Ever since the early 2000s when China officially joined the World Trade Organization (WTO), foreign wine producers have set their sights on the Chinese market. And, indeed, China is now the largest red wine market in the world, and one of the Top 10 overall markets, as measured by annual wine consumption. But being a wine superstar means more than just offering one of the most attractive wine markets in the world – it also means being able to support a vibrant, dynamic domestic wine market that can rival any in Europe or the Americas. Is China up to the challenge?

The growth of China’s wine industry

Certainly, China has a number of advantages that would seem to suggest that it can become the world’s next great wine superpower. The starting point here, of course, is simply the sheer size of the consumer market. China now has a population of close to 1.6 billion, and after decades of dynamic economic growth, that population now has vast, untapped purchasing power. Thus, it’s no surprise why so many foreign wine producers have been eyeing China – they see the vast size of the consumer market and the potential demand for wine.

But the advantages that China possesses extend beyond just the size of the consumer market and a growing wine culture within the country. China now trails only Spain in terms of total vineyard area. At nearly 800,000 hectares, China now has the world’s second-largest vineyard area. And China is showing that it can really maximize the value of this growing area. In fact, China is now ranked as the world’s 8th-largest wine producing country, accounting for nearly 4% of the world wine production in 2014. That percentage is set to grow over the next few years, as China dedicates additional resources – technological, government and legal – to improve the quality and yield of its vineyards.

Currently, 80% of all wine consumed within China is produced domestically, and the nation now has 12 main wine regions: Shandong, Henan, Jilin, Gansu, Hebei, Xinjiang, Shaanxi, Liaoning, Heilongjiang, Yunnan, Tianjin and Ningxia. The two standouts thus far are Shandong (and especially Yantai on the Shandong Peninsula, which some have referred to as “China’s Napa Valley”) and Ningxia. The important point to note here is the geographic diversity of these regions, which range from wetter coastal regions to drier, near-desert regions as you move westward across China. Thus, just as a wine superpower such as France can boast a variety of winemaking regions, each with its own distinct terroir and history (Burgundy, Bordeaux, Loire Valley, etc.), so can China.

Challenges to China’s wine industry

Of course, much of the optimism surrounding China’s growing wine industry has been linked to the country’s extraordinary economic growth. Ever since 2012, however, economic growth has started to slow, and that has tended to act as a brake on the rapid development of the country’s wine industry. Thus, while wine imports grew 13-fold in the period from 2001-2014, it’s highly likely that the rapid rate of change will no persist over the next decade. That will present a share of challenges to both Chinese importers and Chinese retailers.

And, of course, much has been made of efforts by Chinese producers to improve both the overall quality of their wine, as well as to improve the overall yield of their vineyards. Efforts have been made to introduce new resources – including technological and human capital know-how – to boost overall output and improve the quality of Chinese wines. In 2004, for example, China finally outlawed the production of “half-juice wine” – a sort of hybrid of wine, grape juice, fruit juice, water and sugar.

In parallel with these efforts, the government has been working to create a legal classification of Chinese wines so that Chinese consumers actually know what they are purchasing. The idea is to create a classification system similar to the ones used in France and Italy so that only wines produced in a certain region and using a certain process can have a certain appellation.

New steps ahead to boost China’s wine market

Already, steps taken during the 1990s and 2000s appear to be having a very positive impact on the future trajectory of the Chinese wine market. In 2014, for example, China ranked as the #8 wine producer in the world, trailing only France, Italy, Spain, the U.S., Argentina, Australia and South Africa. As the country works to address problems such as the homogeneity of products and inconsistent standards, the hope is that wine clusters will begin to form within China.

For China, one model might be the United States, which only grew into prominence as a wine superpower in the mid-1970s with the 1976 Judgment of Paris. As winemakers in Napa Valley began to win prestigious awards and accolades on the world stage, so too, increased the prestige of Napa Valley and nearby Sonoma. Within a decade, winemaking clusters began to develop in Oregon and Washington State, as well as along the Central Coast of California. That same type of paradigm might be possible to replicate within China.

