China’s Import Surge
China is known as an exporting powerhouse. With new trends and changing behaviors, it is hardly surprising that growth in imports—26% in May 2018 alone—are now far outpacing exports. This is primarily driven by demand for commodities and consumer goods. As Chinese consumers become wealthier, their demand for more and higher quality goods and services is also increasing. Due to past and continuing worries among Chinese on the safety of domestically-produced goods, many are seeking out foreign products. This is particularly true of alcohol consumption in China, with a larger number of Chinese experiencing and enjoying what foreign countries have to offer. Foreign brands are steadily taking market share away from established domestic brands in wine, beer, and spirits.
In some ways, the government is contributing to this trend as it steadily reduces the VAT rate, duties and tariffs on foreign goods. Effective May 2018, VAT has been reduced by 17% down to 16% with overall duties, tariffs, and taxes being reduced from 48.2% to 46.93%. Although modest, it is part of a broader trend by the Chinese government to reduce the cost of imported goods. Countries with which China already has free trade agreements—such as Australia and Georgia—will further benefit from this.
Opportunities for Producers of Wine, Beer, and Spirits in a Growing Market
Among types of alcohol, wine is substantially the most popular in China, with the country being the single largest importer in the world. 745.8 million liters were imported in 2017, according to Chinese customs. Knowledge and understanding of wine, creating a wine culture, is increasing—particularly in large urban areas, albeit from a relatively low base. Although France remains the single largest source of wine imports, this is changing quickly as local consumers become familiar with the quality and varieties of other regions and exporting countries, such as Chile, benefit from free trade agreements, enabling them to compete on price.
Spirits face stiff competition from China’s local fiery spirit, baijiu. Brandy, accounting for 51.77% of total imported liquors, is the strongest competitor. Whisky is also making a strong headway in the market, increasingly being viewed as premium and part of the modern lifestyle. China imported around 70.6 million liters of spirits in 2017, with a steady year-on-year growth rate.
Domestic beer producers focus primarily on light, inexpensive, lagers. This has provided foreign breweries with a major opportunity to compete on flavor, quality, and novelty. Demand for different varieties of mass market and craft beers is growing as Chinese consumers—typically young and urbane—have developed a taste for IPAs, stouts, and other both traditional and new varieties and flavors. Imported beer to China has shown rapid growth in both sales volume and value over the past five years.
Tapping into China’s Growing Consumer Market
All these point to a huge opportunity for foreign producers of wine, spirits, and beer, as China’s drinking culture shifts away from traditional swill to new, novel, more flavorful and better quality alcoholic beverages. Although large urban areas—such as Shenzhen and Shanghai—are leading the way in adopting new trends, smaller cities have begun to follow as well – all of which are huge potential markets for producers of all sizes looking for their next (or first) export market opportunity.
The key to successfully tapping, expanding, and succeeding in China is always finding the right partners who understand the market, who can properly localize your branding and marketing strategy, and those who have the patience and diligence necessary to ensure both of these are achieved.