Required Report - public distribution

**Date:** 12/21/2004

**GAIN Report Number:** CH4620

CH4605

**China, Peoples Republic of**

**South China's Beer and Wine Market:**

**A Window of Opportunity**

**2004**

**Approved by:**

![](media/image1.wmf)Keith Schneller

**Prepared by:**

Joshua Emmanuel Lagos

Sharon Zhang

**Report Highlights:**

South Chinese incomes have doubled within the last few years, resulting
in increased beer and wine expenditure. However, imported products only
hold a small share in overall sales. Education and promotion will be
necessary to introduce more imported wines since many consumers do not
understand variety and quality differences. In addition, sales of
foreign standard lager have primarily been successful with joint venture
production in China.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Guangzhou \[CH3\]

\[CH\]

# Section I: Market Overview..............................................................................................Page 3 of 21

# 

# Section II: South China: First Look at Regional Potential...........................................Page 3 of 21

# 

# Section III: South China: 

# Consumer Incomes and Expenditure on Beer and Wine................................................Page 4 of 21

# 

# Section IV: General Trends-

# Consumer Habits and Knowledge: Wine...........................................................................Page 5 of 21

# 

# Section V: General Trends-

# Consumer Habits and Knowledge: Beer............................................................................Page 6 of 21

# 

# Section VI: Taxation, Import Duties, and other Legislation.........................................Page 7 of 21

# 

# Section VII: Domestic Classification Systems.................................................................Page 8 of 21

# 

# Section VIII: Labeling Requirements.................................................................................Page 8 of 21

# 

# Section IX: Glass or Plastic?................................................................................................Page 8 of 21

# 

# Section X: Legal Importation and Distribution................................................................Page 9 of 21

# 

# Section XI: Gray Market Trade...........................................................................................Page 9 of 21

# 

# Section XII: Education: The Key to South China's Wine Market...............................Page 9 of 21

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# Section XIII: Joint Ventures and Marketing: 

# The Key to South China's Beer Market............................................................................Page 11 of 21

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# Section XIV: South China HRIs, Distributors/Importers, 

# and Off-trade retailers.........................................................................................................Page 12 of 21

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# Section XV: Appendices.....................................................................................................Page 15 of 21

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# **Section I: Market Overview**

China, one of the world's leading consumers of beer, has traditionally
had an enormous alcoholic beverage market. From CY 2000-2003, it
increased its total lager sales from RMB \$124.7 to \$150.4 billion,
while still wine held a relatively smaller position, rising from RMB
\$49 to \$61.1 billion in the same period. In CY 2003, the wine and beer
sector made up approximately 53% of all beverage sales in China (see
Figure I).

However, the share of total imported beer and wine has remained low. In
Appendix I, wine imports only comprised .617% of the total wine market
in CY 1999, gradually decreasing to .332% in CY 2002 and finally
experiencing some improvement in CY 2003 at .446%. Beer imports have not
been as impressive, decreasing its share from .441% to .272% from CY
1999-2003.

Figure 1

  ------------- --------------- ------------- ------------ --------------- ------------- ------------ --------------- ------------- ------------ --------------- ------------- ------------
  Total China                                                                                                                                                                  
  Beverage                                                                                                                                                                     
  Sales                                                                                                                                                                        

                2000                                       2001                                       2002                                       2003                          

  RMB billions  Value           \% share      \% change    Value           \% share      \% change    Value           \% share      \% change    Value           \% share      \% change

  Alcohol       \$321.7         88.2%         -0.9%        \$324.9         87.1%         1%           \$331.7         86.1%         2.1%         \$339.2         85.2%         2.2%

  ***Wine***    ***\$49***      ***13.4%***   ***7.7%***   ***\$53.3***    ***14.3%***   ***8.8%***   ***\$57.2***    ***14.9%***   ***7.4%***   ***\$61.1***    ***15.4%***   ***6.8%***

  ***Beer***    ***\$124.7***   ***34.2%***   ***6.8%***   ***\$133.3***   ***35.7%***   ***6.9%***   ***\$142.5***   ***37%***     ***6.9%***   ***\$150.4***   ***37.8%***   ***5.5%***

  Non-Alcohol   \$26.9          7.4%          15.7%        \$30.9          8.3%          14.7%        \$35            9.1%          13.4%        \$39.1          9.8%          11.8%
  (exclude hot                                                                                                                                                                 
  drinks)                                                                                                                                                                      

  Hot Drinks    \$16.1          4.4%          5.6%         \$17.3          4.7%          7.4%         \$18.7          4.9%          7.6%         \$19.8          5%            6.4%

  Total         \$364.9         100%          0.4%         \$373.2         100%          2.3%         \$585.3         152%          56.8%        \$398.2         100%          -32%
  ------------- --------------- ------------- ------------ --------------- ------------- ------------ --------------- ------------- ------------ --------------- ------------- ------------

Source: Euromonitor

Nonetheless, within both of these categories, certain players have
performed exceedingly well. Chile and Australia have incrementally
increased their wine market sales, with Chile now controlling half of
total Chinese imports (Appendix IV). Mexico and Germany have
accomplished a similar feat in the beer sector, comprising approximately
three-quarters of total lager imports (Appendix V). On the contrary, the
United States has not become a major contender, decreasing total Chinese
beer and wine exports from RMB \$33 to \$2.2 million and consequently
losing major market share from CY 1999-2003.

# **Section II: South China: First Look** 

Beer and wine sales are primarily concentrated within four regions in
China: East,[^1] Mid China,[^2] North and Northeast,[^3] and the
South.[^4] These highly industrialized areas have primarily been fueled
by international trade (although mostly concentrated in larger cities
such as Shanghai and Guangzhou), which has created higher paying jobs
for many Chinese. As a result, with more income, locals now have the
ability to increase their expenditure on luxury items such as high-end
alcoholic beverages.

South China differentiates itself from other areas because it has
drastically increased its market position for both beer and wine within
the last five years. According to Appendix II, the region's total beer
sales (domestic and imported) increased from RMB \$18,225 to \$24,946.9
million and total wine sales (domestic and imported) rose from RMB
\$6,348 to \$8,988 million from CY 1999 to 2003. Other areas are also
expanding, such as East China that had a 30.3% growth in wine and 34.3%
growth in beer during the same time frame. Yet, South China's greatest
advantage may be its higher income potential.

# 

# **Section III: Consumer Incomes and Expenditure on Beer and Wine**

Fig. 2

+-----+--------+------+--------+--------+--------+--------+-----------+
| *   |        |      |        |        |        |        |           |
| *Na |        |      |        |        |        |        |           |
| tio |        |      |        |        |        |        |           |
| nal |        |      |        |        |        |        |           |
| A   |        |      |        |        |        |        |           |
| ver |        |      |        |        |        |        |           |
| age |        |      |        |        |        |        |           |
| Wag |        |      |        |        |        |        |           |
| e** |        |      |        |        |        |        |           |
+-----+--------+------+--------+--------+--------+--------+-----------+
| RMB | 1998   | 1999 | 2000   | 2001   | 2002   | 2003   | \% change |
|     |        |      |        |        |        |        |           |
|     |        |      |        |        |        |        | 1998-2003 |
+-----+--------+------+--------+--------+--------+--------+-----------+
| W   | \      | \$8  | \      | \$     | \$     | \$     | 88%       |
| age | $7,479 | ,346 | $9,371 | 10,870 | 12,422 | 14,040 |           |
+-----+--------+------+--------+--------+--------+--------+-----------+

Source: China Statistical Yearbook 2004

  ------------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
  **Guangdong                                                                     
  Average                                                                         
  Wage**                                                                          

  RMB           1998       1999       2000       2001       2002       2003       \% change
                                                                                  1998-2003

  Wage          \$10,233   \$11,309   \$13,823   \$15,682   \$17,814   \$19,986   95%
  ------------- ---------- ---------- ---------- ---------- ---------- ---------- -----------

Source: Guangdong Statistical Yearbook 2004

Since no aggregate figures exist for South China due to a lack of data
in certain provinces, Guangdong provides an excellent illustration of
South Chinese consumers since it is considered not only the hub of the
region's Cantonese culture, but a pioneer in its trade-based economy.
According to China Statistical Year book 2004, the average Guangdong
wage increased from RMB \$10,233 to \$19,986 from 1998-2003, rising
approximately RMB \$2000 more year-on-year than national figures (figure
2 above). In addition, as illustrated in figure 3, Guangdong has
experienced little to no inflation, thereby, providing strong evidence
that its residents have more spending power. Although the numbers
average both rural and urban incomes, it is important to remember that
those who live in the urban areas of China will have greater purchasing
power since they have higher net earnings.

