Trade rows forgotten as French winemakers look to China

Wine.jpg

In a few remote corners of China, a world away from Beijing's allegations of European wine dumping, makers of such lofty French brands as Chateau Lafite-Rothschild and Dom Perignon champagne are investing millions of dollars to produce vintages they hope will put Chinese wine on the world map.

In a country where overpriced mediocre wines still define the domestic industry, the French are partnering with Chinese investors to produce super-premium wines for increasingly discerning drinkers at the market's top end.

The development comes as Beijing and Brussels are in talks to end their trade dispute over wine, with a settlement seen as likely after the two sides struck in July in a separate row over Chinese solar panel exports to Europe.

Beijing had launched its investigation into European wine sales after the European Union moved to impose steep import duties on Chinese solar panels.

Vintage prices

The French and Chinese investors will likely charge hundreds of euros per bottle when the wines start appearing in a year or two, turning out deeply rich reds and elegantly sparkling wines for wealthy Chinese drinkers who they hope will be proud to serve local vintages that are the equal of their imported collections.

"China deserves the production of great wines," said Christophe Salin, president of Domaines Barons de Rothschild (DBR), which owns the vaunted Château Lafite, Ch. Duhart-Milon and Ch. L'Évangile, among other French labels. "Without wanting to copy Lafite, we wish to produce a great wine on Chinese soil," he added in an interview.

DBR is investing 100 million yuan (€12.3 million) with partner CITIC, a state investment firm, to develop 25 hectares of vineyards in eastern Shandong province to produce super-premium red wine for the Chinese market.

Moët-Hennessy, the wine and spirits arm of luxury group LVMH Moët Hennessy Louis Vuitton SA, is also looking to make a top-end Chinese red and is planting 30 hectares of grapes in remote mountains of southern Yunnan province.

Moët-Hennessy studied climate and soil conditions at hundreds of locations around China before settling on an area the government calls "Shangri-La", abutting Tibet, to grow Cabernet sauvignon, Cabernet franc and Merlot grapes.

Christophe Navarre, chief executive of Moët-Hennessy, won't divulge the investment there but says it is borne two-thirds by Moët-Hennessy and one-third by its Chinese partner, winemaker VATS.

Wine from Shangri-La

"I dream one day to go back to France with a bottle of red wine produced in the region of Shangri-La and I can say it's the best wine in the world," Navarre said in announcing the venture last year.

Moët-Hennessy's wine portfolio includes the vaunted Ch. Cheval Blanc and Ch. d'Yquem, the world's most coveted dessert wine. Its champagnes include Dom Perignon, Moët & Chandon and Krug – and it is developing vineyards in Ningxia Hui autonomous region in north-central China with a view to producing China's first ultra-premium sparkling wine.

Neither DBR nor Moët-Hennessy plans to market its Chinese wines under existing brands. Both say they want to give the wines a unique Chinese identity – a strategy that is questioned by some within the Chinese wine industry.

"If they don't put their brand on it then people won't buy it at a very high price," says Monica He, who works with wine importer Menvis in Beijing.

Thirsty market

DBR's and LVMH's investments into China aim to capitalise on China's growing thirst for premium wines, but could also help their extensive line-ups of mid-priced wines and spirits.

China is the world's fifth-largest wine consumer, according to a study last year for VINEXPO, an annual wine trade show that alternates between Bordeaux and Hong Kong. The study forecast annual consumption growth in China and Hong Kong at 54.3% between 2011 and 2015, or a billion more bottles every year.

China's wine market is dominated by a few large local producers that make bulk and mid-priced wine, and some premium-priced wines selling for more than €75 a bottle, but these are usually considered far inferior to much cheaper imported wines.

So can China produce something at the highest level?

"The potential there is to make something very, very good," says Jim Boyce, who follows China's wine industry on his blog Grapewallofchina. "There are a lot of people who've been telling me for years that Yunnan is where it's going to happen."

China is the world's biggest importer of Bordeaux wines and consumption soared 110% in 2011. France called the decision to consider duties "inappropriate and reprehensible".

EU wine exports to China excluding Hong Kong, which EU officials said was not covered by the investigation, reached 257.3 million litres in 2012 for a value of nearly €750 million. More than half - 139.5 million litres - came from France.

European Union

Governments

Subscribe to our newsletters

Subscribe

Want to know what's going on in the EU Capitals daily? Subscribe now to our new 9am newsletter.