Ningxia, for example, has emerged as a potential wine superstar. This wine region has already announced plans to create a Helen Mountain Grape Culture Corridor, which is an ambitious plan to put in place a world-class wine tourism ecosystem by the year 2020. This wine corridor – think of it as a Chinese version of Napa Valley – will consist of 1 million acres of vineyards under cultivation, 1 wine culture development centre, 3 wine cities, 10 wine towns, and 100 wineries (many of them resembling French chateaux). That would make Ningxia the most desirable wine tourism destination in the country – and potentially help elevate wines made in Ningxia to world-class status.

The leaders of China’s wine trade

At the same time as wine regions around China are transforming themselves into wine tourism destinations, Chinese wine producers are growing in both size and complexity as they attempt to meet so much untapped demand in the Chinese consumer market. There are three main Chinese wine companies that should now be on anyone’s radar:

• Great Wall (owned by COFCO in Beijing)
• Changyu (owned by Yantai Changyu Group in Yantai)
• Dynasty (owned by Dynasty Wines in Tianjin)

Changyu is particularly noteworthy because it is generally considered to be the first “modern” Chinese wine company. The company was established in 1892 in the coastal city of Yantai (Shandong province).

The Chinese Internet, e-commerce and the Chinese wine industry

One important factor to keep in mind when it comes to the Chinese wine industry is the country’s rapid embrace of the Internet and all the e-commerce selling models that are possible with it. Three B2C pioneers in the Chinese wine industry include JingDong (JD.com, which emerged in 1998 with the first Internet boom), Tmall, and Yihaodian (YHD.com).

For foreign wine companies looking for greater exposure within China, one potential strategy might be leveraging e-commerce as a viable selling tool. Tmall is one of the clear leaders, and the international wine industry is taking full advantage of this new platform. At one time, Tmall specialized in prestigious, luxury wines from Bordeaux. Now, however, foreign producers in Australia, Chile and Italy are looking for ways to build consumer awareness of their wines on Tmall.

Opportunities ahead for the Chinese wine industry

If one takes a broad strategic overview of the Chinese wine industry, it’s easy to see that the nation boasts a number of strengths. Chief among these is the broad territory available for vineyard development, the positive environmental and ecological factors for growing different varieties of grapes, and a relatively low-cost labour force. Opportunities include a large population and huge, untapped consumer demand, in addition to very vibrant economic growth. At the same time, the Chinese government has shown willingness to step in and push the national wine industry forward.

How many nations, for example, can boast of a “5-Year-Plan” for their domestic wine industry? China is now working on its 12th 5-Year-Plan, this one encompassing all aspects of the wine industry. It includes plans for the development of science and technology, improved product quality, and an improved industrial structure capable of supporting the rapid scaling of the Chinese wine industry. At the same time, the nation is working on the development of “wine culture” in major cities like Beijing and Shanghai. Through tastings, exhibitions and wine conferences, China hopes to boost the overall level of knowledge about wines amongst Chinese consumers. That could, in turn, act as a real spark for consumer demand.

China’s full potential as a player in the global wine industry

Keep in mind, too, that China is just now exploring its full potential as a wine superpower. Thus, while China is now the world’s fifth-largest global wine market as measured by total annual consumption, the country still lags the rest of the world in per-capita wine consumption. In other words, until recently, it has been a numbers game, driven by China’s population size. On a per capita basis, for example, China has only 11.5% of total U.S. consumption and only 2.4% of total French consumption.

That’s why the growth of wine culture within China is so important. As wine tourism takes off, as the Internet brings new models for supply and consumption (especially those related to the bulk wine trade), and as Chinese consumers become more educated about wine, China’s wine market potential is truly staggering. China may be an ancient wine country – with Chinese grape cultivation dating back more than 3,000 years ago – but it is a very modern wine industry. There are plenty of challenges and opportunities ahead, and it looks as if China is putting into place all the factors required to become a true wine superpower.