WorldWine Blog

2011-10-20

China - Is the bubble already bursting?

Critical observers of the wine market, in particular of the market of highly priced Bordeaux growths, had been warning for a while already. Now, the bubble of that overheated special market with its mad prices - for some of the top growths far more than 1,000 Euros per bottle were asked during this year's primeur campaign - could burst even earlier than the most sceptical insiders had guessed.

The recent auctions of La Varenne-Saint-Hilaire in suburbian Paris, where 1.000 lots of prestigious younger and older Bordeaux wines came under the hammer, were a clear alarm signal. Even the offers of famous Château Lafite-Rothschild were traded at half the price of some months ago and Lafites second wine, Carruades 2000, was sold for mere 120 instead of 300 Euros.

Apparently the chinese traders in particular were pretty much reluctant to offer higher prices - some of the lots completely remained without any buyer - and thus the highest offers came from people outside Asia.

This evolution is reflected by two of the most renowned wine indices, the London based Liv-ex Fine Wine 50 and Fine Wine 100. While Liv-ex 50 has dropped from 440 to 370 points (- 15,9 %) since last July, Liv-ex 100 went down to 320 from 365 (- 12,3 %). The market thus confirms fears which had first come up some months ago and which concern China which could reveal itself much less stable than the optimists among international wine merchants had expected.

The fact that wine is still not part of the everyday life and of Chinese culinary culture could have brought the booming sales to a halt or at least a certain pause. The market has been drinven by two more aleatoric motives: a lifestyle trend which could turn out rather transient and a speculative bubble which, if it has not yet burst, could do so in the near future.

For those in the wine industry who have put all their hopes into the Chinese market, the persistance of this negativ trend could be a serious blow. Among them countries like Australia who have put their shirt nearly completely on this market, neglecting traditional wine drinking areas like Continental Europe in their marketing efforts.

Instead of assuring the salvation of ailing wine exports around the world China could itself become pretty fast a member of the top exporting countries club, flooding the world markets with its wines at bargain prices. With a vineyard five times as big as the German, with recently aquired first class know-how - look at the recent Decanter Awards where a Chinese wine has won the category of Bordeaux style blends (I'm not kidding) - and with its amazing capital strength, China could soon become one of the fiercest competitors on the international markets. It's cold outside!


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