Australian wine has long been a favourite in China, but an economic downturn along with a government push to “Shop in China” is seeing local vintners step up the competition.

Vineyards in the Ningxia region. Among the unusual varieties being grown in China is the Marselan grape – a crossing of cabernet sauvignon and grenache. 

Wine exports to China jumped by more than $1 billion in the past year, according to figures from industry body Wine Australia, as big players, including Penfolds owner Treasury Wine Estates, resumed shipments.

Overall, Australian wine exports were up 41 per cent to $2.64 billion in the past year.

Big, heavy reds like cabernet and merlot and buttery chardonnays are still the wines of choice for hotels and venues buying wine in bulk, and the Chinese tradition of sizing up how much the host has spent on wine persists.

“In China, when you entertain people, you want to give them something they know so they can see how much it costs. It’s a status thing,” Jim Boyce, the Beijing-based founder of wine website Grape Wall of China, tells AFR Weekend.

“They’re not drinking for taste. They’re downing full glasses. You can’t just stick some unknown brand from outside Beijing and expect to get the same response. That’s why Australian wine, especially brands like Penfolds, have managed to keep their footing.”

“Everything is cheap in China right now. It’s cheap to rent equipment, find grapes, design a label, build a following on WeChat.”

— Jim Boyce, Grape Wall of China founder

But changes are afoot in China’s wine market that have prompted industry giants like Treasury Wine Estate to rethink their strategy.

The first is the growing popularity of Chinese wine.

China may not spring to mind as a top wine growing nation, but experimental winemakers centred on the central-northern province of Ningxia and south-west province of Yunnan are helping to put the country on the map.

Recognising that Chinese-grown wine is picking up steam, Treasury Wine Estate bought 75 per cent of the Stone & Moon winery in Ningxia this year.

“China’s wine-producing regions are gaining global recognition for their unique terroir, and we see enormous potential to produce locally,” said Tom King, managing director of Penfolds.

Among the unusual varieties being grown in China is the Marselan grape – a crossing of cabernet sauvignon and grenache.

China’s struggling economy is playing to the advantage of local vintners, keeping operating costs down and in turn helping them to compete sharply on price with more established international imports.

“Everything is cheap in China right now,” Boyce says.

“It’s cheap to rent equipment, find grapes, design a label, build a following on WeChat. Traditional Chinese winemakers are very rich, but there’s a wave of local experimental guys doing things on the cheap. And cheap is good in China.”

Economic woes

The severe economic downturn is changing the spending behaviour of consumers, from the cosmopolitan elites of Shanghai and Shenzhen to the factory towns of Sichuan, as the country struggles to recover from three years of COVID-19 lockdowns.

A persistent property crisis – average home values have plunged by around 60 per cent – combined with the brewing trade war with the United States has meant households across China are tightening their purse strings.

Waves of layoffs across state-backed companies and cuts to salaries have plunged citizens into unstable employment, and the hospitality industry has been hit hard.

“Export numbers from Australia might look good, but whether that’s translating into sales is another thing,” Boyce says.

“I see warehouses filled with unsold stock. And because wine is only a recently acquired taste in China, it’s easy to cut back on. Everyone expected a rebound in spending after COVID-19, but people felt vulnerable and they’ve saved their money instead.”

The Chinese government, acutely aware of the need to lift domestic demand to revive the economy, is trying to whip up pride in local products.

Beijing has launched a ‘Shop in China’ campaign and China’s social media forums are full of discussions about what Chinese products could replace highly tariffed ones from the US.

“There is a growing pride in Chinese products and achievements,” Boyce says.

“Whether it’s high-speed rail, high-tech, landing on the moon, or sports achievements. That includes food and drink. And Chinese wines are good, the quality is good. The key thing is whether consumers know enough about them to want to buy them.”

The US, on the other hand, is proving a much harder bottle to uncork. Even before the 10 per cent tariffs imposed on all countries by US President Donald Trump, Australian wine exports to the US were struggling. For the 12 months ending March, exports were down 9 per cent to $323 million.

Peter Bailey, market insights manager for Wine Australia, said it was hard to predict what impact the trade turbulence would have on Australian wine producers.

“The situation is evolving and there is still a lot of uncertainty about what the longer-term position might be,” he said.