Bordeaux Vineyards – Have we reached the end of the Chinese Wine Boom?

Bordeaux Vineyards – Have we reached the end of the Chinese Wine Boom?

Bordeaux Vineyards Owners Club

A few days ago, Vineyards-Bordeaux completed another significant vineyard transaction to a Chinese investor. On this occasion it was Mr Chen, a media mogul and head of a giant Chinese business enterprise with interests around the world. It is never easy for us to know the motivations that lie behind investors purchase decisions particularly when they are international and from cultures that are so distinctly different from those of Europe. Whether the decision is backed by carefully considered economic strategies or influenced more by the prestige of joining the Bordeaux vineyard owners club, we may never know for sure, but what is fascinating for us is to see what is happening behind the scenes in China itself at the moment.

Li Lijuan and Michael Baynes of Vineyards-Bordeaux during the
Chen signing.
Li Lijuan and Michael Baynes of Vineyards-Bordeaux during the Chen signing.

Most of our Chinese investor clients have ambitions to export their wines back to China and, if they have existing distribution networks, this can be a very profitable business. Stories of Chinese investors paying back initial capital purchase investments within 1 to 3 years after the acquisition were floating around our industry a few years ago. It was both refreshing and sobering to read Jancis Robinsons article “China’s morning after: end of the wine boom” in the Saturday’s FT Weekend a few days ago.

Jancis Robinson – The Financial Times

Both the Financial Times and Jancis Robinson are credible sources so when she writes something about our industry it is worthy of note if not comment also. Robinson writes about how the Chateau Junding cellars in China’s province of Shandong symbolise what has happened to Chinese wine over the past few years. She tells us that “during the heady years of the country’s wine boom, in the early 2000s, this vast winery, hotel and golf course complex, with 400 hectares of vineyards and a village worth of buildings, was the showcase winery of the state-owned Cofco conglomerate.”

I recall the arrival of the Chinese in Bordeaux, specifically Cofco, who led a small army of Chinese investors (we estimate there are now about 175 chateaux vineyards in Chinese hands) with the purchase of Chateau Viaud in Lalande de Pomerol in 2010. Looking back, this was the turning point of the Bordeaux vineyard market, a time when vineyard prices per hectare had been plummeting for a decade partly as a result of the powerful New World wines, their competitive pricing, approachable taste and their outstanding marketing practices. By the second quarter of 2010, when the 2009 vintage was being tasted by the likes of Jancis Robinson at the Bordeaux “primeurs,” it was being hailed one of the great vintages of the century. This optimism (and good press) coupled with the arrival of the Chinese turned the Bordeaux vineyard market around – I might add, not some sort of overnight bonanza, but rather a slow turnaround of a giant ship that had been going in the wrong direction.

In 2012 President Xi made a significant swipe against corruption with one of the causalities being the extensive use of “gifts” to government officials and business associates. I recall questioning one Chinese client of ours and asking how he planned to sell 400,000 bottles of wine each year. He replied, “I don’t plan to sell any of them, I will be giving them all away.” Those days are certainly gone now for Chinese owners.

Robinson reports in her article that “in 2016, Chateau Junding was put up for sale at just 1 Rmbi, to include the assumption of debts totalling Rmb 392m (£42m) at the then exchange rate).” It was purchased by Wang Yihan. She goes on to tell of her experiences as an observer of the Chinese relationship with this new alcohol (in particular red wine) that the new urban classes were replacing the old baijiu spirit with. She says the “last time I was in Shanghai it seemed that new bars and salons for wine collectors were opening all over the place, even amid tales of unsold, overpriced Bordeaux classed growths sitting in warehouses.”

But it is the latter part of Robinsons article that I found so intriguing and illuminating. Like many I had been led to believe that “China had come from nowhere to be the world’s biggest consumer of wine, its second most important grower of grapevines and one of its most important producers.”

Confessions from the China Wine Summit

She goes on to say “at last month’s China Wine Summit in Shanghai, Zuming Wang, vice general secretary of the China Alcohol Circumlation Association pulled no punches: “ we think we’re the world’s fifth biggest wine producer, and so does the world, but we’re not. Internal statistic are misleading.” There are signs of slackening domestic demand for wine. He also warned that China’s big companies had found it much more difficult to make money out of wine than they had thought initially and were in retreat.

She writes that she listened to Bernard Burtschy who is a French statistician that made a presentation at the China Wine Summit. Burtschy has invested in finding facts about the Chinese wine industry. “He said only about 10% of China’s of China’s vineyards are devoted to wine production, with most supplying table grapes. If he is right, China’s wine-dedicated vineyards are only about the 20th most extensive in the world rather than the second.” Robinson quotes Burtschy saying “China’s annual wine production only comes to about 8.4m hl in an average year, less than either Germany or South Africa’s (and it has been falling for the past four years, because of that weakening domestic demand).

Robinson’s article is so valuable because it clears the fog from a season of Chinese vineyard investment and stories that have had hints of the unreal. Today Chinese owners still represent a tiny proportion of the total Bordeaux vineyard inventory, just over 2%. But China is a vast country with a rapidly expanding middle class.

Chinese investors still buying Bordeaux vineyards such as Château de Cadillac-en-Fronsadais in March 2019

Chinese press hype – where is reality

Perhaps part of the hype was that China was a new story, something that was 80% speculation and 20% solid fundamentals. Maybe the Robinson article marks a moment in time where we collectively realize that China and her investors are really just like everyone else and once demand and supply have adjusted to this reality they will follow a path that the USA took in its ever growing love affair with wine. It took the USA several decades (starting in the 1950’s) to become the biggest global consumer and purchaser of wines. Even accounting for technology and the fact that everything seems to move quicker these days, China may be quicker to stabilize its wine markets and consumption, but in my humble opinion they are here to stay in this industry and will be a powerful consumer of Bordeaux wines for many decades to come. As Robinson says “Chinese wine will get there in the end, just not as fast as we once thought.”