Voluntary Report - public distribution

**Date:** 4/14/2005

**GAIN Report Number:** CH5808

CH5808

**China, Peoples Republic of**

**Wine**

####### Shanghai Wine Brief

**2005**

**Approved by:**

![](media/image1.wmf)Ross Kreamer

U.S. Consulate

**Prepared by:**

Lauren Buckalew

**Report Highlights:**

Shanghai is undisputedly the largest market in China for imported U.S.
wines. In 2004, the U.S. was the third largest importer of bottled wines
by volume, after France and Australia. As the up-and-coming financial
center of Asia, Shanghai is now home to a clutch of exclusive 5-star
restaurants, wine bars, boutiques, and supermarkets that sell imported
wine to foreigners and increasingly to locals as they become more
educated about wine. A large potential market for wine in China remains:
with relatively low per capita consumption of domestic wines, and even
less of imported wines, this market has room for growth.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Shanghai ATO \[CH2\]

\[CH\]

Table of Contents

[**"In Vino Veritas!" 3**](#in-vino-veritas)

[The China Wine Market 3](#the-china-wine-market)

[Imported Wines: High Hopes for the High-end Market
4](#imported-wines-high-hopes-for-the-high-end-market)

[Marketing in a New Culture 5](#marketing-in-a-new-culture)

[Marketing Assistance 7](#marketing-assistance)

[Distributors, Import Laws and Regulations
8](#distributors-import-laws-and-regulations)

[Useful Contact Information 9](#useful-contact-information)

[SWOT Analysis 9](#swot-analysis)

[Appendix A: Discrepancies between U.S. and China Data
10](#appendix-a-discrepancies-between-u.s.-and-china-data)

[Appendix B: List of Product Information Required in Chinese
10](#appendix-b-list-of-product-information-required-in-chinese)

[Appendix C: Formula to Determine Import Tax on U.S. Wine
11](#appendix-c-formula-to-determine-import-tax-on-u.s.-wine)

[Appendix D: U.S. Wine Exports to China, 1999-2004
11](#appendix-d-u.s.-wine-exports-to-china-1999-2004)

# "In Vino Veritas!"

![](media/image2.wmf){width="3.779861111111111in"
height="2.5243055555555554in"}Shanghai is undisputedly the largest
market in China for imported wines and imported U.S. wines. In 2004,
U.S. winemakers shipped 3,634 KL (MT) of wine to Shanghai (Shanghai
Customs). As the up-and-coming financial center of Asia and the keystone
to massive foreign investment in the Yangtze River delta, Shanghai is
now home to a clutch of exclusive 5-star restaurants, wine bars,
boutiques, and supermarkets that sell imported wine to foreigners and
increasingly to locals as they become more educated about wine.
Wine-producing countries such as France and Italy that have been on the
market for years have high recognition amongst Shanghainese, but in
blind taste tests consumers prefer U.S. wines' fruitier, fuller flavor.
A large potential market for wine in China remains: with relatively low
per capita consumption of domestic wines, and even less of imported
wines, this market has room for growth, if winemakers have the patience
and perseverance to market their wines over the long-term.

# 

# The China Wine Market

*General*

China's total retail sales of wine for 2003, the latest year statistics
are available, were \$7 billion (Euromonitor). Anecdotal evidence
suggests that 70% of wine sales in China occur in restaurants and bars;
however, no official figures are available for HRI sales volume or
value. 2004 imports of wine (sparkling, white and red) were valued at
\$52.8 million, up 58% from 2003. Imports of U.S. wine accounted for 7%
of the 2004 total. From 2003 to 2004, U.S. imports increased 118% in
value to \$5.37 million, and 76% in volume, to reach over 2,000 KL (FAS
trade data, World Trade Atlas)[^1].

China is a wine-producing country, with over 500 wineries in
operation---10 or so of which are major producers---in China's northeast
and in its far-flung western province Xinjiang. Modern commercial
Chinese viticulture began only in the past 30 years, with the opening of
China's economy. Joint ventures with foreign wine companies, notably
between Illva Saronno SpA, Remy Cointreau, and major players Changyu,
Dynasty, and Imperial Court have helped China's wineries procure vines,
improve production technology, and use foreign expertise.