Fig. 3

  ---------------------- ------- -------- ------- -------- -------- --------
  **National Consumer                                               
  Price Index**                                                     

  RMB                    1998    1999     2000    2001     2002     2003

  CPI (1995=100)         110     109      109     110      109      110
  ---------------------- ------- -------- ------- -------- -------- --------

Source: World Bank Online

  ---------------------- ------- -------- -------- -------- -------- --------
  **Guangdong Consumer                                               
  Price Index**                                                      

  RMB                    1998    1999     2000     2001     2002     2003

  CPI (previous          637.3   627.1    635.9    630.8    622      626.4
  year=100)                                                          
  ---------------------- ------- -------- -------- -------- -------- --------

Source: Guangdong Statistical Yearbook 2004

Even with higher incomes, Guangdong beer and wine consumption was lower
than the national average (all statistics refer to urban households). In
CY 2003, Guangdong's lowest level income households bought .36 kg of
beer while the highest income households consumed 2.04 kg. For wine,
lower class families purchased between .12 to .24 kg, with richer
households buying .48 kg. On average, Guangdong residents purchased .12
kg of wine and 1.32 kg of beer per family in CY 2003. This is quite low
in comparison to national statistics, which show an average beer
consumption of 6.12 kg and .29 kg for wine per family.

Nonetheless, Guangdong residential % increases in wine and beer
consumption surpassed national figures. From CY 2000-2003, figure 4
shows that Guangdong wine and beer consumption experienced 200% and
37.5% growth. This is noteworthy because it illustrates that not only
have South Chinese consumed more beer and still wine than the average
Chinese, but they also have been spending more of their income on these
alcoholic beverages.

Reasoning behind South China's higher expenditure is cultural since the
region's residents enjoy (more than other consumers) spending large sums
of money at fine restaurants and on high-quality food. Moreover, this
expenditure is not limited to local Cantonese fare, but also new cuisine
such as Western food and beverages, which differentiates South China's
populace from other Chinese inhabitants that are not as open-minded.

Fig. 4

  -------------- ----------- --------- ----------- ----------- ----------- -----------------------
  **Guangdong                                                              
  per capita                                                               
  annual                                                                   
  purchases by                                                             
  urban                                                                    
  households**                                                             

  Kg             2000        2001      2002        2003        \% change   
                                                               2000-2003   

  Wine           0.04        0.1       0.105       0.12        200%        

  Beer           1.02        0.96      1.14        1.32        37.50%      

                                                                           

  **National per                                                           
  capita annual                                                            
  purchases by                                                             
  urban                                                                    
  households**                                                             

  Kg             2000        2001      2002        2003                    \% change 2000-2003

  Wine           0.18        0.19      0.24        0.275                   52.70%

  Beer           6.07        5.86      5.44        5.6                     -4.40%
  -------------- ----------- --------- ----------- ----------- ----------- -----------------------

Source: China and Guangdong Statistical Yearbook: 2000-2004

**Section IV: General Trends - Consumer Habits and Knowledge: Wine**

# 

Wine has existed in China for over 1000 years. Introduced sometime
before the Han Dynasty (206 B.C.), only wealthy individuals, statesmen,
and aristocrats traditionally purchased wine. After the 1949 revolution,
China began to create modern wine production facilities and distribution
centers, often mixing local grapes with foreign imports (a practice that
continues today). Only within the last couple decades has China been
capable of producing and distributing mass volumes of still wine.

Wine flavor has varied throughout China's history. Those who purchased
wine from the Han Dynasty to Mao's Red China tasted a product that
varied in structure, having qualities like the highly potent baiju, a
liquor that is 45% proof, to a very syrupy and sweet composition. When
high quality imported still wine entered China's market (without any
further alteration or mixing) in the late 1980s and early 1990s
(Appendix VI provides information on different wine varieties in China),
due to their inexperience, many Chinese thought that the product tasted
sour. As a result, the practice of mixing imported wine with soda,
fruit, and ice at local restaurants, clubs, and bars became a common
method to sweeten the flavor. Because of a lack of interest by many
retailers, distributors, and other players, the wine edification process
has also been very slow, with few Chinese enjoying high quality wines
merely for its distinctive flavors and individuality. Actually, a
popular social custom for many Chinese is to chug still wine until they
are intoxicated.

# Preferences for wine vary, but most Chinese prefer red wine to rosé or white. Some analysts believe part of the attraction to red wine is cultural since red is a color for good luck and white is commonly equated with misfortune. In addition, many consumers have openly acknowledged that red wine makes them appear more sophisticated and affluent, thereby, equating it as a symbol of social class and wealth. 

# 

# Price also has an influence. China's cheap domestically produced wine primarily caters to lower-class Chinese and wealthy consumers who have little or no wine education. Although some economists believe there is no market for premium grade imported wines since Chinese incomes have not reached a sufficient level, a stronger argument would be that middle and upper class Chinese do not have the knowledge to understand grape variety and quality differences. As a result, many are not willing to spend money on high-end wines. Therefore, a lack of knowledge and experience with higher quality wines as well as different varieties such as white and rosé have caused the market to remain in favor of cheaper products. Such a phenomenon can be remedied with more education and exposure. 

# Various statistics illustrate changing Chinese consumer preferences for wine. First, the numbers in Appendix III illustrate the % share and total sales of red wine in comparison to other varieties, showing an increase in reds from 13.2% to 17.8% from CY 1999-2003. In addition, although no stats exist that separate consumer purchases of domestic and imported reds, price can be an indicator of the Chinese preference for cheaper products, which is displayed in figure 5. However, it is important to note that cheaper red, white and rose wines priced under RMB \$30 have decreased in sales and mid to high-end products have grown from 1998-2003, showing potential for expensive imported wines.

Fig. 5

  ---------- ------------------ --------------- --------------------------
             **National Sales                   
             of Red Wine                        
             according to                       
             Price**                            

             \% off-trade       1998            2003

  RMB        Under \$30         45%             32.50%

             \$30-\$59.99       30%             45%

             \$60-\$89.99       10%             12.50%

             \$90-\$119.99      12%             7.50%

             \$120 and above    3%              2.50%

             Total              100%            100%

                                                

             **National Sales                   
             of White Wine                      
             according to                       
             Price**                            

             \% off-trade       1998            2003

  RMB        Under \$30         50%             38%

             \$30-\$59.99       35%             45%

             \$60-\$89.99       7%              12%

             \$90-\$119.99      6%              3.5%

             \$120 and above    2%              1.5%

             Total              100%            100%

                                                

             **National Sales                   
             of Rose Wine                       
             according to                       
             Price**                            

             \% off-trade       1998            2003

  RMB        Under \$30         58%             50%

             \$30-\$59.99       28%             36%

             \$60-\$89.99       8.50%           10%

             \$90-\$119.99      4.80%           3%

             \$120 and above    0.70%           1%

             Total              100%            100%
  ---------- ------------------ --------------- --------------------------

Source: Euromonitor

# **Section V: General Trends - Consumer Habits and Knowledge: Beer**

# 

# Beer has also historically been produced in China for thousands of years, becoming a common staple within the Chinese diet because it is often cheaper than water. As a result, the type of beer that dominates the market is inexpensive economy lager; however, this trend is slowly changing.

