisticated irrigation system. That a government-owned company is willing to invest such a huge sum shows how much potential the Chinese think wine production has.

Supervising the project is Yang Huafeng, an affable individual not remotely fazed by the scale of the task at hand. Just 34, he is well-educated, fully at ease with visitors from afar and able to deliver rapid fire answers in impeccable English. Yang has used his training as a biochemist in Beijing and years of experience working in the field with Dragon Seal wines, located close to the capital, to get Suntime off the ground. Educating local farmers on the whys and wherefores of modem viticulture is a key part of the mission. Those who adapt to Suntime's recommended methods and meet their requirements are offered expert advice on planting, pruning and irrigation and given a higher price for their grapes.

Once the Xinjiang production facilities were up and running to his satisfaction, Yang turned his attention to the marketing side of the operation. The company recently signed on Cannes Film Festival Award-winning actress Maggie Cheung as a promotional face. Suntime has great potential but will need to start making a profit quickly to justify its huge investments.

Yang, who is committed to a lifetime career in the wine industry, is looking much further into the future, to a day when China's new prosperity will have spread to even poor rural Chinese who might then be able to afford a bottle of red wine with dinner. "This is the beginning of wine in China, and there is huge potential," says Yang. "Only a few consumers really know wine, but this will quickly change. It is part of the new lifestyle, as people's incomes increase."
China may be decades away from Yang’s dream of rural Chinese drinking native vin de table nightly, but wine culture has arrived in the nation's rapidly swelling cities. Who are the Chinese who are buying all this wine and driving companies to make millions of dollars in investment in wineriesThey are the xinguizu, the faces of a new economic power,and they're China's best hope for developing a wine culture.

Francesco Pantalone has seen firsthand the growing demand for wine among these newly affluent, young urban professionals, the so-called xinguizu, or "new nobles." As manager and sommelier at one of Shanghai's top Italian restaurants, the Palladio, a Wine Spectator Best of Award of Excellence winner, the Italian has seen city dwellers develop more sophisticated palates and increasingly confident attitudes toward Western-style dining. Pantalone has looked on with astonishment as customers spent extravagant sums on food and wine.

One evening, a Chinese diner asked Pantalone and the chef to join him as he sampled the restaurant's collection of Dom Perignon vintages. "During the course of the evening, we got through four vintages," Pantalone recalls. "He started with the 1988, then moved on to the '73. We also tried the '66, the '59 and another '88. The bill came to about $5,000, but it was not about money, it was about enjoyment."

All this extravagance would have been impossible to imagine just 25 years ago. China's gross domestic product has quadrupled since then. In the past decade alone, as the People's Republic moved past its pariah reputation after the 1989 crackdown in Tiananmen Square and won approval to join the World Trade Organization, the world has come to see China as the next big economic player and the next great investment opportunity. In 2004, foreign businesses invested $60 billion in China, and China exported more than $500 billion in goods and services. The effects of this boom are visible in major Chinese cities, such as Guangzhou, Shanghai and Chongqing. A whole new consumer culture has developed.

The country has opened its doors to visitors from the rest of the world as well-- Beijing will host the 2008 Summer Olympics, and Shanghai will host the World Expo in 2010. A few years ago, many of China's western provinces were off-limits to tourists; that's no longer the case. And the cities on its east coast are becoming increasingly international, with top restaurants and hotels.

To most of the xinguizu, wine is a symbol of their new success and worldliness. Wine knowledge is also a crucial skill for these young business leaders when they take clients out to dinner at high-end restaurants such as Jean Georges, the Shanghai outpost of the Wine Spectator Best of Award of Excellence-winning New York restaurant.

"The profile of the average wine buyer is someone working for a joint venture, or for a wholly owned foreign enterprise, or one of the up-and-coming local companies," says Don St. Pierre, president of importer ASC Fine Wines. "It is usually someone in their mid-20s to mid-30s, and someone who is aspiring to a more sophisticated lifestyle, which usually includes driving a car, owning an apartment and drinking wine in a restaurant, as opposed to beer or spirits."

Some older business executives have also become wine aficionados. Singaporean Yvonne Chiong, the widely respected sommelier at Jean Georges, has been surprised at the level of their knowledge. "The older generation of Shanghainese who have been dealing with a lot of foreign businessmen and have made a lot of money are referred to as 'old carats'," Chiong says. "They know the first-growths and have been entertaining for many years. They don't ask questions like 'How come Latour is so expensive' They will say, 'Find me a Mouton today. I feel like a Mouton.' This is the generation--in their 50s now -- that was the first wave of self-made businessmen."