Domestic brands dominate the large, price-sensitive segment of the
Shanghai market. The major domestic brands in Shanghai---Changyu, Great
Wall, Dynasty, and Imperial Court---retail at around \$4 a bottle,
making them attractive choices for consumers who cannot afford imported
wine, which averages around \$12.

##### 

##### The Region

China's Yangtze River Delta, which includes Shanghai and its prosperous
satellite cities in Jiangsu Province to the north and Zhejiang Province
to the south, is a key consumer market. Shanghai residents have the
highest per capita disposable income in China at US\$1,800 per year, and
residents of nearby cities are not far behind, with disposable incomes
in major cities ranging from \$1,600 (Zhejiang Province) to \$1,200
(Nanjing, Jiangsu) a year (China Statistical Yearbook 2004). Shanghai's
21 million residents especially enjoy new foods and flavors, and it
leads the nation in food and restaurant trends.

As the middle class expands and incomes rise, consumption of
non-essential, high-value products such as wine will rise as well. In
2003 the per capita retail wine sales in Shanghai were second in the
nation at 7.39 RMB (\$0.89), and in Zhejiang Province fourth highest at
6.03 RMB (\$0.73) (Access Asia). When comparing the price per unit
consumed, it becomes clear that Shanghainese are buying more high-end
(imported) wines per capita than consumers in other provinces, with
Zhejiang not far behind (see ratios in Table 1 below). Tianjin, the city
with the highest volume of consumption nation-wide, is something a red
herring; most of the sales are of cheap domestic wines.

Table 1: Values and Volumes of Wine Consumption Per Capita, Select
Provinces, 2003

  ---------------------- -------------- -------------- -------------------
  Province               Value (RMB)\*  Volume         Ratio Value: Volume
                                        (Liters)       

  Shanghai               7.39           0.27           27.37

  Beijing                9.27           0.35           26.49

  Guangzhou              5.13           0.24           21.38

  Zhejiang               6.03           0.31           19.45

  Jiangsu                1.95           0.12           16.25

  Tianjin                6.24           1.70           3.67

  National Average       2.57           0.20           12.85
  ---------------------- -------------- -------------- -------------------

\*\$1.00=RMB 8.27 *Access Asia*

## Imported Wines: High Hopes for the High-end Market

In 2004, China imported almost 7,500 KL of bottled sparkling and table
wine, and 36,600 KL of bulk wine (WTA). Imported bottled wines set the
standard for the high-end market, competing not only with expensive
domestic wines, but also with equally pricey imported spirits such as
VSOP and Hennessy. Competition among exporting countries for the limited
high-end niche is fierce, with France and Australia in the lead in the
bottled wine market. Chile has supplanted Spain as the dominant bulk
exporter, having achieved and maintained the highest export volume of
all countries to China since 2001. Imported bottled wines comprise less
than 1% of the total retail market, due to the enormous volume of
domestic wine available (Euromonitor).[^2] Imported wine's largest
market in Shanghai is the hotel and restaurant industry, including
nightclubs. Shanghai's 4- and 5-star hotels, western restaurants---from
2-star to world-class---and up-scale local chain restaurants targeting
Shanghai's middle and upper classes all carry imported wines. Some local
chain restaurants also feature private label imported wines.

![](media/image3.wmf){width="3.470138888888889in"
height="3.1013888888888888in"}U.S. wine exports have increased five-fold
in value from \$1.5 million in 1999 to \$5.373 million by 2004. Exports
are increasingly bottled, up from 690 KL in 1999 to 1,800 KL in 2004,
while bulk shipments have actually declined (FAS). However, due to their
late entry, U.S. winemakers have not yet gained a significant market
share relative to their French and Italian counterparts, nor relative to
other latecomers such as Australia or Chile. Chilean wine imports
(mostly bulk, mixed with and sold as Chinese wines) had the highest
value of all countries in 2004, at \$20 million, followed by French
(\$14.2 million) and Australian (\$6.3 million) wines, respectively
(WTA).