As Chinese incomes have risen, many have begun to purchase premium beer
because, like wine, it shows their social status. Therefore, it has
become a more common practice for wealthier Chinese to buy foreign brand
name products, such as Heineken or Budweiser. Yet, this growing
percentage is relatively small since the mid-premium beers are more
expensive, with the majority of Chinese opting for economy lagers (see
Appendix V).

Consumer loyalty to local brands is very strong given the small degree
of outside competition, mostly attributed to regional protectionism. For
example, many provinces levy high taxes on alcoholic beverages not
produced locally, giving provincial breweries considerable advantages
within the market. In addition, because most Chinese believe that
freshly made lager is of higher quality, many prefer local brands, which
usually sell their product within a 500 km radius.

Climate strongly affects when beer is consumed. Traditionally, most
Chinese drink beer between the months of May to October since they
believe it should be served during the hottest time of the year. Regions
such as the north and northeast that have heaters during the winter
months continue to drink lager year round, which differs from East China
residences that mostly do not have heaters and consider it too cold for
beer. South China is a particularly favorable area since it is warm
practically all year, giving it higher sales potential. Recently, there
have been a few restaurants and hotels in South China that have opened
their own brew pubs, featuring freshly made lager and wheat beer at
reasonable prices.

Chinese prefer lagers and usually do not consume other beers, such as
dark beer, because many are unfamiliar with the product. In 2003, the
only available stout was Guinness, whose overall market share was very
small. Many new products have recently been introduced, such as fruit
flavored beer (e.g. Yanjing Lemon and Yanjing Pinapple), low-alcohol
beer that has 3% to 8% ABV, milk beer, draft beer, and nonalcoholic beer
(e.g. Carlsburg's Jolly Shandy). However, none of these beverages have
been on the market long enough to evaluate their success with Chinese
customers.

# **Section VI: Taxation, Import Duties, and other Legislation**

Fig. 6

  ---------------------------- ----------------------- -------------------
                               Consumption Tax         Import Duty

  Beer with msp exceeding RMB  RMB 250/ton             none
  3,000/ton                                            

  Beer with msp less than RMB  RMB 220/ton             none
  3,000/ton                                            

  Unbranded beer               RMB 250/ton             none

  Wine                         RMB 240/ton             14%

  Source: Foreign Agricultural                         
  Service, International Trade                         
  Adminstration, and                                   
  Euromonitor, USITC                                   
  ---------------------------- ----------------------- -------------------

Adhering to its commitment to the WTO in 2001, as displayed in figure 6,
China lowered its wine tariff to 14% and also eliminated its beer tariff
on January 1, 2004. As a result, higher quality wines and beers have
become affordable for more Chinese. The VAT for beer and wine is
currently at 17%, but should be evenly applied to domestic and imported
products.

The central government restricts advertising for certain alcoholic
beverages. Spirits and hard liquor advertising are strictly limited to
only two commercials from 7 pm to 9 pm, and no more than ten in one day
(max. of two per hour) per TV channel. This number is all-inclusive,
meaning that each channel is only allocated a couple slots per hour, not
per beverage company. Newspapers and magazines can only include two hard
alcoholic advertisements per issue, which cannot be shown on the first
page. Beer and wine have been excused from such regulations.

# **Section VII: Domestic Classification Systems**

Currently, two grape varieties officially exist in China: passed and not
passed. Wine can only be sold in the market if it receives the
designation of passing, and there are no labeling requirements or
classification methods that differentiate between domestically grown
grapes, such as a Pinot Noir or Sinsaut. Because there is no legal
requirement, only a few wineries have begun labeling their wines. Such a
vague system makes it difficult for Chinese consumers to understand
grape variety, quality, and taste, inhibiting their ability to make
comparisons between domestic products and imports. Chinese authorities
recognize the problem and have discussed using French and/or German
classifications systems, although nothing has been formalized.

Beer also must pass a quality standard; however, there is no indication
that an official classification system exists since most if not all of
China's domestic beer production consists of lagers.

####### Section VIII: Labeling requirements

Since late March of 2004, China has been enforcing a new labeling law
that requires pre-packaged food and beverage products (including
alcoholic beverages) to include specific information in Chinese.
Promulgated on July 1, 2002, the law effectively banned the use of
temporary adhesive labels, although many foreign companies continue to
attach stickers to their products. For US companies that are serious
about entering China's market, it is strongly recommended to follow
China's new labeling law. Currently, it applies only to delivery units
and not shipping units and bulk merchandise.

Labels should include the following mandatory label contents in Chinese
characters:

1)  Name/Brand

2)  Ingredients

3)  Net Weight (ml)

4)  Alcoholic Content (%) (V/V)

5)  Production Date (yy/mm/dd)

6)  Production Place

7)  Packer / Distributor (name & address)

8)  Content of Must (%) (sake is exempted from this requirement)

9)  Country of Origin

10) Quality Guarantee and/or Storage Period (yy/mm/dd)

11) Content of Sugar (gram/l)

# **Section IX: Glass or Plastic?**

There are no specific requirements for glass or plastic packaging,
although it is important to consider cultural issues. Most Chinese
prefer wine and beer in large glass bottles because they like to drink
in big social groups. As a result, the 750 ml wine bottle and the 640 ml
beer bottle have the highest sales. However, in regards to premium beer,
consumers want to buy smaller 330-355 ml bottles to show their
individual social status. Kegs, plastic bottles, and cans are not
popular among the average Chinese consumer.

In addition, the attractiveness of the label and color of the bottle
have a heavy influence on what products Chinese like to purchase. For
wine and beer, many Chinese prefer products with a classy and
well-organized label on a dark tinted bottle. According to sources,
Chinese view the color and appearance of the bottle as a physical
extension of their overall guise while dining at a restaurant or a club.

# **Section X: Legal Importation and Distribution**

There are currently two different mediums to import and distribute
foreign alcoholic products: 1) CEROILS (China National Cereals, Oils,
and Foodstuffs Import and Export Corporation), which is the official
state importer, wholesaler, and distributor for mainland China and 2)
foreign owned and joint-venture on-trade establishments and duty-free
outlets (i.e. China Travel Services). Importers must acquire sublicenses
from CEROILS if they want to have independent control of the marketing
and distribution process. Often, these suppliers become one-stop-shops,
providing many services such as climate-controlled warehousing, trade
education, and delivery. HRIs and duty free outlets can only sell their
products at their location and cannot become an independent distribution
hub.

Introducing new imported wines and beers has been a challenge in China.
For many years importers have been concentrated in Shanghai, mainly
because of its modern infrastructure and higher demand from foreign
clientele. However, Shanghai suppliers are often reluctant to expand
their channels to new imported products since the demand is still
relatively low.

# South China importers in Hong Kong and cities within the Pearl River Delta are just as cautious. Because high-end imported wines and beers exist only in 5 star hotels and restaurants (which have only begun to enter many of the large metropolitan areas after local municipal governments lifted HRI restrictions within the last couple years), many importers have been weary of carrying and/or introducing new imported alcoholic items because they believe that a small demand still exists. However, many on and off trade retailers believe that demand has incrementally risen as incomes have improved, which will encourage South Chinese importers to carry a larger quantity and variety of imported beverages. 

**Section XI: Gray Market Trade**

Contraband goods still compose a significant portion of total wine and
beer sales in South China. In Guangzhou, many distributors on the
mainland have formed exclusive relationships with importers in Hong
Kong, giving them greater access to gray market products. Although many
of these relationships were originally forged to acquire imported goods
and materials before China opened up its economy, these historical
alliances have continued as a means to avoid custom duties and the VAT.

Some of this gray market trade does not necessarily enter the mainland
with its original packaging. For example, companies purchase large
quantities of foreign wine and repackage the item with a new label and
bottle, passing it off as a Chinese-made product. However, labeling does
not necessarily mean giving the new bottled wine a Chinese brand, since
these companies can also put domestic or foreign wine in a custom
produced French, Spanish, or Chilean labeled bottle, generating almost a
perfect replicate of the real packaging. As a result, it is difficult to
tell what type of wine one has purchased.