Several other factors have made wine popular with the xinguizu and old carats. One is wine's health benefits. Since 1987, the Communist leadership has been promoting putao jiu (which literally means "grape alcohol") as healthier than more traditional ba jiu (clear alcohol, usually made from grain). Another reason might be the Chinese predilection for tea. "When the Chinese started to drink wine, they went straight to the big reds," says Henderson. "They drink a tremendous amount of tea, and the tannins in tea are exactly the same as in red wine."

With China's economic growth showing few signs of slowing, one Chinese winery estimates that wine consumption will grow 35 percent in the next year. But the average Chinese citizen currently drinks just two glasses yearly; even the average city dweller drinks only about a bottle a year. To truly tap China's potential as a wine market, wineries and importers will need to work hard to spread the gospel of wine. Many are doing just that.

Montrose’s Henderson may excited about the current growth in wine drinking in China, but things didn’t look so good when he first arrived a decade ago. “When we first came here, there were no wineglasses in the stores," he says. "The first wine dinner we did was in a restaurant. The restaurant took our bottles to the back; they had no corkscrew, so they broke the necks off the bottles and then poured the wine into tea cups. There was broken glass in the bottle!"

In 1995, the year China began allowing foreign alcohol imports, 41,000 cases of bottled wine were sold. A decade later, industry analysts estimate that 1 million cases will be sold this year. Last year, sales of imported wine reached $52.8 million, a 50 percent increase from 2003. Economic statistics can be unreliable in China, even fudged by local party officials, but no one doubts that wine sales have taken off.

For people like Miguel Torres, the growth is a vindication. His eponymous Spanish company first bet on China's potential a decade ago, initially partnering with a Chinese company, then starting its own operation based in Shanghai. Miguel Torres imports and distributes its own wines from Spain, Chile and California, and also brings in wines from France's Baron Philippe de Rothschild; Australia's Redbank, Vasse Felix and Henschke; New Zealand's Te Mata; and Hungary's Oremus Tokaji wines. It also distributes native Grace Vineyard wines.

Back in 1995, the company sold a measly 267 cases. Sales rose gradually to 4,708 in 2000, then began to rocket upward, hitting 11,600 in 2003; the sale of 35,000 cases is expected in 2005, and the company turned a profit this year. Its current annual gross is $3 million.

David Henderson, president of leading Chinese wine import company Montrose, says the Chinese preference for red wine is rooted in exposure to the tannins in tea, which are the same as thos in wine.

David Henderson, president of leading Chinese wine import company Montrose, says the Chinese preference for red wine is rooted in exposure to the tannins in tea, which are the same as thos in wine.

"There is still a long way to go, but progress is being made," says Torres, who regularly visits his company's four offices in China. "For seven or eight years we were losing money,we have probably lost about $1 million, which for us is a lot,but you have to be there to grow. We are now breaking even."
To keep growing though, the importers need to expand the market for their product and introduce more of the population to wine. Education is a major part of their business strategy. ASC, for example, operates an educational training program headed by a local, Bing Li, who has spent time studying in France. Li has a degree in international wines and spirits marketing from Dijon Business School and worked for Internet wine company ChateauOnline before returning to put his skills to use in China.

"There is so much change happening, and it is happening so quickly, that there is a thirst for knowledge, whether it is in wine, cars or the stock market," says ASC's St. Pierre. "And it has become more important for senior executives to have an understanding of wine, because wine is so entrenched in people's views as part of what a good lifestyle is about."

Once word got around that ASC had its own tasting room with a staff capable of conducting in-depth briefings, corporate clients started calling about private lessons. In any one week, Li will conduct education programs for Chinese executives from major foreign-owned companies such as Citicorp and HSBC who need to feel comfortable when presented with a tasseled wine list at a fancy restaurant.

Top-notch restaurants in the major cities are eager to pair up with the distributors and wineries, or offer their own classes. Jean Georges is introducing "The Cellar Club" this fall, designed to introduce Shanghainese drinkers to different elements of wine. Planned events include sommelier-hosted dinners with special wine pairings, weekend-afternoon walk-around tastings poured by local distributors, and wine dinners conducted by guest producers (representatives from Chateau Latour will host one in November, for example).

And as importers and restaurateurs successfully expand the market, new companies are jumping in to take advantage. Australian companies are already the second largest source of foreign-bottled wine in China. The French are in first place, largely because most Chinese wine drinkers see French wines as the most prestigious. But since 2000, the value of wine sales between Australia and China has doubled virtually every year, reaching $6 million last yea
Before every winemaker starts sending cases over to China, however, they should take a long, hard look at the difficulties of selling there. Despite the growth in wine sales, imported bottled wines account for less than 1 percent of the wine consumed in China.