![](media/image4.wmf){width="3.7597222222222224in"
height="3.297222222222222in"}At present, imported wines' largest market
is on-trade, in up-scale restaurants, bars, and exclusive nightclubs.
Shanghai's Xin Tian Di (pronounced "shin tyen DEE"), a complex of
carefully assembled up-market bars and restaurants frequented by locals
and foreigners, is one such venue. Bars and restaurants in Xin Tian Di
and similarly up-scale locations buy wines at wholesale for around
\$7.50 per bottle, not including tariffs (the price including tariffs is
around \$12). After adding their own profit margins, wines in this price
range sell well to Xin Tian Di's customer base, mostly white-collar
locals. Of course, higher- and lower-end wines are also on the menu,
from \$15 Chilean to \$1,000+ French.

Given a growing interest in retail imported wines, wine retail chains
could see a new market in Shanghai in the near future. Xin Tian Di now
features a new wine and cheese store, and wine-and-cheese specialty
shops are opening in other high-end retail shopping areas.

## 

# Marketing in a New Culture

One would be hard-pressed to find a commodity with a more positive image
in China than wine, which is associated with sophisticated western
customs, the social elite, and health. Yet although this image of wine
has been popularized, in the beginning wine education---how to
appreciate fine wine---did not follow behind with equal strength or
pervasiveness. A compounding factor is the government's very loose
regulation on appellation and grape varieties, making Chinese wine
labels less meaningful to consumers. Although the wine industry has
debated using the French or German system of classification, no decision
has been made (China Wine Online).

![](media/image5.wmf){width="3.640972222222222in"
height="2.172222222222222in"}

Without a grape wine tradition of their own, Chinese initially
integrated wine into the local drinking culture as a healthy, new,
lower-cost alternative to other high-end drinks such as imported brandy
or Chinese spirits. At present, wine purchases by local Chinese fall
largely into two categories: banquet dinner purchases and retail gift
purchases. In neither case does the buyer buy wine for himself; instead,
wine serves as an elegant and tasteful gift to share or for others to
enjoy. Banquet drinking generally involves competitive drinking among
men (and occasionally including women) in a formal banquet setting in
which the ordering of expensive dishes and drinks demonstrates respect
for guests or superiors. Red grape wine frequently substitutes for the
higher-octane clear spirits (*baijiu*) at official banquets in Shanghai,
especially for toasts. Wine pairing with food is yet uncommon; most
Chinese prefer red wines overall, so they tend to choose red wines for
all dishes. Wine conveys the same affection and respect as a gift item,
to be given on special occasions such as Chinese New Year or a
housewarming party. Gift packaging in the form of a sturdy cardboard
display box is standard. Larger gift boxes may include 2 bottles of wine
and a corkscrew or wineglass, all resting on a "satiny pillow" (a
plastic mold covered with attractive fabric).

![](media/image6.wmf){width="3.920138888888889in"
height="3.2423611111111112in"}Chinese wine drinking habits have been
known to differ from those in the west. Some differ enough to horrify
those righteous wine aficionados unfortunate enough to witness
them---wine can be gulped like a shot, or mixed with lemon, ice, or
Sprite. Due to Shanghai's long-time foreign presence, influence, and
resulting familiarity with wine, local wine lovers are gradually taking
up western wine drinking practices. For the most part, however, ordinary
Shanghainese and their compatriots in nearby cities will continue to mix
or dilute wine to achieve a sweeter taste. As one distributor commented,
"No one likes the taste of wine the first time."

Even as Chinese consumers gradually assume western wine consumption
habits, there are some differences in the market that will remain for
the foreseeable future:

-   75-80% of the wine consumed in Shanghai, and across China, is red
    wine. This could be due to positive media on red wine's health
    benefits. Interestingly, in blind taste tests, Chinese prefer white;
    however, because of wine's function as a symbolic gift and not for
    personal consumption, red wine sales should continue to be strong.
    White wine sales tend to be to foreigners who are attuned to food
    pairing, and thus choose white when it suits the meal; and to local
    women, who claim that white wine is lighter. Also, white wine sales
    during the summer increase significantly because it can be enjoyed
    chilled.