Since March of 2004, China has begun to crack down on contraband trade,
making it more difficult to transship illegal imports from Hong Kong to
the mainland. However, sources recently have noted that pressure from
the central government has recently eased.

# 

# **Section XII: Education: The Key to South China's Wine Market**

Although overall imported wine sales are low in comparison to China's
overall wine market (as depicted in Appendix 1a), these items have a lot
of potential, especially in South China. South Chinese enjoy high
quality food products, and because imported high-end wines cannot be
replicated in Chinese wineries, due to different climate, soil, water,
and production processes, imports should be able to make market headway
assuming that Chinese consumers receive a proper wine education. Such
education will be critical for marketing success, since many domestic
wineries have flooded the market with comparatively lower quality/priced
beverages such as Great Wall or Dynasty (although for domestic wines
they are first tier). As a result, wineries serious about South China's
market must promote their product with an educational emphasis, such as
wine tastings, and concentrate on areas with higher incomes that are
open to new beverages and foods.

Most wine companies and traders do not place much emphasis on the
importance of marketing and education, leaving these activities to local
retailers and consultants, which often operate amiss. For example,
because there are few if any formal classes on wines in South China,
most wine retailers that dabble in wine tasting do not offer a proper
wine education. In addition, wine tasting does not occur very regularly
or have widespread advertisement, and mostly travels by word of mouth
among the expatriate community, with no ads in local newspaper or
magazines for the local Chinese population.

![](media/image2.png){width="3.497916666666667in"
height="2.4270833333333335in"}

Some promotions have currently taken advantage of cultural activities
and national holidays, but other events need to be explored. For
example, during the September Moon Festival, some retailers offer
discounts or package promos that include red wine and moon cakes in gift
boxes; yet, the red wines are French and usually do not include any US
varieties. Other ideas such as publicizing imported wines with local
pastries, breads, meats, and rice dishes in local supermarkets,
hypermarkets, and popular Cantonese restaurants are almost nonexistent
in South China.

It is important to begin to educate those who can afford to purchase
imported wines. Focusing in areas of China that are not open to new
products or cannot afford imported goods will have little success. South
China is a strong market because, as previously stated, many residents
not only have higher incomes, but also like trying new foods and
beverages and spending large sums of money on quality meals. However,
this process will not occur rapidly, and requires long-term commitment
from foreign firms willing to educate the populace in order to create a
larger consumer base.

Complete eradication of certain practices such as mixing low quality
wines with soda should not be the objective. Other cultures, such as the
Spanish, mix low-end red wines with coca-cola (called a *calimocho*) in
order to improve the flavor; in addition, Austrians also enjoy blending
cheap wine with soda water to create a *gespritzt*. However, the
difference is that these consumers also recognize that high-end wines
should be enjoyed without any alteration. As a result, providing Chinese
consumers a greater understanding of how to differentiate products
becomes a critical component in the wine edification process. If this
occurs, then imported wines could carve out a significant market share
within South China.

# **Section XIII: Joint Ventures and Marketing: The Key to South China's Beer Market**

Although total volume (imports and domestic) increased by 40% from CY
1998-2003, most of these sales have been in economy beers. Total imports
have gradually decreased from 1999 RMB \$515.1 to \$409.7 million,
forming even a smaller part of China's beer market (see Appendix I(b).
In the near future, both economy and mid-end beers more than likely will
be produced by joint ventures and foreign-owned local breweries, while
opportunities for imports may only be available for high-end items.
Appendix V illustrates the opportunity for growth in this sector since
its overall market share has increased from 10.5% to 12.6% within the
last five years.

Foreign beer companies have concentrated on creating joint ventures with
local breweries. Within a few years, most domestic local breweries have
undergone mergers and acquisitions, generating a more stream-lined, cost
efficient platform to produce lager. International breweries have
responded by creating joint ventures and strategic alliances with these
local conglomerates, such as Anheuser-Busch, which in October 2002
acquired 27% of Qingdao. Other examples include SABMiller's purchase of
30% of Harbin Brewery Group in June 2003 (China's fourth largest
brewery), Carlsburg's buy-out of Dali Beer Brewery and Kunming Huashi
Brewery in Yunnan province, and Belgium-based Interbrew that acquired
70% of KK Brewery in Zhejiang province.

Through joint ventures, foreign beer companies have generated mutually
beneficial partnerships by providing local management with
sales/marketing expertise, while also taking advantage of the company's
distributional channels, production facilities, and established sales
networks. Such advantages have given foreign businesses the ability to
penetrate China's provincial markets, which are usually protected with
high taxes. By taking advantage of established provincial networks,
international breweries have promoted their product through local
channels and sold it at more affordable prices. As a result, higher
distribution and more brand recognition have increased their market
share. Of course, the types of beer they are promoting are low to mid
end grade foreign lager, and most have not dabbled in producing high-end
micro-brew. US companies such as Coors, Budweiser, and Pabst Blue Ribbon
have licensed local breweries to produce their beer in China.

Nonetheless, some imported lager has been successful. Mexico's gradual
domination with Sol and Corona (Appendix 1(b)) illustrates that it is
possible to penetrate China's beer market with imports; however, the
question of how long Moctezuma Brewery (Sol) and/or Grupo
Modelo/Cervecia Modelo (Corona) will continue to export beer in lieu of
creating a joint venture remains to be seen.

South Chinese HRI managers and traders believe a market exists for
high-end imported lager in the Pearl River Delta. In regards to %
change, premium high quality lager has grown at least 9% year on year
from 1999-2003, almost twice as high as low-mid end imports (as shown in
Appendix V). Most of these sales have been concentrated in high-end
retailers, such as Guangzhou's China Hotel, the White Swan, the Garden
Hotel, and restaurants such as Celebrity. Yet, it is expected that sales
and demand will continue to rise as more foreigners flock to South China
and Chinese continue to acquire higher incomes.

Another avenue for consideration might include the exportation of hops
or barley for use in local Chinese breweries, especially since hops are
not produced in China. Although these inputs have primarily been sourced
from the Canadian and Australian market, there are still opportunities
for the introduction of US products. However, further elaboration of
such prospects will be written in a later report.

# **Section XIV: South China HRIs and Off-trade retailers**

a\) Sheraton (Dongguan)/China Hotel (Guangzhou)

The Sheraton Hotel, located about an hour south of Guangzhou in
Dongguan, opened one and a half years ago and operates with a staff from
all parts of China (e.g. Guangxi, Hunan, Yunnan, and Sichuan). The hotel
has 400 rooms and 8 conference rooms, averaging 70% occupancy with the
average expenditure of USD \$80 per check on food and beverage. During
the entire year, the hotel has approximately 123,000 guests, with the
majority comprising of Chinese customers. Americans, Taiwanese, Hong
Kongese, Japanese, South Koreans, and Italians primarily make up the
foreign customer base. In addition, the hotel has four restaurants
(Italian, Chinese, Japanese, and Western style cuisine) and a
martini/wine bar.

The China Hotel, located near the center of Guangzhou, has been
established for over 20 years, has over 2,000 employees and services
approximately 3,000 customers per day (restaurant, bar, and hotel
guests), or 1,080,000 customers per year, most of whom are Chinese
locals (70% local and 30% foreign). Moreover, the establishment has 15
floors, 842 rooms, 171 suites, 16 meeting rooms, four restaurants (two
international and two Chinese), and one champagne/cigar bar.

Both hotels sell different types of imported beers and wines. The
Sheraton has over 200 different varieties of imported and domestic wines
(70% are reds with about 30% whites); however, only ten originate from
the US. Wine can sell up to RMB \$8,000 per bottle, although a few are
priced even higher. All of the beers are foreign brands; yet, most have
been produced locally, including American brand products. Currently, the
hotel only offers a few US lagers. Because the Sheraton just opened, it
did not have any specific figures on wine/beer revenues; however,
management noted they have consistently had quarterly increases in
sales.

