Market Information
Asia Pacific

The Wine Market in Yangzi Delta Region

Canadian Consulate General, Shanghai
July 2002

Market Overview

Traditionally, Chinese consumers were loyal to alcohol products such as beer or grain-based spirits. While the annual consumption per person averages approximately one glass of wine, the Shanghai and the Yangzi Delta region wine market displays considerable future potential for growth. Increased disposable income, western influences and a heightened health awareness fuel the wine market. Shanghai's 13.3 million residents have an average annual income per capita of US$1558 (nearly double the national average) which has been increasing roughly 10% per year. Coupled with a vibrant restaurant, hotel and bar industry and a consumer penchant for trying new things, Shanghai provides one of the best markets in China for Canadian wine.

Market Statistics

Demand

Wine consumption has increased 62% from 1994 to 2000. Though, wine consumption pales in comparison to beer and grain based spirits. In 2000, the national average per capita purchase of fruit wine was 180ml. The highest income group consumed 340ml, the middle-income group consumed 160, and the lowest income group 70ml in 2000. In comparison, the average annual purchase of liquor was 2.66L and beer 6.51L in the same year.

Disposable income is a key driver for wine consumption. China's burgeoning middle class has expanded and is now looking to try new products. Shanghai alone boasts a per capita annual expenditure on liquor and beverages almost two times the national average at US$22.90 per year in 2000. The Consumption rate in Shanghai has grown 36% over the last three years, compared to a national rate of 13%.

Domestic Production

Domestic wine production has increased dramatically from 220 million litres in 1998 to 325 million litres in 2000 - a 48% increase. The recent increase in production is tandem with an increase in domestic quality and price. A recent survey examining wine consumption in the major Chinese cities revealed domestic wine capturing 69 per cent of the market, and foreign brands 31 per cent.

Wine imports across China have declined, on average, by 10% a year between 1999 and 2001, to US$23.6 million in 2001. Shanghai, in contrast, has witnessed a 15% annual increase during the same period, to US$4.2 million in 2001. Shanghai, with an 18% share of wine imports to China in 2001, is the 3rd largest Chinese port of entry, behind Shijianzhuang (US$7.6 million) and Tianjin (US$6.2 million). Canadian wine exports to China, while small, have increased dramatically from US$40,000 in 1999 to US$160,000 in 2001, a four-fold increase.

Of the US$4.2 million of wine exported to Shanghai in 2001, most (54%) was non-sparkling wine in containers of less than two litres. Bulk wine (over two litres) made up 24% of the exports to Shanghai. Champagne and sparkling wine accounted for 21% of the exports.

Competition

Chile (26%), France (23%), Spain (21%), Italy (14%) and the United States (8%) were the top five exporters to China in 2001.  Canada was the 9^th largest wine exporters to China, having exported roughly the same amount of wine to China as Germany. In Shanghai, France dominated exports with 56% of the total trade, an increase from their 51% in 1999.  France is followed by the United States (15% share in 2001, from 4% in 1999), Spain (8% in 2001, 26% in 1999), Australia (7%), and Italy (7%).  Canada was the 15^th largest  wine exporter to Shanghai, with US$9,000 in exports.

As of March 2001, domestic wine led by Dynasty with a market share of 34%, Changyu (26%), and Tonghua (14.9%). While domestic quality is improving dramatically, especially as very modern high-quality equipment is used, some domestic wines still do not meet international quality standards. Often domestic wines mix imported bulk wine with local wine. For the most part, domestic wine aims to sell at high volume.

Canadian wines are not well represented in Shanghai, with only a presence of a few brands, and almost exclusively ice wines.  Wine distributors and consumers have little knowledge of what Canadian wines exist. Though, what is known usually extends to the fact that Canadian ice wines are quite good. German and French ice wine competitors are also in the market.

Consumer Issues and the Shanghai Market

Consumer awareness of wine is not significant. As wine was not traditionally consumed in China, significant education is needed to entice consumers to pay the premium for foreign wines. The key for success in the Shanghai wine market is promotion and consumer education.  This can be done through wine tastings at restaurants, retail outlets, hotels and trade shows. The  national government promotes the health benefits of wine, encouraging Chinese to change from  strong grain-based alcohol like 'baijiu' to wine. This has had a measurable effect on consumer  perception of wine. 

Wine is mainly consumed on special occasions as the Chinese Spring Festival and social gatherings. As imported wine is considered a luxurious western product, it is used as a symbol  of status and success. The target market is often the affluent younger generation. It is very common to have a dinner table begin to 'gam bei' (bottom's up) glasses of very good, expensive wine halfway through a dinner. However the mass market is not as willing to pay high prices for imported wine. Other Chinese consumers begin 'gam bei'-ing immediately, and buy the cheapest local wine available, and look for higher alcohol content. 

Red wine is much more popular than white, mostly because the colour of the wine appeals to Chinese tastes. As image is very important in a wine purchase, labeling and packaging  appealing to Chinese consumers is crucial - for example, a black label with a red dragon is effective.  The Shanghai palate prefers sweet wines to dry or bitter ones, providing excellent opportunities for dessert wines such as Canadian ice wines.