-   Shanghainese prefer the fruitier, fuller tastes of U.S. wine. 65%
    preferred the taste of California wine in a blind taste test against
    French, Chinese, and Australian wine. However, they all associated
    it with French wine, indicating a lack of awareness of U.S. wines.
    Because purchase behavior is so strongly linked with wine's image,
    to succeed in the local market U.S. exporters need to promote their
    product image as quality, prestigious wine.

Lastly, access to mainstream, middle-class Shanghainese is a long-term
goal. Current sales of imported wine are limited largely to foreigners
and upper-income urban Chinese. Distributors in Shanghai cite strongest
sales in up-scale and/or western bars and restaurants; supermarkets
frequented by expats; home delivery to foreigners; and corporate or
free-flow events. Online sales are also on the rise. As incomes rise,
and as more Shanghainese become familiar with imported wine and learn to
enjoy the taste, imported wine consumption will increase, in bars and
restaurants (western and Chinese) and in
retail.![](media/image7.jpeg){width="3.3916666666666666in"
height="2.54375in"}

##### Marketing Assistance

## 

Introducing a foreign wine and creating a brand and product that suits
Chinese consumers takes commitment and smart marketing. The Agricultural
Trade Office/Shanghai, one of four FAS offices located in China to
provide marketing support for U.S. companies, provides country market
information and market development support, and conducts a wide variety
of activities designed to build distribution channels for U.S.
agricultural products. The ATO is a good place to start for a winemaker
who is interested in the China market and needs expert, in-country
advice.

ATO often works with cooperators including the California Wine Institute
(WI) and the Oregon Wine Board to promote U.S. wine in the Shanghai
area. Events such as wine tastings for trade professionals, wine
dinners, and trade shows are typical ways to introduce wines to hotel
and restaurant buyers and distributors. (France and Australia, for
example, have consistently installed pavilions at trade shows to feature
their wines; today they have the highest market shares for bottled
wine.) Consumer wine tastings have become so prevalent, however, that
unless the product is very unique or a famous brand, returns are
minimal. Establishing a brand is a long-term process, and unless
properly focused, the results are difficult to quantify. ATO is happy to
work with wineries new to the market to develop custom programs to test
market their wines with distributors.

To increase market awareness directly among end users, ATO's large
umbrella events for U.S. products, such as restaurant and retail store
promotions, and the multi-product Chinese New Year promotion in
mid-winter are good places to begin. To get more bang for their buck,
wineries from a particular regional appellation are encouraged to work
together to establish a market image for the region. Those who would
like first-hand experience with the China market are encouraged to visit
or join a trade mission.

## 

# Distributors, Import Laws and Regulations

The first step in exporting bottled or bulk wines to Shanghai is to find
a good distributor. Although the major wine distributors/importers offer
impressive lists of imported labels, most currently do not proactively
market new wines. That said, an interested importer/distributor will be
able to explain tariffs and labeling requirements, help a seller quickly
register wine so it can be imported, and help import small quantities
hassle-free for trade shows and tastings. With the help of your
distributor, arranging annual visits to current and potential buyers in
China are very effective ways of staying visible on the market. A
detailed list of wine importers and distributors in the area can be
provided upon request.

Imported wine is subject to a total import tax of 48.2% for sparkling
and still wines in containers less than 2 liters (bottled table wines),
and 56% for wine in containers over 2 liters (bulk wine)[^3]. The
current tariff levels are expected to remain constant for the near
future, although if imported wine begins to overpower the domestic wine
market, the government may raise the consumption tax to level the
playing field. Imported U.S. wines are retailing on average at 130-300
RMB (\$15.50-\$36) a bottle, but shipping bulk and bottling in China can
significantly lower retail prices to 38-70 RMB (\$4.85-8.50) per 750 ml
bottle.

