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From vineyards of Bordeaux to Chinese cellars

Publication Date : 27-01-2014

 

The biggest wine deal in Chinese history ended in tragedy last month when billionaire Hao Lin, his 12-year-old son and two other people were killed in a helicopter crash, their aircraft plunging into the River Dordogne as they toured a chateau and vineyard in Bordeaux.

The 46-year-old hotel tycoon had just purchased the historic Chateau de la Riviere for a reported 30 million euros (US$41 million), to date China's biggest deal by value in the estates of one of the world's most famous regions for fine wine.

Hao's purchase highlighted the growing influence of Chinese investors in the French region in recent years. There are approximately 8,000 chateaus in the Bordeaux area and around 70 of them have been bought by Chinese investors, according to an e-mail from Karin Maxwell, one of the founding partners of Bordeaux-based real estate broker Maxwell-Storrie-Baynes, an exclusive affiliate of Christie's International Real Estate.

Chinese interest has been so great that Maxwell-Storrie-Baynes has a dedicated China desk. According to Li Lijuan, who is in charge of the desk, Chinese investors have been involved in more than 20 transactions over the last 12 months.

"One can only gain a vague idea of the number of Chinese vineyard owners in Bordeaux. Some rich Chinese investors hold Western passports, while others keep a low profile and demand nondisclosure of their transactions," she said.

Chinese entrepreneurs now own almost 1 per cent of Bordeaux's chateaus. That figure may be small, but it indicates a shift in the social status of Chinese people in France, according to Li.

The chateaus and vineyards are associated with the upper echelons of French society, and while an apartment in Bordeaux will cost around 200,000 euros and a villa 400,000 euros, buying a vineyard costs millions, generally more than 10 times the price of regular property.

"There's no doubt that the local people were surprised when the Chinese - who until recently were usually stereotyped as restaurant staff - suddenly came to buy their chateaus", said Li.

Cultural concerns

Because wine making is an integral part of French culture, some locals have expressed concern that the sales of chateaus to the Chinese will result in a diminution of their heritage, according to media reports.

However, Jonathan Ducourt, sales manager of Vignobles Ducourt in Bordeaux, doesn't share that opinion. The Ducourt family has been in the wine business since 1858 and is currently the region's largest wine-producing group by family corporation, with estates covering 440 hectares and 13 chateaus.

"Foreign investment in wine properties in Bordeaux is actually contributing to our original heritage by extending our wine culture and visibility," said Ducourt.

"We not only have the Chinese, but also, for example, the British and Irish people who came to the region. They have not only brought money and technology, but also fresh business ideas, which can open new markets for Bordeaux wines," he added.

That assertion was echoed by Li: "Our Chinese clients are devoted to making good-quality wines. For example, after purchasing the chateaus, they also invested heavily in improving the quality through the use of oak fermentation barrels, investment in storehouses and by renovating the cellars, which are so important for improving the quality of the wine."

But, that improvement in quality isn't just about asthetics; many Chinese buyers are eyeing the lucrative returns that can accrue from selling fine wines in China.

"On the European and US markets, a 3 to 8 per cent return on investment can be expected, but for some Chinese chateau owners, the rate is much higher. Some can make large profits by simply selling wine from the cellars to China", said Li.

China's newly affluent middle class, an influx of wealthy returnees from overseas, the rising number of foreigners living in China, and the country's wider exposure to Western lifestyles mean that an increasing number of Chinese are becoming interested in wine culture and learning more about it.

"In the past, wealthy Chinese buyers came to Bordeaux and looked for beautiful chateaus with classical architecture and they weren't very concerned about the vines. But nowadays, I'm impressed that more and more Chinese investors are showing great knowledge about wine. They are now looking for higher-quality wines and are perhaps less concerned with the chateaus' buildings," said Li.

According to a report from the Economic and Research Department of Le Conseil Interprofessionnel du Vin de Bordeaux, the local wine bureau, the region's wine exports to China accounted for 338 million euros in 2012, the largest in terms of volume and second in terms of value of all the council's destinations.

Consumption set to double

However, statistics about wine consumption in China are hard to find. According to Dong Shuguo, a wine industry analyst and president of the website winechina.cn, China's total consumption came to roughly 50 billion yuan ($8.3 billion) in 2012. "Using figures from the International Organization of Vine and Wine, it's estimated that China's wine consumption will double by 2016, by which time the country will be the world's second-largest wine market", he said.

Per capita consumption in China has seen continual growth during the past decade, rising from just 0.25 liters per annum in 2002 to 1.31 liters in 2012, a fivefold increase, according to a report by the Fortune Character Institute, part of Fortune Character, a media group that focuses on China's business elite and the luxury market.

By contrast, a recent report from the London-based International Wine & Spirit Research, the average per capita wine consumption in France is 53.2 liters per annum, signaling that consumption in China is in its infancy and lags behind major wine-growing regions.

Huge potential

"But this shows without doubt that the potential for wine consumption in China is huge," said Dong.

Despite that rise, wine has a long way to go before it can be considered part of mainstream Chinese culture.

"Drinking wine in France is more of an everyday activity, like eating. A bottle of wine will cost 5 euros or so at the supermarket, but you can also spend a little more, perhaps 10 euros, at a wine store and buy a far better wine," said Ducourt.

Lu Jiang, a Beijing-based wine critic and consultant who started his own company Wineonline Culture, to promote wine culture in China 10 years ago, said, "In China, wine is still more of gift and luxury item, rather than a 'fast-moving consumer good.'"

In recent years, the demand for better vintages from China's newly rich and officials has been rising rapidly. They see fine wine as a status symbol which provides an opportunity to impress their friends. Wines for banquets and gifts account for at least 70 per cent of sales in China, said Lu.

However, since late 2012, sales of high-end wines have been badly hit by the government's anti-corruption program and a number of austerity campaigns, he said.

"Some large vendors weathered at least a 30 per cent decrease in their sales volumes in 2013, and a number of small and medium-sized vendors went out of business", he added.

Ironically, however, the sales decline may have safeguarded the long-term development of the wine industry in China.

"The worst times have gone. The plunge in government and business orders has actually prompted vintners and wine-makers to shift their attention to nurturing individual markets by promoting the culture of wine and selling better value wines in accordance with people's growing interest and greater knowledge," Lu said.

 

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