WSET: China – has the bubble burst?

Or does it just need to be pumped up, asks Ian Harris – CEO of WSET

The WSET’s international team has once again been in Asia – for two weeks – covering Japan, Hong Kong and, finally, Shanghai. The main focus was on expanding WSET’s educational presence, starting with thanking members of the Japanese government for their support of the new WSET Award in Sake, through to running educator training programmes in Hong Kong, and culminating in welcoming the first crop of seven graduates from the inaugural Diploma programmes in mainland China. So, three markets at different phases in their evolution as consumers of wine, but the market in mainland China was the hot topic in most of my conversations, and there was a consistent theme: the honeymoon period for imported wines is over, and now the hard work starts.

Kiki Yang (a partner in consultants Bain & Company) stressed that GDP in China was still growing – at a rate of 7.7% pa – but the growth of FMCG spending was slowing down, with expenditure on food and alcohol only 5% up on the previous year. She cited the anti-corruption measures as the main reason for the slow-down in the luxury market, but her company’s research was indicating that there was light at the end of the tunnel.

Ian Dai (of consultancy Vinsanity) put China into perspective by spelling out the difference between mainland China versus Hong Kong, where the average income was nearly five times higher than the mainland. But he stressed the opportunity in lower-tier cities, where many consumers were just buying their first watch, their first cars, but they aspired to sophistication, so a reason for optimism.

Ian Ford (CEO of Summergate, one of the biggest distributors in China) spelt out the realities of the current situation in first-tier cities, where the anti-extravagance measures, announced in December 2012, were taking a heavy toll on the market for imported wines into China, producing “real deceleration”. The market had seen a decline of imports of wine by 5.7% in the first six months of 2014, and 778 importers had dropped out of the business in China in the last 12 months.

It seems the ban on gifting within officialdom had been accelerated in early 2014, with the statistic that a staggering figure of 182,000 government officials had been punished for corruption in 2013. The measures included a ban on hospitality in 5-star hotels, resulting in many hotels deliberately ‘downgrading’ themselves so they could still attract government spending. In spite of this, the major hotels in Beijing and Shanghai were reporting wine business down 25%-30%.  

At the time of the Chinese government’s anti-corruption drive, the Chinese economy had reached a plateau, and more recently there was the virtual collapse of the Bordeaux en primeur market. James Miles (of Liv-Ex) described the market for fine wine in Hong Kong as “falling off the cliff” in 2012 & 2013 and, as a result, everyone working in the China wine market has had to reappraise their approach.

Add to this Paul Henry’s comment that “the world is awash with wine”, with annual global consumption lower than in 2008, and it would be easy to say that the bubble HAS burst, with no hope for the future.

However, being an optimist by nature, it was encouraging for me to be able to show that WSET’s student numbers in China were continuing to grow.

Unlike many more developed wine markets, where a downturn in business immediately brings the training budget into question, education is at the centre of many Chinese people’s drive to improve themselves and their businesses. 

So, wearing my headmaster’s gown and mortarboard and banging the drum to stress the importance of education as a key plank of the development (and redevelopment) of wine markets, I was pleased that I was by no means a lone voice.

Giulia Chen (of Federexport Piemonte) stated “the focus on wine education and training is the most important factor in developing a market”. 

Susan Lansing (DFS Group) had conducted a test measuring sales pre and post-training. As a result sales had increased by 5.6%, and Yang Lu (of the Shangri-La group) stressed:  “The Chinese love to study.” He finished his presentation at the Wine Industry Conference by citing WSET as one of the keys to preparing future sommeliers in China.

So has the bubble burst? No. Does it need pumping up? Yes. And thankfully it is not just me who thinks education will play a big part in reinvigorating the market in China.