China's Administration of Quality Supervision, Inspection and Quarantine
(AQSIQ) labeling requirements for imported wine require that certain
product information on the bottles be in Chinese (see Appendix B, List
of Product Information Required in Chinese). At present, the
distributors for many foreign wineries are sticking small, printed
adhesive labels over their back labels, leaving the unique and artistic
front labels untouched. Although AQSIQ has been accepting the stickers,
in future the Administration is expected to be firmer in requiring
permanent labels in Chinese.

## Useful Contact Information

  ------------------------------- ---------------------------------------
  U.S. Agricultural Trade Office  California Wine Institute
  Shanghai                        

  Mr. Ross Kreamer, Director      Barbara Lee

  Suite 331, Shanghai Center      Room 3A, 3^rd^ Floor

  1376 Nanjing West Road          886 Tianbao Road

  Shanghai CHINA 200040           Shanghai, CHINA 200086

  Tel: +86 (21) 6279-8622         Tel: +86 (21) 5557-0142

  Fax: +86 (21) 6279-8336         Fax: +86 (21) 6515-6498

  <atoshanghai@usda.gov>          <leesmarket@sh163.net>

                                  

  Oregon Dept. of Agriculture     Washington State Dept. of Agriculture
                                  China Office

  Brian Liu, International Trade  Li Haidong
  Manager                         

  1207 NW Naito Parkway, Suite    15F Aile Building, No. 631 Lingling
  104                             Road

  Portland, OR 97209-2832         Shanghai, CHINA 200030

  Tel: (503) 872-6600             Tel: +86 (21) 5424-4336

  Fax: (503) 872-6601             Fax: +86 (21) 6489-9665

  <bliu@oda.state.or.us>          <lhaidong@163.net>
  ------------------------------- ---------------------------------------

# SWOT Analysis

![](media/image8.wmf){width="5.993055555555555in"
height="3.9611111111111112in"}

##  

## Appendix A: Discrepancies between U.S. and China Data 

## ![](media/image9.wmf){width="5.996527777777778in" height="5.821527777777778in"}

## Appendix B: List of Product Information Required in Chinese

A.  Name/Brand

B.  Ingredients

C.  Net volume (ml)

D.  Alcohol content (%)

E.  Production place

F.  Production date (yy/mm/dd)

G.  Packer/distributor/importer (Name and address)

H.  Must content (%)

I.  Country of origin

J.  Quality guarantee or storage period (yy/mm/dd)

K.  Sugar content (g/L)

## 

## 

## Appendix C: Formula to Determine Import Tax on U.S. Wine

Total import taxes for bulk and bottled wine factor in an import tax,
consumption tax, and VAT:

Import tax rate (ITR)

Bulk wine 20%

Bottled wine 14%

Consumption tax rate (CTR) 10%

VAT rate 17%

Rather than being the simple sum of these percentages, however, the
total import tax is calculated using a compound formula. Using bottled
wine for an example, the compound rate is calculated as follows:

  -------- --- -------- -------- ---- ----- -------- ---- ------ -------- ---- ------ -------- --- ------ ---------
  Total    =   ITR      (0.14)   \+   CTR   (0.10)   \+   VAT    (0.17)   \+   (ITR   (0.14)   x   VAT    (0.17))
  import                                                  rate                                     rate   
  tax                                                                                                     

               1 -- CTR                                                                                   
               (0.10)                                                                                     
  -------- --- -------- -------- ---- ----- -------- ---- ------ -------- ---- ------ -------- --- ------ ---------

Simplifying,

  ---------- --- ------ ---- --------- --- --------- --- -------- --- ------------
  Total      =   0.41   +    0.0238    =   0.4338    =   0.482    =   **48.20%**
  import tax                                                          

                 0.9                       0.9                        
  ---------- --- ------ ---- --------- --- --------- --- -------- --- ------------

Source: 2005 Customs Import and Export Tariff of the People's Republic
of China

We can calculate that the total import tax on bottled wine is 48.2%, and
on bulk wine is 56%.