The Marriott has over 100 different bottles of imported wine, selling
approximately 3,000 to 4,000 bottles each month. Of this enormous
variety, the hotel only currently offers nine US wines. Furthermore, it
has over 30 different types of beers, and 80% of these are foreign
products. None of the imported beer comes from the US, although it does
offer domestically produced Budweiser. At the time of the interview,
management had no specific stats on beer revenues, but mentioned that
quarterly sales have risen for most of these products, especially at the
China Hotel's Food Street restaurant (for low-middle class Chinese).

The Sheraton and Marriott management want to introduce more imported
wine and beers. In order to stimulate more demand, the Sheraton hotel
offers a monthly promotion of a pre-selected imported wine, making it
the house wine for its restaurants and room service (sold at a lower
price), as well as a gift for VIP customers. In addition, management has
introduced a wine bazaar that sells over 100 varieties of wine with
Italian food, wine tasting and educating seminars, and an
international-wine maker night where a wine producer personally promotes
his/her wine to the local populace for two to three days. In regards to
beer promotion, the hotel plans to create a beer bar that will primarily
showcase imported micro-brewed beer, as well as hold beer tastings. The
Marriot has only begun to dabble in wine/beer tastings and promotions,
but has already noted that many companies from different countries, such
as Australia, Germany, and Chile, have already set-up seminars and
monthly events to showcase their products for CY 2005.

# 

# b) Wine Distributors/Importers: Jointek and ASC

![](media/image3.png){width="3.4993055555555554in" height="2.75in"}

Although it has only operated in South China for a few years, ASC
controls most of the region's market, experiencing sales of around RMB
\$1 billion per year. The company services 68 cities and represents 60
foreign wineries, with an inventory of over 700 products. Most of its
wines have been imported from France (30%), with American and Australian
wines coming in a close second (20-25%). Unlike Jointek, it only
distributes imported wine products, which sell from RMB \$80 to \$150
per bottle on-trade and RMB \$40 to \$80 per bottle off-trade. The
company's primary clients are five star hotels, western-style
restaurants, and international hypermarkets (20% off-trade and 80%
on-trade sales), with less concentration in local Chinese businesses
since many are not willing to take risks with imported wines.

ASC and Jointek have different approaches in introducing new wines to
the market. ASC focuses more on educating the general populace, hosting
various wine tasting seminars in international supermarkets and
hypermarkets. In addition, the company recently has begun a new program
that conducts wine tasting with local Chinese fare. Jointek has
primarily promoted its products to GMs of high-end on-trade
establishments, introducing imported wines through VIP wine tastings and
dinners.

# c) Off-trade: Metro

Metro, also located in the city of Dongguan, recently opened in March of
2004 and has approximately 90,000 members, averaging 1,500 customers per
day, with around 2,000-2,500 customers per day during the holiday season
(i.e. September Moon Festival). It has a customer base of 80% local
Chinese and 20% expats/western HRIs. Operating like a Sam's Club, the
establishment exclusively offering items at wholesale prices to
businesses and professional customers. 20% of its products are imported,
with only 2-3% from the US. Those customers that buy imported products
primarily are expats and western style restaurants and hotels, averaging
RMB \$300 per receipt.

Management believes that a higher demand now exists for imported wines
and beers, mainly due to the increased presence of foreigners. HRIs that
are customers of Metro have responded by requesting more imported
products; as a result, during the last few months, the wholesale store
has begun to increase its imported beer and wine selection. Currently,
10% of its imported beer comes from the United States, and out of its
100+ wine selection, the store only sells 10 US wines.

# d) Common Conclusions from HRIs, importers/distributors, and Off-trade retailers

Regardless of their different strategies, distributors/importers, HRIs,
and off-trade retailers believe that the imported wine and beer market
has increasingly grown within the last 10 years, especially in regards
to variety and quality. Moreover, they argue that the demand for
imported beverages will only increase as South China incomes improve and
more foreigners conduct their business in the region.

Many have commented that Europeans and Australians have been the primary
players within the South China market, conducting aggressive campaigns
that have given them higher market shares. As the beer and wine market
matures, all interviewees believe it will become more difficult to
penetrate South China with new foreign products, especially as local
consumers begin to habitually purchase certain brand names. As a result,
management from every establishment concede that unless other foreign
companies begin to advertise/push their products, current players such
as the Europeans will eventually control most of the South China
beer/wine market.

Appendix I(a)

<table style="width:100%;">
<colgroup>
<col style="width: 4%" />
<col style="width: 11%" />
<col style="width: 9%" />
<col style="width: 7%" />
<col style="width: 9%" />
<col style="width: 7%" />
<col style="width: 9%" />
<col style="width: 7%" />
<col style="width: 9%" />
<col style="width: 7%" />
<col style="width: 9%" />
<col style="width: 9%" />
</colgroup>
<tbody>
<tr class="odd">
<td></td>
<td colspan="11"><p
id="chinese-wine-imports-cy-1999-2003---market-share"
class="heading">Chinese Wine Imports CY 1999-2003 - Market
Share</p></td>
</tr>
<tr class="even">
<td></td>
<td rowspan="2"><strong>Current RMB Millions</strong></td>
<td colspan="2">1999</td>
<td colspan="2">2000</td>
<td colspan="2">2001</td>
<td colspan="2">2002</td>
<td colspan="2">2003</td>
</tr>
<tr class="odd">
<td></td>
<td><em>Value</em></td>
<td><em>% share</em></td>
<td><em>Value</em></td>
<td><em>% share</em></td>
<td><em>Value</em></td>
<td><em>% share</em></td>
<td><em>Value</em></td>
<td><em>% share</em></td>
<td><em>Value</em></td>
<td><em>% share</em></td>
</tr>
<tr class="even">
<td></td>
<td>Total World Imports</td>
<td>$281</td>
<td>0.617%</td>
<td>$231.3</td>
<td>0.472%</td>
<td>$192.8</td>
<td>0.361%</td>
<td>$190.3</td>
<td>0.332%</td>
<td>$273.0</td>
<td>0.446%</td>
</tr>
<tr class="odd">
<td rowspan="6">Key Regional Players</td>
<td><em>France</em></td>
<td>$53.9</td>
<td>0.118%</td>
<td>$39.6</td>
<td>0.081%</td>
<td>$43.4</td>
<td>0.081%</td>
<td>$41</td>
<td>0.072%</td>
<td>$66.2</td>
<td>0.108%</td>
</tr>
<tr class="even">
<td><em>Italy</em></td>
<td>$41.3</td>
<td>0.091%</td>
<td>$36.3</td>
<td>0.074%</td>
<td>$27.4</td>
<td>0.051%</td>
<td>$12.9</td>
<td>0.023%</td>
<td>$10.4</td>
<td>0.017%</td>
</tr>
<tr class="odd">
<td><em>Spain</em></td>
<td>$144.7</td>
<td>0.318%</td>
<td>$108.8</td>
<td>0.222%</td>
<td>$41.1</td>
<td>0.077%</td>
<td>$11.5</td>
<td>0.020%</td>
<td>$7.9</td>
<td>0.013%</td>
</tr>
<tr class="even">
<td><em>Australia</em></td>
<td>$8.7</td>
<td>0.019%</td>
<td>$6</td>
<td>0.012%</td>
<td>$6.8</td>
<td>0.013%</td>
<td>$13.4</td>
<td>0.023%</td>
<td>$22</td>
<td>0.036%</td>
</tr>
<tr class="odd">
<td><em>Chile</em></td>
<td>$6.9</td>
<td>0.015%</td>
<td>$16.2</td>
<td>0.033%</td>
<td>$49.5</td>
<td>0.093%</td>
<td>$76</td>
<td>0.133%</td>
<td>$128.8</td>
<td>0.211%</td>
</tr>
<tr class="even">
<td><em>United States</em></td>
<td>$14.4</td>
<td>0.032%</td>
<td>$15.6</td>
<td>0.032%</td>
<td>$1.9</td>
<td>0.004%</td>
<td>$1.4</td>
<td>0.003%</td>
<td>$1.8</td>
<td>0.003%</td>
</tr>
<tr class="odd">
<td></td>
<td>Total Chinese Sales (Domestic and Imported)</td>
<td>$45,548</td>
<td>100%</td>
<td>$49,038</td>
<td>100%</td>
<td>$53,349</td>
<td>100%</td>
<td>$57,274</td>
<td>100%</td>
<td>$61,185</td>
<td>100%</td>
</tr>
</tbody>
</table>

