California wine producers miss out on a wine import market that’s seeing unprecedented growth
Buttressed by a growing middle class with an ever-increasing taste for luxury goods, the Chinese wine market is booming. According to the Chinese General Administration of Customs, 746 million liters of wine worth US$2.8 billion were imported into the country in 2017. This impressive figure represents a 17.96% jump from 2016, and the sheer volume of imports has almost doubled in four years. The CGAC estimate that China will be the world’s second-largest consumer of wine after the U.S. by 2020.
Not unsurprisingly, Guangdong Province tops the list of regional wine consumption. Bordering Hong Kong and Macau and home to Guangzhou and the booming tech hub of Shenzhen, the region accounts for 7.8% of China’s total population. The Guangdong market was estimated to be worth US$909 million. Shanghai – China’s capital of luxury and financial exchange – was the second most valuable market worth US$735.5 million.
Zhejiang came as a far third with US$189 million, ahead of Fujian province (US$136.3 million), Beijing (US$136.1 million), Tianjin (US$124.6 million), Shandong (US$111.6 million), Jiangsu (US$79.7 million), Liaoning (US$34.9 million) and Sichuan (US$20.1 million).
Cross-border e-commerce and bilateral free trade agreements have had a huge hand in China’s wine market explosion. Before China’s cross-border e-commerce initiative, which sought to quench Chinese consumers’ taste for foreign goods and open its doors to the world, Chinese wine sellers had to pay a whopping 48.2% tariff on each bottle sold. In 2016 the government lowered the import tariff on wine from 48.2% to 21% – a change that sparked US$130 billion consumer spending on foreign goods for an increase of 38.5%.
Australia’s import tariff on wines entering China dropped almost 12 percentage points from 14$ to 2.8% as of January 2018. According to terms of a trade deal struck in 2015, China will cease to charge an import tariff on Australian wine entering the country commencing in 2019. Chile and New Zealand have enjoyed 0% wine import tariffs thanks to free trade agreements.
France, Australia, Chile, Spain, Italy and the U.S. top list of wine exported to China
The top importers of wine to China are France (217.8 million liters, +14%), Australia (105.8 liters, +33%), Chile (74.4 million liters, +24%), Spain (67.9 million liters, -6%), and Italy (29.4 million liters, +14%). The U.S. trails behind having imported (29.4 million liters, -1%) in 2017.
Despite the fact that wine imports are booming, recent legislation has United States wine exporters worried that their place in the Chinese market may altogether disappear. Last Friday, the Chinese government announced a list of goods valued at US$3 billion, including California wines. There will now be a 15% tariff on American wine imports valued at roughly US$50 million.
In a statement sent to dbHK, Robert Koch, CEO of the wine institute, said, “Chinese retaliation against US wine would put our producers at a significant disadvantage in one of the most important markets in the world at a critical time.” According to the Chinese Trade Association, exports from the U.S. to mainland China increased 450% over the last decade and were up 10% in 2017 to US$197 million.
The tariffs should pave the way for other exporters to increase market share. Australian, Chilean, and Georgian wines showed significant growth in 2017. Imports from Georgia rose 45% in volume and value in 2017 as the result of a free trade agreement signed in May 2017 that altogether waived the 14% tariff on Georgian wines.
China is a huge market with many variables
The other side of the coin of China’s development is despite rapid growth in recent years, its market is young and not homogenous. Although it operates in a one-party system politically, its culture, food, and drink are vastly differentiated. China is best thought of as an extensive territory, made up of cities with a high population density each with their own taste preferences designated by cultural habits, climate, and geography.
For example, in the deep cold north of Beijing, full-bodied wines are more desirable. In central southern cities such as Chengdu, Shanghai or Guangzhou, the lighter and more fruity wines are frontrunners in sales.
Experts also speak of another obstacle – the ‘cultural’ one. As relative newcomers to wine, the consumption patterns of Chinese wine drinkers – taste preferences, food pairings, and seasonal attributes – vary from that of the United States and Europe. Despite this, Chinese wine drinkers are exhibiting a huge desire to become experts – one of the fastest growing market segments for food and wine education is China. The People’s Republic is considered the largest WSET market (Wine and Spirit Education Trust) since 2012 and has more than 20 candidates for the title of Master of Wine.
Whether the American wine market will recover its export share into this booming market remains to be seen. In the meantime, a subcontinent of wine drinkers have plenty of options to keep their palettes sated and their curiosities entertained.
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