The Chinese buy more domestic wine from companies like Dynasty and Changyu partly because of national pride, but cost is a bigger factor. The average bottle of Chinese wine costs $4, while the average imported bottle goes for more than twice as much. The majority of the price difference is due to taxes and tariffs imposed on foreign wines. When China won admission to the World Trade Organization, it agreed to eliminate most of its tariff on foreign wines, which at the time was 65 percent. Now it's down to 14 percent, but the government levies a steep value-added tax and consumption tax as well. Some industry observers fear that if foreign winemakers enjoy too much success, to the detriment of Chinese wineries, the government will impose higher markups.

And though China may someday be a global economic powerhouse, right now it's enduring some growing pains. The laws on foreign companies operating there are fuzzy enough that local officials can make things difficult for wine importers. The banking system is a mess. The red tape can be endless. Good transportation and distribution is almost nonexistent in many parts of the country. To overcome these obstacles, importers have to create their own networks.

The Chateau du Vin wine shop in Macao

"It is exciting, but as with all businesses, you have to get paid, and China is notorious for that being a major hurdle," admits Henderson. "It is a big, big hurdle in a country that has no banking; you cannot finance working capital or finance receivables. You can't do any traditional banking,it is not in place yet."

Since more than two-thirds of wine sales take place in restaurants, good relationships with restaurant owners are a must. In many establishments, wineries or importers have to pay a listing fee to get a spot on the wine list and another fee for each bottle uncorked.

China is the capital of pirated DVDs and counterfeit sneakers, so it's no surprise that a large gray market for illegally imported and counterfeit wines exists. Bong Ha, national sales and marketing manager for Miguel Torres, which distributes Mouton-Cadet, one of the most successful brands coming into China, says counterfeits are such a problem that the bottle shape had to be changed to make it harder to fake. Now Ha has heard that there is a market for empty first-growth Bordeaux bottles in Guangzhou. More common are wines with poorly faked labels, where wineries simply copy the packaging of a more popular brand.

With all these headaches, wineries have to decide if China is worth the investment. Most of the biggest players are saying yes. One major international wine marketer, who didn't want to be named, spent more than a year in intricate multiparty negotiations to set up a distribution company for major import brands and private labels. After hundreds of hours of discussions and thousands of miles of intercontinental travel, the deal collapsed, for undisclosed reasons. But the company believes so much in the potential of the Chinese market that executives are starting over. That's how most big wine companies see China -- it's too big to pass up, no matter the obstacles and risks.
Will China develop a wine cultureWill its wineries focus on quality enough to someday compete globallyIt depends partly on China’s future path as a nation. Despite the country’s strides, China is walking a tightropes. Because so much of China’s past two centuries is colored with war and chaos, the current government prizes stability over all else. While the ruling Communist Party hopes free-market reforms will turn the nation into an economic superpower, it also fears that a free market could lead to the kind of chaos and malaise that hit Russia after the Soviet Union's collapse. So despite the economic boom, the government still controls large segments of the economy.

Modernity and tradition coexist in 21st-century China, from the world's fastest train to the peasants harvesting grapesat Bodegas Langes vineyards.

The Chinese people are restive. Unemployment is estimated at 9.8 percent in cities, but far higher in rural areas (one Chinese journal estimated 20 percent in 2003). Chinese farmers, stung by taxes, corrupt local bosses and land expropriations by developers routinely riot against local police. Last April, 20,000 peasants drove off more than 1,000 riot police in Zhejiang province.

Meanwhile, the xinguizu leading the rush to drink good wine are equally likely to grow dissatisfied with the government's tight control over their lives. China now has 94 million Internet users. Can the government maintain control as that number increases

If China can continue to thrive and grow, it has the potential to be a valuable wine market and wine producer. An example of how far it can go is just across the Shenzhen River in Hong Kong, a city that Shanghai is trying to emulate. A decade ago, wine appreciation in the then-British colony was in its infancy; now, there are wine stores galore, and its financial and political leaders are some of the world's biggest wine buyers, filling their cellars with thousands of bottles.

"It's like six generations have gone by in the five years we have been open," says M on the Bund's Gamaut as she looks at the lights of gleaming Shanghai. "Ten years ago, there were a couple of stuffy hotel steak restaurants, and when we opened, there was an attitude of 'nobody wants that fancy crap.' I said, 'That's not true -- this city is ready for an international standard of restaurant.' We were lucky with timing." Winegrowers hope the same is true for them.

Mark Graham is a freelance writer and photographer based in Hong Kong. Jeannie Cho Lee in Hong Kong and Mitch Frank in New York contributed to this report.