Source: Global Trade Atlas, UN Statistics

Appendix I(b)

<table style="width:100%;">
<colgroup>
<col style="width: 4%" />
<col style="width: 13%" />
<col style="width: 9%" />
<col style="width: 6%" />
<col style="width: 9%" />
<col style="width: 6%" />
<col style="width: 9%" />
<col style="width: 6%" />
<col style="width: 9%" />
<col style="width: 6%" />
<col style="width: 9%" />
<col style="width: 8%" />
</colgroup>
<tbody>
<tr class="odd">
<td></td>
<td colspan="11"><p
id="chinese-beer-imports-cy-1999-2003---market-share"
class="heading">Chinese Beer Imports CY 1999-2003 - Market
Share</p></td>
</tr>
<tr class="even">
<td></td>
<td rowspan="2"><strong>Current RMB Millions</strong></td>
<td colspan="2">1999</td>
<td colspan="2">2000</td>
<td colspan="2">2001</td>
<td colspan="2">2002</td>
<td colspan="2">2003</td>
</tr>
<tr class="odd">
<td></td>
<td><em>Value</em></td>
<td><em>% share</em></td>
<td><em>Value</em></td>
<td><em>% share</em></td>
<td><em>Value</em></td>
<td><em>% share</em></td>
<td><em>Value</em></td>
<td><em>% share</em></td>
<td><em>Value</em></td>
<td><em>% share</em></td>
</tr>
<tr class="even">
<td></td>
<td>Total World Imports</td>
<td>$515.1</td>
<td>0.441%</td>
<td>$759.2</td>
<td>0.609%</td>
<td>$567.2</td>
<td>0.425%</td>
<td>$428.6</td>
<td>0.301%</td>
<td>$409.7</td>
<td>0.272%</td>
</tr>
<tr class="odd">
<td rowspan="6">Key Regional Players</td>
<td><em>Malaysia</em></td>
<td>$2</td>
<td>0.002%</td>
<td>$4.3</td>
<td>0.003%</td>
<td>$6.1</td>
<td>0.005%</td>
<td>$3.5</td>
<td>0.002%</td>
<td>$8.2</td>
<td>0.005%</td>
</tr>
<tr class="even">
<td><em>South Korea</em></td>
<td>$1.2</td>
<td>0.001%</td>
<td>$5.5</td>
<td>0.004%</td>
<td>$7.7</td>
<td>0.006%</td>
<td>$13.1</td>
<td>0.009%</td>
<td>$11.5</td>
<td>0.008%</td>
</tr>
<tr class="odd">
<td><em>Netherlands</em></td>
<td>$389</td>
<td>0.333%</td>
<td>$416.4</td>
<td>0.334%</td>
<td>$194</td>
<td>0.145%</td>
<td>$47.3</td>
<td>0.033%</td>
<td>$23.9</td>
<td>0.016%</td>
</tr>
<tr class="even">
<td><em>Germany</em></td>
<td>$2.9</td>
<td>0.003%</td>
<td>$3.3</td>
<td>0.003%</td>
<td>$77.8</td>
<td>0.058%</td>
<td>$206.2</td>
<td>0.145%</td>
<td>$182.1</td>
<td>0.121%</td>
</tr>
<tr class="odd">
<td><em>Mexico</em></td>
<td>$59.1</td>
<td>0.051%</td>
<td>$105</td>
<td>0.084%</td>
<td>$107.1</td>
<td>0.080%</td>
<td>$126.7</td>
<td>0.089%</td>
<td>$130.4</td>
<td>0.087%</td>
</tr>
<tr class="even">
<td><em>United States</em></td>
<td>$18.6</td>
<td>0.016%</td>
<td>$6.0</td>
<td>0.005%</td>
<td>$2.2</td>
<td>0.002%</td>
<td>$0.5</td>
<td>0.000%</td>
<td>$0.4</td>
<td>0.000%</td>
</tr>
<tr class="odd">
<td></td>
<td>Total Chinese Sales (Domestic and Imported)</td>
<td>$116,748</td>
<td>100%</td>
<td>$124,714</td>
<td>100%</td>
<td>$133,352</td>
<td>100%</td>
<td>$142,554</td>
<td>100%</td>
<td>$150,415</td>
<td>100%</td>
</tr>
</tbody>
</table>

Source: World Trade Atlas, UN Statistics

Appendix II

  ------------- ----------- ------- -------- ----------- ------- -------- ----------- ------- -------- ----------- ------- -------- ----------- ------- --------
  Total Beer                                                                                                                                            
  Sales by                                                                                                                                              
  Region                                                                                                                                                

  RMB millions  1999                         2000                         2001                         2002                         2003                

                Value       \%      \%       Value       \%      \%       Value       \%      \%       Value       \%      \%       Value       \%      \%
                            share   change               share   change               share   change               share   change               share   change

  East          \$36,269    31.1%   7.3%     \$39,618    31.8%   9.2%     \$42,717    32%     7.8%     \$46,017    32.3%   7.7%     \$48,718    32.4%   5.9%

  Mid China     \$16,043    13.7%   6.5%     \$17,075    13.7%   6.4%     \$18,293    13.7%   7.1%     \$19,569    13.7%   7%       \$20,667    13.7%   5.6%

  North and     \$33,832    29%     7.6%     \$35,634    28.6%   5.3%     \$37,552    28.2%   5.4%     \$39,628    27.8%   5.5%     \$41,312    27.5%   4.2%
  Northeast                                                                                                                                             

  Northwest     \$5,856     5%      0.9%     \$5,990     4.8%    2.3%     \$6,174     4.6%    3.1%     \$6,390     4.5%    3.5%     \$6,582     4.4%    3%

  South         \$18,225    15.6%   4.8%     \$19,474    15.6%   6.9%     \$21,301    16%     9.4%     \$23,186    16.3%   8.9%     \$24,946    16.6%   7.6%

  Southwest     \$6,521     5.6%    5.2%     \$6,920     5.5%    6.1%     \$7,313     5.5%    5.7%     \$7,762     5%      6.1%     \$8,188     5.4%    5.5%

  Total         \$116,748   100%    6.4%     \$124,714   100%    6.8%     \$133,352   100%    6.9%     \$142,554   100%    6.9%     \$150,415   100%    5.5%

  Source:                                                                                                                                               
  Euromonitor                                                                                                                                           

  Total Wine                                                                                                                                            
  Sales by                                                                                                                                              
  Region                                                                                                                                                

  RMB millions  1999                         2000                         2001                         2002                         2003                

                Value       \%      \%       Value       \%      \%       Value       \%      \%       Value       \%      \%       Value       \%      \%
                            share   change               share   change               share   change               share   change               share   change

  East          \$25,471    55.9%   6.1%     \$27,235    55.5%   6.9%     \$29,303    54.9%   7.6%     \$31,296    54.6%   6.8%     \$33,211    54.3%   6.1%

  Mid China     \$6,204     13.6%   6.5%     \$6,641     13.5%   7.0%     \$7,207     13.5%   8.5%     \$7,732     13.5%   7.3%     \$8,247     13.5%   6.7%

  North and     \$4,811     10.6%   7.1%     \$5,284     10.8%   9.8%     \$5,934     11.1%   12.3%    \$6,481     11.3%   9.2%     \$7,066     11.5%   9%
  Northeast                                                                                                                                             