Price is a major consideration to most Chinese and imported wine is automatically out of reach to all but the wealthy enthusiast. In many cases, imported wine is priced several times higher than domestic wine. Consumer income levels will be the major determinant for the success of imported wine market in Shanghai. Concentration on higher-income demographic groups is advised until tariffs come down significantly enough to bring imported wine retail prices competitive with higher-end domestic wines. In addition, consumers of imported wines consider taste, quality, brand, packaging and collectibility. The latter refers to whether the wine could become a collector's item in the future.

Import Regulations and Administration 

Three licenses are required in order to import wine to China. First, importers need to obtain a license from the China National Cereals, Oils and Foodstuffs Import Export Corporation (CEROILS), the state monopoly traditionally responsible for wine imports. Second, a business license from the "Industrial and Commercial Administration Board". Third, imported products are inspected upon their arrival in China and must obtain a Hygiene certificate from the China State Administration for Entry-Exit Inspection and Quarantine headquarters (AQSIQ) before they are allowed to enter the country.

All imported wine products must adhere to the Chinese labelling regulations. They must be affixed with a Chinese language a label stating the product name, ingredients table, net weight, production date, expiry date, storage directions, country of origin, name and address of the importer and manufacturer. In addition, the law recommends standards such as the batch number, serving method, calories, and nutrients. Labelling refers to all written language, graphs, symbols, lay-out and explanation materials of packaged food products.

Effective November 1 2002, all imported and exported food product labels must be inspected, verified and issued a "Certificate of Import Export Food Labelling" by the AQSIQ.  AQSIQ specified laboratories shall test the food nutrition and quality to ensure that the label is accurate. An approval certificate is required prior to applying for goods-arrival inspection and other customs formalities.

An efficient distribution strategy is key to success. The distribution in China is decentralized and regionally base. Rather than entering the entire Chinese market, it is recommended to explore opportunities in one regional market. Canadian exporters can choose to either distribute their product directly through their own sales network, distribute through a wholesaler or with an agent. Each selection has its positives and negatives, and must be thoroughly examined by the exporter before entering the market. Another option is to establish a Joint-venture organization in China to produce locally. For more detailed information, please refer to our Food Distribution Systems in the Yangzi Delta Region report, available through the Canadian Consulate in Shanghai.

Impact of China's Accession to the WTO 

To date, significant import tariffs have seriously impeded wine import development in China. Now, with China's WTO accession import tariffs have been significantly lowered. Already in 2002, tariffs are 34.4% for wine in containers less than 2 litres, and 38% for bulk wine (vs. 44.6% and 47% in 2001, and 65% previously). In 2004, tariffs will be reduced to 14% for wine in containers less than 2 litres and 20% for bulk wine. Additionally, a value-added tax (VAT) of 17% and a consumption tax of 10% apply. 

With reducing regulations, costs and import barriers, an increasing number of wine distributors and brands will enter the market. Winemakers will face tougher competition as increased foreign brands enter the market and sell at lower prices. As imported wine becomes affordable, their target market is expected to shift downwards to China's emerging middle class. As Chinese consumers will have an increased selection of wine price, value and quality will become increasingly important.

Strategies and Recommendations 

1. Canadian exporters must adopt an aggressive and consistent marketing campaign. This campaign should concentrate on promoting their brand and developing a loyal consumer base. As the market develops and competition increases, successful marketing will make the difference between success and failure.

2. Distribution remains a key problem. Interested exporters should evaluate their options carefully, and make decisions that best suit their company's needs. 

Additional Resources

1. Shanghai Customs of The People's Republic of China - Responsible for the regulations and inspections on import and export documents and certificates

Address: 13 Zhong Shan Dong Yi Lu
Shanghai 200002
Tel: 86-21-63232410
Fax: 86-21-63232095
Website: www.shcus.gov.cn

2. Shanghai Entry-Exit Inspection and Quarantine Bureau of The People's Republic of China Responsible for the inspection of imported and exported goods 

Address: 1208 Minsheng Road, Pudong New Area 
Shanghai 200135
Tel: 86-21-68563030
Fax: 86-21-68565939

3. Shanghai Imported Food Enterprise Association (SIFEA) - Responsible for the application and approval of labels for imported foods

Address: Room 1702, Hero Building
2669 Xie Tu Road
Shanghai 200030
Tel: 86-21-6439818
Fax: 86-21-64398191

The Wine Market in China - The Canadian Embassy, Beijing. Information detailing retail prices, labeling, and a partial list of importers. 

Montrose Food & Wine, ASC Fine Wine Co., Ltd. 
Top wine importers in China: their brands, contact information.

Agriculture and Agri-Food Section
Canadia Consulate General 
#604-1376 Nanjing West Road
Shanghai, 200040
Tel: (86-21) 6279-8400
Fax: (86-21) 6279-8401
E-mail: shirlie.wu@dfait-maeci.gc.ca 

Henry Deng
Senior Commercial Officer
E-mail: henry.deng@dfait-maeci.gc.ca

Shirlie Wu
Commercial Assistant
E-mail: shirlie.wu@dfait-maeci.gc.ca