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Delhi Wine Club

Posted: Wednesday, 01 September 2010 10:44

Chinese Dragon too Big for Indian Elephant

Starting from a near non-existent base since 2003, Chinese wine sector is experiencing remarkable growth rates. The industry has experienced an average annual growth rate of 17 percent by volume and currently holds a retail value of 7.15 billion dollars. In contrast to the Indian wine industry, China’s growth is far too impressive, writes Rajiv Seth.

In a striking contrast to the state of Indian leaderships policy making clarity and ability to adapt the changing international scenario, in a recent move China’s leadership, insisted to preserve grains for food production rather than alcohol production. Members of the National people’s congress in general assembly meetings trumpeted the health benefits of grape wine consumption over traditional grains- based wine. Perhaps China’s leadership is not under any obligation from its Liquor lobby. Grain-based wines are commonly known as Rice wines, but include all traditional Chinese spirits.

Wine Industry in China: A Quick Review

China’s unparalleled economic growth of 9.9 percent in real Gross Domestic Product (GDP) a year over the past decade is providing new income to customers and giving them the means and opportunity to purchase new products to pair with their new found higher standard for living. Holding true to wine’s image around the world, in China wine is a symbol of wealth and living well, and is purchased to solidify the burgeoning middle class arrival to affluence.

Furthermore, since China established its currency Yuan, it has pegged its value to the U.S. dollar at various set points, until 2005 when China partially lifted restrictions allowing the currency to adhere to a floating exchange rate. Since then, its value has appreciated by 21 percent against the dollar, furthering the population’s ability to purchase higher quantities of luxury imported products such as wine.

Local production companies have well established distribution and marketing channels with widely recognized brands. Many domestic brands lack quality but are inexpensive. Local wines remain the highest contenders for market share, though they have been unsuccessful in capturing the perceived class and allure of foreign wine.

China is a wine producing county with over 500 wineries in operation, ten or so of which are major producers. The top four domestic companies- COFCO, Changyu, Weilong and Dynasty control over 27 percent of the entire grape wine market in China. In general, each has nationwide distribution, high brand recognition, customer loyalty, and a well defined niche.

In 2008, China’s 4, 53,000 hectare of vineyards produced 6.4 million tons of grapes, 10 percent of the world’s market. Using about 10 percent of the domestic grape production, Chinese wineries produced 665 million liters of wine in 2007 which was up 34 percent from the year prior. With foreign investment and streamlining production methods, domestic producers are catching up to western production capabilities, leaving a small window of opportunity for new market entrants.

Leading domestic companies and exporting countries remain highly active in marketing and promotional strategies as well as creating a wine culture throughout China. Cooperation between exporters, Trade groups and Agricultural Trade Offices in China has been remarkable.

India Vs China: Is Dragon too big for Elephant

If we enter in a comparative mode and apply the same yardsticks, we will note while only 6 wineries existed in India till 2000, the present number has gone up to approximately 65, which is far less than the growth in numbers of wineries in China, which has achieved an impressive growth from 2003 and the number of wineries stood as 500 up till now. So China took merely 7 years to reach this phenomenal level and if it continues to maintain this impressive scale it will soon acquire the status of Napa valley where more than 5000 wineries contribute to the state’s exchequer. 

Comparing the acreage planted in table and wine grape varietals India currently has 88705 hectares planted in table grapes out of which 9000 to 12,000 acres are planted in wine grape varietals. These statistics seems quite unimpressive if compared to China’s, 4,53,000 hectare of vineyards, considering both countries were unfamiliar with wine grape cultivation until very recently. One more impressive aspect of China’s viticulture is, China outpaces combine planted area of Germany and United States. China’s grape production is immense, accounting for nearly 10 percent of the world’s grapes: 6.4 million tons in 2008. China is ranked third in this regard just under Italy and France respectively. On the other hand India produces 1.8 million tons of grapes which is less than even one third of China’s grape production.

In contrast to China’s massive wine production accounting of 665 million liters, India only manages to produce approximately 15 million liters (though this figure is also disputable, since this does not match with the acreage planted). Thus the above illustration clearly establishes how badly India legs behind China’s wine sector.

Can China Produce Wine with Integrity?

On the other hand, China’s domestic wine has been under scrutiny from years by the oenologists world-wide who have questioned its poor quality and unregulated production. Some critics and wine enthusiasts proclaimed Chinese wine as nothing more than “sugar water with some food coloring, alcohol and grape juice” and that they simply could not trust the label. Unfortunately wine fraud is an undeniable reality of the Chinese wine sector.