  Northwest     \$458       1%      5.3%     \$491       1%      7.4%     \$540       1%      9.9%     \$574       1.0%    6.4%     \$610       1%      6.3%

  South         \$6,348     13.9%   10%      \$6,956     14.2%   9.6%     \$7,699     14.4%   10.7%    \$8,332     14.5%   8.2%     \$8,988     14.7%   7.9%

  Southwest     \$2,255     5%      6.9%     \$2,428     5%      7.7%     \$2,663     5%      9.7%     \$2,858     5.0%    7.3%     \$3,060     5%      7.1%

  Total         \$45,548    100%    6.8%     \$49,038    100%    7.7%     \$53,349    100%    8.8%     \$57,274    100%    7.4%     \$61,185    100%    6.8%
  ------------- ----------- ------- -------- ----------- ------- -------- ----------- ------- -------- ----------- ------- -------- ----------- ------- --------

Source: Euromonitor

Appendix III

Wine Market Distribution

  ---------------- ---------- ------- -------- ---------- ------- -------- ---------- ------- -------- ---------- ------- -------- ---------- ------- --------
                   1999                        2000                        2001                        2002                        2003               

  RMB million      Value      \%      \%       Value      \%      \%       Value      \%      \%       Value      \%      \%       Value      \%      \%
                              share   change              share   change              share   change              share   change              share   change

  Still Red        \$6,024    13.2%   11.6%    \$7,025    14.3%   16.6%    \$8,521    16.0%   21.3%    \$9,636    16.8%   13.1%    \$10,897   17.8%   13.1%

  Still White      \$2,845    6.2%    5.8%     \$3,083    6.3%    8.4%     \$3,415    6.4%    10.8%    \$3,639    6.4%    6.6%     \$3,887    6.4%    6.8%

  Still Rose       \$1,232    2.7%    3.1%     \$1,286    2.6%    4.4%     \$1,358    2.5%    5.6%     \$1,405    2.5%    3.4%     \$1,461    2.4%    4.0%

  Still Wine       \$10,101   22.2%   8.8%     \$11,394   23.2%   12.8%    \$13,295   24.9%   16.7%    \$14,680   25.6%   10.4%    \$16,245   26.6%   10.7%
  subtotal                                                                                                                                            

  Rice Wine below  \$2,715    6.0%    6.2%     \$2,903    5.9%    6.9%     \$3,067    5.7%    5.7%     \$3,239    5.7%    5.6%     \$3,386    5.5%    4.5%
  RMB \$10/liter                                                                                                                                      

  Rice Wine from   \$5,325    11.7%   7.4%     \$5,703    11.6%   7.1%     \$6,109    11.5%   7.1%     \$6,527    11.4%   6.8%     \$6,909    11.3%   5.8%
  RMB                                                                                                                                                 
  \$11-50/liter                                                                                                                                       

  Rice Wine from   \$13,695   30.1%   6.0%     \$14,503   29.6%   5.9%     \$15,415   28.9%   6.3%     \$16,403   28.6%   6.4%     \$17,356   28.4%   5.8%
  RMB                                                                                                                                                 
  \$51-100/liter                                                                                                                                      

  Rice Wine over   \$13,714   30.1%   6.0%     \$14,536   29.6%   6.0%     \$15,463   29.0%   6.4%     \$16,427   28.7%   6.2%     \$17,290   28.3%   5.3%
  RMB \$100/liter                                                                                                                                     

  Rice Wine        \$35,447   77.8%   6.2%     \$37,644   76.8%   6.2%     \$40,055   75.1%   6.4%     \$42,595   74.4%   6.3%     \$44,940   73.4%   5.5%
  subtotal                                                                                                                                            

  Wine Grand Total \$45,549   100%    6.8%     \$49,038   100%    7.7%     \$53,350   100%    8.8%     \$57,275   100%    7.4%     \$61,186   100%    6.8%
  ---------------- ---------- ------- -------- ---------- ------- -------- ---------- ------- -------- ---------- ------- -------- ---------- ------- --------

Source: National Bureau of Statistics of China, Euromonitor

Appendix IV

  ------------- ----------- -------- --------- ----------- -------- --------- ----------- -------- --------- ----------- -------- --------- ----------- -------- ---------
  **Chinese                                                                                                                                                      
  Wine Imports                                                                                                                                                   
  CY                                                                                                                                                             
  1998-2003**                                                                                                                                                    

  **RMB         1999                           2000                           2001                           2002                           2003                 
  \$1000**                                                                                                                                                       

                *Value*     *%       *%        *Value*     *%       *%        *Value*     *%       *%        *Value*     *%       *%        *Value*     *%       *%
                            share*   change*               share*   change*               share*   change*               share*   change*               share*   change*

  United States \$14,362    5.1%     139.2%    \$15,580    6.7%     8.5%      \$1,883     1%       -87.9%    \$1,440     0.8%     -23.5%    \$1,768     0.65%    23%

  EU-15         \$245,582   87.4%    -14%      \$188,980   81.7%    -23%      \$113,996   59.1%    -39.7%    \$73,456    38.6%    -35.6%    \$91,675    33.6%    24.8%

  *France*      \$53,856    19.2%    -12.4%    \$39,551    17.1%    -26.6%    \$43,386    22.5%    9.7%      \$40,978    21.5%    -5.6%     \$66,179    24.2%    61.5%

  *Italy*       \$41,283    14.7%    32.8%     \$36,283    15.7%    -12.1%    \$27,430    14.2%    -24.4%    \$12,887    6.8%     -53%      \$10,371    3.8%     -19.5%

  *Spain*       \$144,666   51.5%    -11.6%    \$108,832   47.1%    -24.8%    \$41,067    21.3%    -62.3%    \$11,461    6%       -72.1%    \$7,850     2.9%     -31.5%

  Asia          \$9,558     3.4%     29.7%     \$6,789     2.9%     -29%      \$7,475     3.9%     10.1%     \$13,905    7.3%     86%       \$22,859    8.4%     64.4%

  *Australia*   \$8,733     3.1%     28.8%     \$6,045     2.6%     -30.8%    \$6,810     3.5%     12.6%     \$13,360    7%       96.2%     \$21,968    8%       64.4%

  Central &     \$7,524     2.7%     51.5%     \$17,753    7.7%     135.9%    \$53,685    27.8%    202.4%    \$89,543    47%      66.8%     \$138,595   50.8%    54.8%
  South America                                                                                                                                                  

  *Chile*       \$6,920     2.5%     94.3%     \$16,233    7%       134.6%    \$49,533    25.7%    205.1%    \$75,951    39.9%    53.3%     \$128,837   47.2%    69.6%

  World         \$281,023   100%     -9.1%     \$231,300   100%     -17.7%    \$192,828   100%     -16.6%    \$190,336   100%     -1.3%     \$272,951   100%     43.4%
  ------------- ----------- -------- --------- ----------- -------- --------- ----------- -------- --------- ----------- -------- --------- ----------- -------- ---------

Source: World Trade Atlas, UN Trade Statistics, China Customs

Appendix V

**Beer Market Distribution**

  ---------- ----------- ------- -------- ----------- ------- -------- ----------- ------- -------- ----------- ------- -------- ----------- ------- --------
             1999                         2000                         2001                         2002                         2003                

  RMB        Value       \%      \%       Value       \%      \%       Value       \%      \%       Value       \%      \%       Value       \%      \%
  million                share   change               share   change               share   change               share   change               share   change

  Premium    \$12,280    10.5%   10.2%    \$13,921    11.2%   13.4%    \$15,518    11.6%   11.5%    \$17,294    12.1%   11.4%    \$19,006    12.6%   9.9%

  Standard   \$14,845    12.7%   4.1%     \$15,931    12.8%   7.3%     \$17,014    12.8%   6.8%     \$18,073    12.7%   6.2%     \$18,940    12.6%   4.8%

