Why China Isn't Hitting The Bottle

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It's shortly before 11 p.m. on a mid-September Monday, and Arnaud Mirey is preparing for the grand opening of VIN, a high-end wine shop featuring the finest offerings from Bordeaux. On the second floor of the shop, against the wall in a big glass display case, sit 40 of the great wines from the region, including a 1985 Château Margaux[an error occurred while processing this directive] that's on sale for a mere $1,487.50. Asked if wine is now certifiably hot in China, Mirey, the former sommelier at Petrus, a splashy French restaurant in Hong Kong's Island Shangri-La hotel, grins and says, "Oh yeah."

Well, maybe — or maybe not. Despite a proliferation of trendy wine bars and stores in Shanghai and Beijing, China as a whole remains a huge disappointment for the world's winemakers. Just a few years ago, there were broad expectations that China would be the Next Big Thing in the wine world, following in the footsteps of Japan and South Korea, which have both developed into substantial export markets. So far, it hasn't happened. "The feeding frenzy about China is not reflected in the size of the market," says Ian Ford, a wine importer in China.

Wine sales in China are rising, but they are still tiny; Chinese consumption is a minute 0.3 L per head per year, one-tenth the Japanese level, and 90% is locally made. So far there is almost nothing in between those rough concoctions and the big-name wines destined for the élite. And the market is both narrow and extremely volatile: imports rose sharply in the second half of the 1990s, only to crash back down again. Despite signs of a recent recovery, sales of French wines in China in 2005 totaled just over $13 million, down from the $20 million peak in 1997. Part of the problem stems from bureaucratic hurdles for importers and heavy import duties that account for 60% of the price of the bottle. "There are still immense difficulties importing wine into China," says Alun Griffiths, wine director at Berry Bros. & Rudd, the big U.K. wine merchant.

So will the market ever take off? Yes, the optimists continue to believe. Chinese officials sometimes extol the healthy qualities of wine — in any case seeing it as better than local spirits which are often made of rice, corn and other cereals. China has officially committed to reduce import tariffs as part of its membership of the World Trade Organization. And the advent of stores like VIN, albeit catering only to privileged citizens, may presage some bigger trend in the future. "Wine has become very popular, particularly among young upper-middle-class Chinese, and in particular young upper-middle-class and wealthy Chinese women with a lot of disposable income," enthuses Leah Liu, the China marketing manager for Hong Kong-based Jebsen & Co., the firm behind VIN and an importer of high-end luxury goods throughout China, including Raymond Weil watches and Porsche cars.

Grace Bai, a 32-year-old advertising executive, is one of her target consumers. Nursing a glass of Louis Jadot Beaujolais on the outdoor patio at La Villa Rouge in Shanghai, Bai says wine is a good drink for women. "I enjoy it, and many of my friends do too." Now, if only there were a few million more like her.