Some domestic producers blend in both imported wine and pure alcohol during production and label it as domestic wine. Some domestic producers justify the practice by claiming, it caters to consumer tastes. However, the National Grape Wine Standard 2008 was supposed to eliminate poor quality wines from entering the market through the enforcement of 2005 Standard GB 15037. Though the imported wine is subject to these standards, in the domestic market enforcement is inconsistent. Nevertheless, progressively more domestic producers are ceasing such practices on their own to improve the quality of their label and reach the newly enforced certificate Standard.

In sharp contrast to this, although India was able to form its Grape Processing Board (falling short of calling it Wine Board due to political constrains) but was unable to formulate its permitted Standards of Wines and Oenological practices even after 40 years of producing its first wine in the 70’s by India’s most powerful political house. But despite the fact of Wine Standards not in force the wine frauds are un-heard off in India and vintners, more or less is a disciplined lot working committed to improve the quality of wines. 

Bilateral Trade Agreements: China too quick to grasp the importance 

Since the year 2000, China on its part has entered in a number of Bilateral Free Trade Agreements, FTA’s. The agreements have been reached with EU, USA, Australia, and New Zealand to name a few. The net result of these agreements has been extremely positive on Chinese wine industry as the authorities have taken a self corrective course during a small time frame and a number of Trade Barriers could be removed with trade negotiations. For example in the Bilateral Trade agreement signed between Australia and China , the AWBC suggested that there is a lack of clarity in definitions of Chinese wine law’s and this has been a constant source of frustration for many Australian exporters, thus Australian authorities suggested as part of the negotiations that both the partners should pursue mutual recognition of practices in line with the recommendations of World Wine Trade Group and remove the hurdles in wine making procedures and labeling standards. Not only this Australia have been successful in convincing the China, the importance of wine laws translations in English language thus facilitating the integration of Chinese wine industry with the major wine producing countries. And this is just a part of the whole story where China has been a beneficiary in overcoming its shortcomings pertaining to its wine industry.

In sharp contrast to the China’s achievements, India has not been able to work out any Bilateral, or Multilateral, agreements for its wine industry nor is it sight in near future. The only welcome step initiated recently is considering taking the membership of OIV, where China is an Observatory member since 2008. 

Tariffs: A comparative study of two traditional giants

In the beginning of 2008, Hong Kong eliminated all duties on wine imports causing a massive influx of product to enter the island. Since then Hong Kong has served as an untaxed hub for foreign goods to Mainland China. However, the value of the method is yet to be realized as the island is treated as a separate entity in terms of trade. This change offers hope that China may lower its duty rates further from what was done in 2004 to correspond their admittance to the World Trade Organization (WTO), but as it stands, wines entering Mainland China through legal channels are subject to full duties.

In China the total duty paid on imported wine is calculated using a compounding formula that involves all three taxes, as opposed to simply adding the rates together. The three rates are the consumption tax, the value added tax VAT, and the import tax. For bottled wine, total duties equate to 48.2 percent; for bulk wine duties are 56 percent.

In sharp contrast to China’s adherence to WTO’s recommendations, a number of member countries are threatening to take India to WTO’s dispute settlement body to complain against India’s dual structured tax policy to protect its domestic alcohol beverage industry. However responding to consistent pressure from WTO, the government completely eliminated an additional custom duty that had been in force on wines, instead giving its states the power to institute “special fee” on beverage alcohol. During the same time the basic import duty increased from 100% to 150%. In addition of this few states are charging special fee up to 200% of the accessible value of wines. Not only that, the wines are subject to 20% VAT to be charged to the consumers at the retail level taking the overall cost out of reach from common men reach.

Considering their small history of exposure with wine culture both India and China are consistently trying to integrate wine in to their ancient cultures. However China’s strides seem to be far greater in production as well as in consumption then India who seems to be entangling against its own constitutional obligations and legacy of its political leaders. Nevertheless with spirit of globalization soaring India needs to catch up with its changing socio economic profile. 

China Vs India - comparative study

Rajiv Seth

Rajiv Seth is a wine educationist, Author and an expert in International Wine Legislation especially European Union. In 1987, he became the first Indian to be awarded a gold medal from WSET, London. He also writes for DelWine.


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