After years of double-digit economic growth, China is witnessing the flourishing of a strong middle class of consumers with plenty of disposable income. That, in turn, has led to a strong boost for the Chinese wine market, where consumers are eager to enjoy all the perks of a middle-class lifestyle.

China is now the fifth-largest wine market in the world, with total annual consumption of 16 million hectoliters of wine. Even more promisingly, per capita, wine consumption also appears to be on the rise, thanks to nationwide efforts at educating the Chinese consumer about wine and wine culture.

Consumption patterns of the Chinese consumer

Most studies of the Chinese wine market indicate the consumption split between domestic and foreign wine is 80/20. In other words, Chinese domestic producers such as Great Wall, Dynasty Wines and Changyu Pioneer Wine Company supply 80% of the wine that consumers are drinking. However, that 80/20 figure may be overstating the role of foreign producers – when the bulk wine is imported into China and then blended into a new product with Chinese wine, that product is counted as a Chinese product. Thus, the percentage may be much closer to 70/30.

Over the mid- and long-term time horizon, some experts expect the market to reach equilibrium at about one-third foreign wines and two-thirds domestic wines. There are various factors at work here, including special zero-tariff imports for Australian and New Zealand wines and the growing size and significance of the bulk wine market.

In terms of pricing, another 80/20 rule is in effect: 80% of wine sold is priced under $15 per bottle, and just 20% is priced above $15 per bottle. Only 2% of all wines sold are priced above $45 per bottle. That has led to a Chinese wine market in which low-cost Chinese domestic producers dominate the low end of the market (especially for wines priced below $10), New World wine producers dominate the middle end of the market, and Old World wine producers from prestigious wine regions like Bordeaux dominate the high end of the market.

A new variable at work here, though, is the effort by Chinese domestic producers – and especially wine companies like Changyu – to move into the middle and high end of the market. Changyu, especially, has been taking great effort to position its wines from the up-and-coming Ningxia wine region as high-end, prestigious alternatives to red wines from France, Italy or Spain.

Social prestige and the wine lifestyle

One critical factor in the rise of the Chinese consumer has been the link between social prestige and the wine lifestyle. For young millennial wine drinkers and for older wine drinkers who have just transitioned into the middle class, drinking an expensive bottle of wine is a mark of social prestige. Moreover, wine is thought of as a luxury gift that connotes taste, style and social prestige. This is particularly important to keep in mind since Chinese wine drinking culture is still relatively young compared to Western markets. In the United States, for example, buying a $15 bottle of wine from Whole Foods Market to enjoy with a midweek evening meal is not out of the question. In China, however, that $15 bottle of wine would be reserved for a special occasion, or as a special gift for an important person.

That anecdotal evidence is supported by the numbers, which show that Chinese per capita wine consumption is actually quite low when compared to mature wine drinking markets such as the United States or France. Chinese per capita wine consumption is just 1.18 litres per year, compared to 10.25 litres for the U.S. and 42.51 litres for France. In other words, the average person in China buys just 1-2 bottles of wine per year, so it’s perhaps no surprise that those bottles are reserved for special occasions.

Wine education and the Chinese consumer

Both private and public sector players have made significant efforts to educate Chinese consumers about wine. Wine education is now a thriving business, especially in big cities like Beijing and Shanghai. And e-commerce players like YesMyWine have made very concerted efforts to build up wine communities, to hold wine tastings, and to provide plenty of educational videos about grape varieties, wine regions and food-and-wine pairings. The result has been the growing taste and sophistication of the Chinese consumer.

This has helped to open doors for foreign companies looking to enter the Chinese wine market. Just a few years ago, the only foreign wines that Chinese consumers wanted to buy were red wines from Bordeaux. But, thanks to efforts from the Australian wine trade, Chinese consumers are now embracing red wines from Australia – especially from high-end producers like Penfolds. Other wine regions – notably Chile and Napa Valley – have also seen a positive impact from the growing willingness of Chinese consumers to experiment with red wines from around the world. As long as consumers are convinced they are purchasing a prestigious brand that will boost their overall social profile, they are willing to buy.

E-commerce and the Chinese consumer

If there is one development that has fundamentally changed the face of the wine industry, it is the rise of wine e-commerce. Back in 2008, the Chinese Internet experienced a tipping point: the number of Chinese Internet users surpassed the number of U.S. Internet users. The result has been a bonanza for Chinese e-commerce sites such as JingDong (JD.com), Tmall, Taobao and Yihaodian (YHD.com).

Most interestingly, there has been a real boom in wine-only e-commerce sites, led by YesMyWine and Vinehoo. YesMyWine, which started off selling wine by phone back in 2008, has blossomed into the nation’s premier B2C platform for selling imported wine. In fact, in 2014, YesMyWine sold 7 million bottles of wine. Thus, for any company thinking about selling wine to the Chinese consumer, it is absolutely imperative to consider a digital strategy that involves B2C e-commerce as well as social media.

The Chinese consumer in 2021

The big tipping point for the Chinese wine market might come in 2021. According to data from Vinexpo, that is when China will finally surpass the United States and become the No. 1 wine market in the world. At that point, it will be impossible for foreign wine producers to ignore the Chinese consumer.

We’re already seeing evidence of how foreign winemakers are shifting their attention to China. For example, China is already the No. 5 export destination for California winemakers. As China passes Germany, Italy and France on the way to surpassing the U.S., it’s easy to see how China could become the No. 1 export destination for many – if not all – of the top wine regions in the world.