Today, China is the fifth-largest wine market in the world as measured by total annual consumption. Moreover, China recently surpassed France to become the No. 1 red wine market in the world. And that’s not all – according to Vinexpo and IWSR, China has the potential to become the second-largest wine market in the world by 2020. So it’s perhaps no surprise that the Chinese domestic wine industry is booming, led by a trio of wine market superstars – Great Wall, Changyu and Dynasty. So how did this remarkable turn of events take place, and what should we expect in the future from the Chinese wine market?

In order to understand the changes taking place in the Chinese wine industry today, it is important to have the right historical context for how this industry emerged. By looking back on history, it is possible to see how and why the wine industry developed as it has, and why the future growth of the Chinese industry looks so promising.

An ancient tradition of winemaking

While the modern wine industry in China is relatively young, winemaking tradition and culture in China actually dates back more than 3,000 years. It was during the Han Dynasty (206 BC – 220 AD) that grape cultivation and grape wine culture first emerged. The common grape Vitis Vinifera was introduced from Central Asia, and with the later introduction of the Silk Road trade route, it soon became possible for winemaking to take root across the country.

The one Chinese dynasty most closely associated with winemaking and wine culture is the ancient Tang Dynasty (618 AD – 907 AD), which is generally considered to be the largest and most powerful of the ancient Chinese dynasties. During that era, wine-drinking culture accelerated and wine consumption became something that was celebrated in culture, language and the arts. The wine was no longer just for the imperial court –it was also for the rest of the nation.

However, it was not until 1892 that the first modern Chinese winery was established. In that year, the famous Chinese diplomat Zhang Bishi imported vines from both the United States and Europe to launch a new winery called Changyu in the Yantai region of Shandong province. Today, Changyu Pioneer Wine Company is the largest wine company in China, as well as an innovator when it comes to the introduction of foreign winemaking techniques in China.

The modern era of winemaking

In the late 1970s, the series of economic reforms transforming the broader Chinese economy under Communism also began to transform the Chinese wine industry. In 1978, the official policy of “reform and opening up” led to new thinking about what a modern Chinese wine industry might look like. In 1980, however, there were only 30,000 hectares of vineyard land under cultivation, and the predominant form of production centred not around wine, but around “half-juice wine,” a hybrid of grape juice, fruit juice, sugar and water.

During the 1990s, there was another period of regulation and adjustment, including a 1994 prohibition of certain types of half-juice wine. This was important because legitimate Chinese wine producers were struggling with images and perceptions of low quality. By 2000, there were 282,970 hectares of vineyard land under cultivation – a nearly 10x increase from the level in 1980!

2001 was the big year, though, that really transformed the Chinese wine industry. At that time, China joined the World Trade Organization (WTO), and that meant China had to abandon many of its anti-competitive business practices that effectively protected local domestic producers and punished foreign producers trying to sell their wine in the local market. With the entry into WTO, for example, tariffs on bottled wine fell from 65% to just 14%, and tariffs on bulk wine dropped to just 20%.

That immediately opened the doors for foreign wine producers to enter the Chinese market. At the time, the remarkable phase of rapid, double-digit growth in the Chinese economy attracted producers from around the world, and especially from France. Given the long history of keeping out foreign producers, it was perhaps inevitable that Chinese consumers fell in love with foreign imports. Red French wines – and especially those from prestigious producers in Bordeaux – became the most desirable wines to purchase.

New steps pushing forward the Chinese wine market

Overall, the period from 2001-2014 was one of dynamic growth, both for foreign importers looking to enter the market and for local Chinese producers. By 2014, there were 799,000 hectares of vineyard land under cultivation, and China was already emerging as one of the Top 5 wine markets in the world for consumption. A decade of economic growth had created an entirely new class of consumers, and steps taken by the Chinese government to guide the future of the industry seemed to be having a positive impact.

During the period 2010-2016, several important steps stand out as particularly important for the Chinese wine industry. In 2012, for example, the Chinese government unveiled its 12th Five Year Plan for the wine industry, filled with ideas on how to improve science and technology within the sector, how to support the creation of the nation’s 12 wine regions, ways to stimulate wine culture and wine tourism within China, and new regulations to improve overall product quality for domestically produced wine.

From a legal and regulatory perspective, one important move was the creation of the nation’s first winery classification system in the wine region of Ningxia, generally considered to be one of the nation’s Top 2 wine regions (in addition to Yantai). More than any other wine region, Ningxia has attempted to establish a reputation for quality for its wines – such as the building of a Bordeaux-style chateau by Changyu Pioneer Wine Company in 2012, or a plan submitted in 2011 to create a vast new wine tourism corridor that would include 100 different wineries by the year 2020.

Another important step has been the further opening up of the Chinese wine market to foreign players. Foreign producers from New Zealand, Chile and Australia, for example, have seen tariffs on their wines slashed from 14% back in 2001 to zero today. As a result, Chinese consumers are rushing to embrace foreign wines beyond just the most prestigious French labels from Bordeaux. At the same time, a vibrant bulk wine trade has developed, as has a new system of private label wines known within China as the OEM (original equipment manufacturer) model, in which large foreign wineries are, in essence, the OEM companies sending bulk wine to China for assembly into branded wine bottles.

The state of the Chinese wine market today

Today, China is one of the most vibrant wine markets in the world, both on the basis of production (where China ranks No. 8 in the world) and in consumption (where China ranks No. 5 overall). There are nearly 1 million different wines available in the Chinese market today – more than ten times as many as the number of wines available in the U.S. market today!

At the same time, domestic wine companies such as Great Wall, Changyu and Dynasty are making bids to become some of the most important players in the global wine industry. The Chinese wine market may be relatively young in its development, but nearly 3,000 years of history and culture have created an extraordinarily solid base for its future growth and development.