China's vintners well set as wines come of age

By Joseph Chaney - Analysis

HONG KONG (Reuters) - Western connoisseurs once derided Chinese as simple drinkers who mixed wine with soda, and saw the country's top vintners such as Dynasty as local oddities serving up cheap wines in an immature market.

But a growing number of converts -- investors among them -- say China could become the industry's next Chile: a font of quality and affordable wines.

Dynasty, Changyu and Great Wall, made by a subsidiary of China Foods, control roughly half of China's grape wine market. They are angling to replace local preferences for beer and grain alcohol in a country where international wines still have a small, albeit fast growing, presence.

Though a near-term sales slowdown is possible as U.S. woes fan out across the world, analysts say long-term prospects for China's homegrown wines are strong as disposable incomes surge and the country's booming middle-class demands healthier and ritzier lifestyles.

"It should be a gradual process," Shanghai-based Credit Suisse analyst Shanshan Lu told Reuters.

"The key opportunity comes from the low base, and the key challenge should be competition from foreign brands that are imported into the China market."

International spirit and wine behemoths Diageo and Pernod Ricard are also aggressively expanding in the world's fastest growing major economy, but are focusing on high-end whisky brands such as Johnnie Walker and Chivas Regal.

China's wine industry is expected to grow to roughly $13.7 billion in 2010, up from $10.5 billion in 2007, according to research from Euromonitor, and experts say it could be the world's eighth largest wine consumer by 2012.