Yinchuan, capital of Ningxia Hui autonomous region, might soon be known as the sparkling wine capital of China.

Yinchuan, destined to be China’s wine capital

Updated: 2013-08-26 06:56

By Zhong Nan and Li Fangfang ( China Daily)Yinchuan city ismaking the most of anideal climate to attractmajor money

Yinchuan, capital ofNingxia Hui autonomousregion, might soon beknown as the sparklingwine capital of China.

With the Chinese wine market booming, Yinchuan has attracted considerable investment in itswinemaking center at the foot of Helan Mountain. French company Moet Hennessy even says itwill have a locally produced premium sparkling wine on Chinese shelves some time next year.

With its strong sunshine, low rainfall and huge day-night temperature differences, this area inthe northwest of the country is already among China’s major wine production bases, whichinclude Yantai and Changli. The Yinchuan vineyards have alluvial soil, which has been washeddown from the mountains to the foothills and plains. It consists of sand, schist and smallpebbles.

The Yellow River runs through the area and there are also many lakes, so there are noproblems with water supply and irrigation.

Ningxia Daylong Winery Co Ltd, a subsidiary of Thailand’s Daysun Group based in Bangkok,has increased its investment in Ningxia as part of a strategy to expand its presence in China.

Daylong Winery currently has a grape-planting base of 6,670 hectares with all the graftedseedlings coming from France and Italy. To ensure quality, the planting is limited to 3,300plants a hectare, the maximum output is set at about 7,500 kilograms a hectare.

Since founding its first winery in Yinchuan in 2008, the Thai company has invested 600 millionyuan ($98 million) to develop its wine business in the region.

“We will invest 1 billion yuan in our winery over the next six years,” says Chen Deqi, presidentof Daysun Group and a Thailand-born Chinese. “The money will be spent on adding morebreeding parks for improving seed, logistics facilities, machinery, a shelter forest belt, newchateaus and a new vineyard covering 6,600 hectares.”

Daylong’s cellar, which is 5 meters underground and covers 5,200 square meters, holds morethan 700 oak barrels imported from France. These barrels cost between 9,000 and 20,000yuan each.

Guided by seven French winemakers, the grapes are crushed, fermented, bottled and storedbefore going on sale. It takes 10 to 18 months of storage in a cellar for the bitterness to go outof the wine.

Chen, 57, says the quality of wine depends largely on the quality of the grapes. Helan Mountainstands at a latitude of about 38 degrees north, similar to Bordeaux in France. Its advantageousnatural conditions add to the competitiveness of its local wine industry.

The company employs 860 people at its vineyards and exports its wine to Poland, Ukraine andSouth Korea.

To further develop the wine-making industry, the Yinchuan government plans to develop 10high-quality cellars in the area. This year it also plans to build a large experimental zone as wellas an international wine museum, according to supporting policies.

The grape-planting area stands at 34,000 hectares across the region. A total of 77 winemakingbusinesses have been established in the city, with production capacity reaching about 179,000tons. Most of them have developed key components in the industry’s supply chain, includingfermenting, storage and bottling.

An additional 4,000 hectares of vineyards will be planted in Yinchuan this year, according tothe Ningxia Forestry Bureau.

Another encouraging sign of growth in domestic wine consumption occurred in China’s second-and third-tier markets last year, when sales of Chinese wines overtook sales of foreign winesfor the first time, both by volume and value. Total revenue from sales of Chinese wines reached$129 million in second- and third-tier cities in 2012, according to a report by the ChinaAlcoholic Drinks Association in Beijing.

Yuan Hong, general manager of Yinchuan Yuma Winery Co Ltd, another large winery inYinchuan specializing in producing cabernet sauvignon and merlot, says his company ispreparing to open a grand chateau-style winery and visitors’ center next year, as part of thecompany’s promotional strategy.

“It is important for us to quickly step up promotional and marketing activities and thereby garnermore customers throughout China, because the country does not have a wine tradition,” saysYuan.

“I began producing wine in 2005. Many wineries in China are modeled on French wine, but Idon’t follow this. Chinese winemakers need to pay more attention to developing their ownwinery culture, otherwise the products they sell will always be cheaper than imported wine eventhough some foreign wines taste quite flat.”

To improve grape quality, Yuan’s company also provides contracted farmers with technicalknow-how and instruction.

“Local farmers tend to sell us the best grapes because our prices are based on sugar content -prices for grapes that are rich in sugar are higher than the market standard,” Yuan says.

With prices ranging from 300 yuan to 1,200 yuan a bottle, the company’s sales revenuereached 82 million yuan in 2012, a 13 percent increase from a year earlier. China’s westernregion is its main market.

China’s major winemakers – such as Changyu Pioneer Wine Co Ltd, China Great Wall Wine CoLtd and Dynasty Fine Wines Group Ltd – have all set up production bases in Yinchuan todiversify their products. Four wineries in this area are either foreign-owned or joint ventures.

In Yinchuan two months ago, Moet Hennessy, the wine and spirits unit owned by French luxurygroup LVMH, announced it would establish the first winery in China dedicated to the productionof premium sparkling wine. Its first bottle of sparkling wine will be released in 2014.

“The winery will not only help support our group’s overall business in China in the future,” saysChristophe Navarre, chief executive of Moet Hennessy, “but it also indicates our long-termvision for the China market.”

Close to Helan Mountain with an operational area of 6,300 sq m, the winery will follow thecompany’s worldwide procedures to ensure it produces quality sparkling wines.

Mark Bedingham, the managing director of Moet Hennessy Asia-Pacific, says the sparkling wineproduced in Yinchuan will initially satisfy local demand but will eventually be exported.

“The wine market in China is booming,” says Bedingham. “The new winery indicates anothersignificant milestone in Moet Hennessy’s continued efforts to help develop wine in China.

“New products are targeted at China’s young adults who aspire to a high-quality lifestyle.

“In most of the world’s major wine markets, sparkling wine accounts for just 0.9 to 3 percent oftotal demand. But 1 percent of China’s wine market, which is still increasing, is a really bignumber.”

Indeed, China is on track to become the seventh-largest wine buyer in the world this year, aftercountries including the United States, France, Italy and Spain.

Chinese consumption is expected to rise 32 percent to about 1.3 billion bottles from 2009figures, said a report by Vinexpo, an organization that hosts international wine and spirits tradeexhibitions in France.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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