There is no salvation for the faltering global wine business in China’s congested wine market

SHANGHAI: The announcement that China would remove anti-dumping taxes and reopen its market to imports has delighted Australia’s wine sector. However, the worse economic circumstances of 2024 are unlikely to bring about the sparkling growth that winemakers want.

China has been the engine of the world wine industry’s expansion for the last 20 years as a large number of the hundreds of millions of people joining its middle class developed a taste for wines from France, Italy, Chile, Australia, and Chile.

However, Chinese industry leaders claim that despite the long-lasting restrictions brought about by the COVID-19 epidemic, the market and domestic consumers are still having difficulty rebounding from this depression.
In terms of consumer interest in wine, “the market has shrunk hugely and that’s not showing any signs of reversing post-Covid,” said Kym Anderson, executive director of the University of Adelaide’s Wine Economics Research Centre.
He said that China’s “apparent consumption” of wine in 2023—which takes into account both imports and home production—was only around 25% of what it peaked at in 2017. During that time, the country’s yearly import volumes dropped by two-thirds.
Judy Chan, the CEO of well-known local winery Grace Vineyards, said that other alcoholic beverages other than wine are being offered as more domestic and international competitors have entered the market.
“Now we see more cocktails and craft beers; there’s so many more choices for consumers,” she said.
“Wine had an aura of global elegance. Its loss of that aura is one of the issues.”
Established over 25 years ago in the northern region of Shanxi, Grace has expanded its product line to include gin in order to provide a more varied selection.
With an estimated $336 billion in sales, China has the largest alcohol market in the world, despite baijiu, a fiery local spirit, dominating it. Additionally, the public apathy after COVID-19 has hindered attempts to get a larger market share for imported drinks.
The consumer confidence index increased 1.5% in January compared to the previous month, although it is still close to record lows due to China’s slowing economy, sluggish real estate market, and high young unemployment.
Yan Yu, who sells wine directly to customers via the social media app WeChat, said that since the epidemic, her customers have grown more budget-conscious. Her wines are most popular when purchased for less than 200 yuan ($28).
Based in Shanghai, the commercial centre of China, Yu observed, “China is so difficult; the environment is so hard.”
“I have to track out interested folks who haven’t tasted wine yet. That’s how my business grows. All you have to do is compete.”
victors and vanquished
However, Chan said that the upper end of the market is still stronger, with consumers willing to spend more on fine wines.
“I think Penfold’s will do really well,” she said, alluding to Treasury Wine Estates, Australia’s most well-known wine brand, which is making a comeback to China.
“People are willing to pay for a recognisable wine brand like that.”
Despite harsh tariffs of up to 218% that completely destroyed its export business to China, TWE has been betting as much, sticking with its investments in the market and producing a wine manufactured in China.
While great wines like Penfold’s are expected to benefit, many other producers who are currently facing severe oversupply problems may find it difficult to re-enter the Chinese wine market.
In 2023, they will reduce the market share of countries like France, Chile, and Italy, who gained an advantage from their absence and went on to dominate China’s $1.6 billion import market, holding shares of 48.24%, 19.31%, and 10.1%, respectively.
Additionally, Australia’s free trade agreement with China gains a 14% tariff advantage over several other countries by releasing its wine supplies.
However, increasing Australia’s export potential to China will take time, and imports in a market that is contracting overall are unlikely to happen anytime soon to match the pre-pandemic amount of A$1.2 billion ($790 million) for 2019.
Despite her concerns that the peak has most likely gone, Chan is banking on a stabilisation and does not rule out the possibility of further growth in the Chinese wine industry.
Since wine makes up less than 1.5% of all alcohol consumed in China today and yearly adult consumption is less than half a litre, Anderson said there is still room for development.
Nevertheless, it was “confounding” that China has defied conventional wisdom about the rise of wine consumption in a developing nation.
“Given the growth in incomes and what we have seen from many other countries and cultures, there’s no reason why we shouldn’t have expected the same type of growth in consumption of wine to continue in China,” he said.
($1 = 1.5191 Australian dollars) ($1 = 7.2358 Chinese yuan renminbi)