Ningxia strives to be France’s Bordeaux amid tariffs on Australia

In 2015, a worker poured wine at a winery in Yinchuan, Ningxia Hui Autonomous Region.

GOH CHAI HIN | AFP | Getty Images

BEIJING – After a surge in wine exports and a visit by President Xi Jinping last year, China plans to convert its main wine region, Ningxia, into a region that rivals France’s Bordeaux.

The Helan Mountains in Ningxia plans to produce 600 million bottles worth 20 billion yuan ($ 3.12 billion) by 2035, according to a plan approved by the central government in late May. The region along the Yellow River is about a two-hour flight west of Beijing and is at a similar latitude as France’s famous wine country.

“If that goal can be achieved, the eastern foothills of the Helan Mountains will become an internationally important and influential production area on a scale equivalent to that of Bordeaux,” Sui Pengfei, director of international cooperation at the Chinese Ministry of Agriculture, told reporters last week in Mandarin: according to a CNBC translation.

Ningxia is just one of several wine-growing regions in China, but the eastern foothills of the Helan Mountains have a diverse range of grape varieties comparable to that of Bordeaux or Napa Valley in the United States and which is said to make up the majority of domestic wine production.

Even if the 15-year target is more than four times the annual wine production of Ningxia, the numbers are roughly in line with those of the French wine capital.

According to a French industrial group, Bordeaux produced 522 million bottles worth 3.5 billion euros (4.16 billion US dollars) last year.

As with many high-level Chinese plans, the plan for Wine is vague about the details of implementation. Instead, it sets a framework for development that ranges from improving local viticulture knowledge and environmental conservation to “a window” for China’s wine to “integrate into the world,” according to a CNBC translation of the Chinese Text.

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Last year, during the coronavirus pandemic, Ningxia wine exports rose 46.4% to 2.65 million yuan (about $ 414,100), according to local customs officials. The main destinations included the United States, the European Union, Australia, and Japan.

Ningxia-based Xige Estate exported some wine to Canada last year, founder Zhang Yanzhi told CNBC.

His company started exporting to Switzerland, Japan, Hong Kong and France in small quantities earlier this year, he said, adding that it is also planning to enter the US market.

However, he plans to focus on the Chinese market, with exports accounting for only 10-20% of production in the long term.

According to an annual report published in April by the International Organization of Vine and Wine, China ranks sixth in global wine consumption and tenth in production in liters.

The report found that China’s wine consumption and production have declined in recent years, possibly due to difficult climatic conditions and low productivity. These problems “make the Chinese wine industry less competitive compared to imported wines,” the authors write.

Australian wine imports collapse

The central government’s push this year to further develop the Ningxia vineyards comes as China’s relations with Australia deteriorate.

The country was China’s largest source of overseas wine in 2020, slightly above France, but the Chinese tariffs imposed in March have essentially blocked further wine imports from Australia.

While Australian producers in the UK, US and Southeast Asia have found new buyers, it will likely take three or four years to make up for losses – and not all of the 1,000 or so China-focused wine exporters will survive, said Tony Battaglene, CEO of Australian Grape and Wine, an industry advocacy group.

He said Australian companies are still hoping to return to the Chinese market if tariffs expire in five years, and Australian wine experts can help Chinese producers tackle the climate-related issues both are facing.

Home rivals for Chinese wine

In China’s domestic market, local producers are still facing competition from high-quality, low-priced wine, Battaglene said.

At the international level, Chinese producers “have a long way to go before they become big exporters,” he added.

Officials at last week’s press conference made no comment on Australian wine tariffs.

As a result of these tariffs, Chinese wine imports from Chile and France are being fueled, said Zhang of Xige, who also attended the event in Beijing. He said the government’s emphasis on Ningxia’s wine industry is likely to help the vineyards get funding as they are not just viewed as agricultural businesses.

Zhang added that increasing attention to the wine industry is helping to boost domestic tourism. Its 22 guest rooms, which sell for 1,200 yuan (US $ 188) a night, have sold out every weekend since early May.

In addition to the popularity of foreign brands, one of the biggest challenges facing China’s wine industry is the local preference for a strong, clear liquor called Baijiu. Alcohol is a staple in Chinese business and government meals, and a major brand, Koftow Moutai, is one of the largest publicly traded stocks in mainland China.

If wine can be as cheap as baijiu, or around 40 yuan ($ 6.20) for a few bottles, more people will be consuming it, said Sui of the Department of Agriculture. The Chinese need to “drink less Baijiu, drink more wine”.

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