In his paper, Anderson points out that between 2005-2017, China’ share of global wine imports grew fourfold, to 7-8%. But, by 2022, its consumption of wines, both domestically produced and imported, had fallen back to 2006 levels.
What happened?
Before trying to answer this question, Anderson — the George Gollin Professor Emeritus of Economics at the Australian National University and foundation Executive Director of the Wine Economics Research Centre — provides a warning about the ‘uncertain nature’ — some would say opacity — of Chinese wine statistics. There are, he says, “no reliable data on wine stocks in China. Nor are smuggled wine imports from Hong Kong or Macao able to be included in the estimate of China's wine consumption.”
Combining figures from the National Bureau of Statistics of China (NBSC) and UN COMTRADE-based international trade data, however, he concludes that the official numbers coming out of China may actually overestimate current consumption. The blending of imported bulk wine with bottles labelled as ‘Product of China’ and the internal trading of wine between provinces may, he says, lead to “double counting”.
Anderson suggests that the 2m-tonne 'rounded' estimate of 2020 Chinese national production published by the Food and Agriculture Organization of the United Nations may be “several times the correct figure.”
The fall is more than a decade old
For anyone who imagined that the slowdown in the Chinese market could be explained by Covid, the new report shows that per capita consumption peaked in 2012 and fell almost every year after that. Imports have dropped by 55% since 2017 and, while Australia briefly bucked this trend in 2018, its shipments also fell in 2019 and 2021, before the imposition of tariffs almost brought them to a complete halt.
The pandemic did play a role: wine sales dropped by 47% between 2019 and 2022, while spirits and beer only fell by 17% and 3% respectively. Wine consumption in China is predominantly still an on-trade social activity and the lockdown affected its sales far more savagely than other alcohol. But wine sales were already falling before the arrival of Covid and they are continuing to fall since
Wine sales were already falling before the arrival of Covid and they are continuing to fall since China opened up.
As Anderson notes, “Part of [the] decline from 2013… may be attributable to the austerity measures introduced by President Xi that frowned upon lavish official dinners and other conspicuous consumption and gift-giving, and more recently that also discouraged consumption of exotic/imported goods.” Long-time China-watchers would see the sense in this, given the huge proportion of wine that was previously associated with gifts and hospitality rather than western-style consumption. But Chinese domestic spirits (baijiu) are also super-premium products with prices that can run into hundreds of dollars per bottle. Why did their sales not fall as significantly as those for wine?
Anderson raises the possibility that falling wine sales might be explained by the kind of premiumisation experienced in the US. Maybe, like the Americans, the Chinese are simply drinking less but better. Unfortunately, this hypothesis falls down when set against average import values that have remained fairly constant at around $4.00 per litre since 2011.
Another explanation is that, in President Xi’s China, wine might be viewed “politically as an exotic product” associated with Western countries. The term ‘guochao” (national wave) is associated with a trend, especially evident among the country’s younger consumers, to favour locally-produced products over imports. As Bloomberg reported last year, “Meeting the demands of the young, nationalistic and exacting Gen Z will require an immense shift in how Western companies — who have bet that decades of demand for foreign goods will endure — do business in China and poses an unprecedented challenge to their market dominance.”
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The excitement about wine is over
The guochao theory is associated with the rapid growth in China’s domestic brands in every sector, from cars to fashion and cosmetics. Wine, however, has not followed this pattern. Chinese production fell from its 2013 peak of over 1.2bn litres to under a billion in 2014 and has continued to tumble ever since. Today, at less than 200m, it is lower than it was in 2000.
Anderson suggests that “The decline in China’s local wine production may be a consequence of new domestic producers disinvesting because their earlier profit expectations were not realised.”
There are echoes here of Chinese distributors’ disenchantment with wine as a sector, especially when compared to baijiu which offers higher margins and greater scope for promotion. If Chinese speculators fell out of love with Bordeaux en primeur in 2011 after discovering that it offered smaller and slower returns on their investment than they had anticipated, importers of more basic wines have been similarly disappointed with the profits available to them. This is despite widespread efforts to increase wine margins through the use of private labels which — according to Chinese customs — at one point raised the total number of supposedly individual wines in the market to over 100,000.
Improving the profitability of the wine sector may be beyond the abilities of any one nation. After all, multinational drinks giants like Diageo and Pernod Ricard, both of which have invested in baijiu, have made their preferences for spirits abundantly clear.
What if Chinese consumers never fell in love with wine the way producers imagined?
There is another possible way of looking at the situation. What if Chinese consumers never fell in love with wine the way producers imagined?
In theory, as a ‘normal good’ like food, clothing, entertainment, transportation, electronics and home appliances, wine should see a growth in consumption in line with the rise in adult population and real income per capita. Experience in other countries also suggests that, over time, its share of total alcohol consumption should also grow towards the 13% global average. This is what was happening until 2012 when wine’s share of the pot in China hit 4.6%. Today it languishes at just 1.5%. Over that same period, according to the World bank, China’s per capita GDP rose from $6,301 to last year’s $12,720.
Not so normal?
At a time when wine consumption is falling in developed markets, is it heretical to suggest that perhaps it may not be quite as ‘normal’ a good as some economists have traditionally believed?
As an Australian, Anderson is inevitably particularly interested in the impact China’s wine drinking trends will have on his country’s industry. His view is bleak:
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“The volume of China’s wine imports in the short term is unlikely to become much more than half what it was at its peak."
So if Australia were to be able to claw back its 2018–2020 share of China’s wine imports (one-quarter by volume, a little over one-third by value), that would amount to an export increase of not 130 ML or US$750 million per year but perhaps only half those amounts. Even that may be too optimistic as a short-term forecast because numerous Australian wineries that have invested in developing new markets after 2020 may be reluctant to go back to what is now perceived to be a less reliable Chinese market.”
Anderson notes that, given the low volume of imports — a “little more than 100 ML/year in bulk” and low price — averaging just $0.88¢ per litre in 2020 and 2021, Australia’s producers are “vindicated’ in deciding to look to other parts of Asia, North America, and Europe rather than hang on for a return of the happy days they once enjoyed in China.
In conclusion, he says that ”over the longer term, China’s wine market will likely expand as incomes rise and the quality of local production improves and entices more consumers to include wine in their beverage consumption bundle.”
Some readers making long term plans may pause over his cautious use of the word “likely”.