## 

## 

## Appendix D: U.S. Wine Exports to China, 1999-2004

+-------------------+---------+----+----+----+----+----+----+------+
| COMMODITY         | HS      | V  |    |    |    |    |    | \%   |
|                   | TARIFF  | al |    |    |    |    |    |      |
|                   | CODE    | ue |    |    |    |    |    | CH   |
|                   |         | (1 |    |    |    |    |    | ANGE |
|                   |         | ,0 |    |    |    |    |    | '03  |
|                   |         | 00 |    |    |    |    |    | -'04 |
|                   |         | U. |    |    |    |    |    |      |
|                   |         | S. |    |    |    |    |    |      |
|                   |         | d  |    |    |    |    |    |      |
|                   |         | ol |    |    |    |    |    |      |
|                   |         | la |    |    |    |    |    |      |
|                   |         | rs |    |    |    |    |    |      |
|                   |         | )/ |    |    |    |    |    |      |
|                   |         | Ye |    |    |    |    |    |      |
|                   |         | ar |    |    |    |    |    |      |
+-------------------+---------+----+----+----+----+----+----+------+
|                   |         | 19 | 20 | 20 | 20 | 20 | 20 |      |
|                   |         | 99 | 00 | 01 | 02 | 03 | 04 |      |
+-------------------+---------+----+----+----+----+----+----+------+
| SPARKLING WINE    | 220     | 3  | 13 | 3  | 18 | 11 | 53 | 38   |
|                   | 4100000 |    |    | 13 |    |    |    | 1.82 |
+-------------------+---------+----+----+----+----+----+----+------+
| EFFERVESCENT WINE | 220     | 0  | 42 | 23 | 0  | 0  | 1  | \--  |
|                   | 4212000 |    |    |    |    |    | 94 |      |
+-------------------+---------+----+----+----+----+----+----+------+
| WINE, \<2L, \<14% | 220     | 1  | 5  | 1  | 2  | 2  | 4  | 11   |
| alcohol           | 4214000 | ,0 | 41 | ,1 | ,6 | ,3 | ,9 | 0.58 |
|                   |         | 40 |    | 50 | 72 | 54 | 57 |      |
+-------------------+---------+----+----+----+----+----+----+------+
| WINE, \<2L, \>14% | 220     | 0  | 0  | 0  | 8  | 17 | 83 | 38   |
| alcohol           | 4217000 |    |    |    |    |    |    | 8.24 |
+-------------------+---------+----+----+----+----+----+----+------+
| WINE, \>2L, \<14% | 220     | 7  | 3  | 0  | 1  | 60 | 86 | 4    |
| alcohol           | 4290020 |    | 18 |    | 30 |    |    | 3.33 |
+-------------------+---------+----+----+----+----+----+----+------+
| WINE, \>2L, \>14% | 220     | 0  | 8  | 25 | 0  | 22 | 0  | \--  |
| alcohol           | 4290040 |    |    |    |    |    |    |      |
+-------------------+---------+----+----+----+----+----+----+------+
|                   | **      | *  | *  | *  | *  | *  | *  | **11 |
|                   | TOTAL** | *1 | *9 | *1 | *2 | *2 | *5 | 8%** |
|                   |         | ,0 | 22 | ,5 | ,8 | ,4 | ,3 |      |
|                   |         | 50 | ** | 11 | 28 | 64 | 73 |      |
|                   |         | ** |    | ** | ** | ** | ** |      |
+-------------------+---------+----+----+----+----+----+----+------+

Source: U.S. Trade Data

# 

[^1]: This report uses data from the USDA's Foreign Agricultural Service
    (FAS) and China Customs as reported in the World Trade Atlas (WTA).
    FAS and China Customs records vary widely on U.S. export data for
    China. Counterfeit U.S. bulk imports, which make U.S. bulk wine
    imports appear larger than they are, may be one reason. In this
    report, FAS data is used for U.S. statistics, and China Customs data
    is used for information on all other exporting countries. For more
    details on the differences in reporting please see Appendix A.

[^2]: Does not factor in the amount of imported bulk wine that is mixed
    with Chinese wine and labeled as "domestic", even if it is actually
    35-45% from foreign grapes.

[^3]: The formula used to derive the total import tax and covering the
    customs tariff, VAT, and consumption tax, is provided in Appendix C.