Uncorking China's wine market
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Shanghai Daily, January 9, 2012
Some Chinese-produced wines have already received international recognition for their efforts, with one producer recently winning Decanter magazine's Middle East, Far East & Asia category for red wines. At the same time, with the increasing spread of wealth beyond the largest coastal cities, China's wine market is now expanding into smaller markets across the country.
Investing in terroir
Both Chinese nationals and foreign investors are seeking ways to capitalize on the booming Chinese wine market.
Recent examples of entries into this sector include Chinese purchases of foreign vineyards, full-service distributors catering to the unique qualities of the Chinese market, and high-net-worth Chinese investing in wine as part of their wealth management strategies.
Most attention-grabbing among these modes of market entry has been Chinese investors' acquisition of foreign vineyards. Among the first was the 2008 purchase of a Bordeaux chateau by the Cheng family of Qingdao, China.
After an extensive search, the Cheng family chose Chateau Latour-Laguens, a 150-acre property in southeast Bordeaux. Although the Chengs had been historically involved in importing wine from other global wine centers, such as South Africa and Australia, their search for property focused exclusively on Bordeaux.
Family member Daisy Cheng noted France's strong reputation in the Chinese market as the key factor in the selection: "The Chinese consider French wine to be the most authentic."
Since purchasing Latour-Laguens, the family has transformed the vineyard's strategy to focus exclusively on exporting to the Chinese market. To drive name recognition back in China, Cheng said that the family has done extensive newspaper advertising in target markets.
Following the 2008 acquisition and with the continuing strength of the Chinese economy, other Chinese parties have made foreign purchases. Perhaps most significant was the 2011 purchase of the Bordeaux property Chateau Viaud by COFCO (China National Cereals, Oils, and Foodstuffs Corp). This 100 million yuan (US$15.2 million) deal, by the owner of China's Great Wall domestic wine brand, was seen as legitimizing overseas acquisitions.
While Bordeaux has received the greatest attention, Chinese entities are broadening their scope to other major wine-producing regions. COFCO also purchased a high-volume Chilean winery in 2010.
In addition, deals have taken place in other wine production centers such as California's Napa Valley and New Zealand.
While this growing trend of overseas purchases shows no sign of abating, some wonder if resistance to Chinese ownership will grow. Past peaks in foreign acquisitions elicited significant protectionist concerns.
Palatable investment
Beyond the traditional business opportunities in production and distribution, China's developing wine market has also given rise to secondary investments. Because Chinese nationals face limited investment options of all types due to heavy government regulation, new opportunities like wine investment are particularly attractive.
In 2011, China approved the launch of the nation's first private wine investment fund. The Dinghong Fund will raise 1 billion yuan US$156 million) to invest solely in vintages from Bordeaux and Burgundy. For a minimum investment of 1 million yuan (US$160,000) and a lock-in period of five years, fund managers are promoting a potential 15 percent annual return.
The excitement around the Dinghong Fund is easy to understand in the Chinese context. Unlike countries with more mature financial services, China has a scarcity of private wealth management vehicles. Until recently, many wealthy Chinese invested their capital in the booming real estate market.
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