  Economy    \$89,624    76.7%   6.3%     \$94,863    76.1%   5.8%     \$100,821   75.6%   6.3%     \$107,188   75.2%   6.3%     \$112,470   74.8%   4.9%

  Total      \$116,784   100%    6.5%     \$124,715   100%    6.8%     \$133,353   100%    6.9%     \$142,555   100%    6.9%     \$150,415   100%    5.5%
  ---------- ----------- ------- -------- ----------- ------- -------- ----------- ------- -------- ----------- ------- -------- ----------- ------- --------

Source: National Bureau of Statistics of China, Euromonitor

<table>
<colgroup>
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 5%" />
<col style="width: 6%" />
<col style="width: 7%" />
<col style="width: 5%" />
<col style="width: 5%" />
<col style="width: 7%" />
<col style="width: 5%" />
<col style="width: 6%" />
<col style="width: 7%" />
<col style="width: 5%" />
<col style="width: 2%" />
<col style="width: 2%" />
<col style="width: 7%" />
<col style="width: 5%" />
<col style="width: 5%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="17"><strong>Chinese Beer Imports CY 1998-2003</strong></td>
</tr>
<tr class="even">
<td rowspan="2"><strong>Current RMB $1000</strong></td>
<td colspan="3">1999</td>
<td colspan="3">2000</td>
<td colspan="3">2001</td>
<td colspan="3">2002</td>
<td colspan="4">2003</td>
</tr>
<tr class="odd">
<td><em>Value</em></td>
<td><em>% share</em></td>
<td><em>% change</em></td>
<td><em>Value</em></td>
<td><em>% share</em></td>
<td><em>% change</em></td>
<td><em>Value</em></td>
<td><em>% share</em></td>
<td><em>% change</em></td>
<td><em>Value</em></td>
<td><em>% share</em></td>
<td colspan="2"><em>% change</em></td>
<td><em>Value</em></td>
<td><em>% share</em></td>
<td><em>% change</em></td>
</tr>
<tr class="even">
<td>United States</td>
<td>$18,586</td>
<td>3.6%</td>
<td>22.8%</td>
<td>$5,972</td>
<td>0.8%</td>
<td>-67.9%</td>
<td>$2,238</td>
<td>0.4%</td>
<td>-62.5%</td>
<td>$547</td>
<td>0.1%</td>
<td colspan="2">-75.5%</td>
<td>$367</td>
<td>0.1%</td>
<td>-32.8%</td>
</tr>
<tr class="odd">
<td>Mexico</td>
<td>$59,134</td>
<td>11.5%</td>
<td>617.3%</td>
<td>$105,041</td>
<td>13.8%</td>
<td>77.6%</td>
<td>$107,081</td>
<td>18.9%</td>
<td>1.9%</td>
<td>$126,734</td>
<td>29.6%</td>
<td colspan="2">18.4%</td>
<td>$130,384</td>
<td>31.8%</td>
<td>2.9%</td>
</tr>
<tr class="even">
<td>EU-15</td>
<td>$394,741</td>
<td>76.6%</td>
<td>201.2%</td>
<td>$575,682</td>
<td>75.8%</td>
<td>45.8%</td>
<td>$403,467</td>
<td>71.1%</td>
<td>-29.9%</td>
<td>$274,340</td>
<td>64%</td>
<td colspan="2">-32%</td>
<td>$234,323</td>
<td>57.2%</td>
<td>-14.6%</td>
</tr>
<tr class="odd">
<td><em>Germany</em></td>
<td>$2,924</td>
<td>0.6%</td>
<td>16.6%</td>
<td>$3,268</td>
<td>0.4%</td>
<td>11.7%</td>
<td>$77,765</td>
<td>13.7%</td>
<td>2279.6%</td>
<td>$206,242</td>
<td>48.1%</td>
<td colspan="2">165.2%</td>
<td>$182,062</td>
<td>44.4%</td>
<td>-11.7%</td>
</tr>
<tr class="even">
<td><p><em>Nether-</em></p>
<p><em>lands</em></p></td>
<td>$389,047</td>
<td>75.5%</td>
<td>206.8%</td>
<td>$416,392</td>
<td>54.8%</td>
<td>7%</td>
<td>$193,956</td>
<td>34.2%</td>
<td>-53.4%</td>
<td>$47,255</td>
<td>11%</td>
<td colspan="2">-75.6%</td>
<td>$23,867</td>
<td>5.8%</td>
<td>-49.5%</td>
</tr>
<tr class="odd">
<td>Asia</td>
<td>$41,871</td>
<td>8.1%</td>
<td>101.9%</td>
<td>$70,760</td>
<td>9.3%</td>
<td>69%</td>
<td>$52,259</td>
<td>9.2%</td>
<td>-26.1%</td>
<td>$26,383</td>
<td>6.2%</td>
<td colspan="2">-49.5%</td>
<td>$21,306</td>
<td>5.2%</td>
<td>-19.2%</td>
</tr>
<tr class="even">
<td><em>South Korea</em></td>
<td>$1,233</td>
<td>0.2%</td>
<td>4.9%</td>
<td>$5,465</td>
<td>0.7%</td>
<td>343%</td>
<td>$7,682</td>
<td>1.4%</td>
<td>40.6%</td>
<td>$13,084</td>
<td>3.1%</td>
<td colspan="2">70.3%</td>
<td>$11,469</td>
<td>2.8%</td>
<td>-12.3%</td>
</tr>
<tr class="odd">
<td><em>Malaysia</em></td>
<td>$1,952</td>
<td>0.4%</td>
<td>1157.9%</td>
<td>$4,338</td>
<td>0.6%</td>
<td>122.2%</td>
<td>$6,145</td>
<td>1.1%</td>
<td>41.7%</td>
<td>$3,493</td>
<td>0.8%</td>
<td colspan="2">-43.2%</td>
<td>$8,220</td>
<td>2%</td>
<td>135.3%</td>
</tr>
<tr class="even">
<td>World</td>
<td>$515,094</td>
<td>100%</td>
<td>193.3%</td>
<td>$759,205</td>
<td>100%</td>
<td>47.4%</td>
<td>$567,226</td>
<td>100%</td>
<td>-25.3%</td>
<td>$428,606</td>
<td>100%</td>
<td colspan="2">-24.4%</td>
<td>$409,684</td>
<td>100%</td>
<td>-4.4%</td>
</tr>
</tbody>
</table>

Source: World Trade Atlas, UN Statistics, China Customs

Appendix VI

**Wine Varieties**

  ---------------------- -------------- --------------------- --------------
  **Red**                               **White**             

  Variety                Introduction   Variety               Introduction
                         Year                                 Year

  Cabernet Sauvignon     1892           Aligote               1978

  Cabernet Franc         1892           Chardonnay            1981

  Cabernet Gernischt     1892           Chenin Blanc          1982

  Carignan               1915           Muller-Thurgau        1980

  Gamay                  1978           Muscat Blanc          1980

  Grenache               1980           Pinot Blanc           1965

  Merlot                 1892           Grey Riesling         1892

  Mission                unknown        Italian Riesling      1892

  Nebbiolo               1981           White Riesling        1982

  Petit Verdot           1892           Sauvignon Blanc       1892

  Pinot Noir             1964           Semillon              1983

  Ruby Cabernet          1980           Silvaner              1980

  Sangiovese             1981           Traminer (Gewurz      1892
                                        Traminer)             

  Sinsaut                1980                                 

  Syrah                  1980                                 

  Zinfandel              1980                                 
  ---------------------- -------------- --------------------- --------------

######  Source: China Wine Online

[^1]: Shandong, Jiangsu, Anhui, Shanghai, and Zhejiang

[^2]: Henan, Hubei, Hunan, Jiangxi

[^3]: Heilongjiang, Jilin, Liaoning, Tianjin, Beijing, Hebei, and Shanxi

[^4]: Fujian, Guangdong, Guangxi, and Hainan