In this China law special, Kristie Tien analyses the recent 12th five-year plan that encourages and supports the development of the Chinese wine industry, as well as other applicable legislation.

In 2010, wine only constituted approximately 2,5% of the total volume production of alcoholic beverages in China (including beer, liquor, bai jiu, etc). Wine consumption under Chinese nationals has however increased rapidly over the last couple of years. As this special will show, we see great potential for foreign wine producers with a wish to enter the Chinese market.

The five-year plan on the wine industry
In July 2012, the 12th five-year plan for the Chinese wine industry development (“the Plan”) was jointly issued by the Chinese Ministry of Industry and Information Technology (MIIT) and the Ministry of Agriculture.

The Plan focuses on supporting the establishment of wineries and technology innovation of the wine industry in China, and provides clauses covering the promotion of technical advancement and assuring the healthy development of the industry.

Pursuant to the Plan, the government will support the industry in a number of ways. Certain winemakers are eligible to receive support in clean production, upgrading of their technology, energy conservation, independent ownership of important equipment, brand building and public services. Moreover, certain ’superior brand’ wine producers might count on support through the implementation of financial and monetary policies, mergers & acquisitions and restructuring policies, and might be given support to their working capital, debt assessment and employee arrangements. Finally, the Plan encourages banks and other financial institutions to enhance credit support to wine enterprises that are in line with industry policies for the purposes of risk control and sustainable development.

Access conditions of the wine industry
The plan should be seen however in light of the ‘Access Conditions of the wine industry’, which entered into force on 1 July 2012 (the “Access Conditions”), and which itroduce certain compulsory conditions to enter the market. Amongst others, they set conditions for the building of wineries and introduce high productivity and capacity requirements. They furthermore require that a certain amount of raw materials must be guaranteed by the wineries themselves.

So in other words – even though the 12th five-year plan on the Wine Industry encourages and supports the development of the Chinese wine industry – the Access Conditions introduce some very limiting compulsory conditions, making it hard for small and foreign wineries to set up a wine producing facility.

Growing potential for foreign wine producers
We nevertheless see a growing potential for foreign wine producers to enter the Chinese market. There are clear indications that wine has been finding its way into the Chinese drinking culture. This trend will surely continue as the beverage is increasingly popular amongst the Chinese middle class. China will be looking at foreign countries with strongly developed wine industries in a hope to further improve the national wine production. This, in combination with the fact that the Chinese government continues to boost the agricultural industry, will result in a growing demand of foreign modern, high-efficiency and high-tech machinery and (technical) know-how for wine production.

The recently introduced legislation mostly encourages large investments and makes the Chinese wine industry rather uninteresting for smaller investments or companies with insufficient knowledge of the Chinese market and practice. Therefore, small and medium sized foreign wine producers are advised to team up with an established and respected Chinese company (e.g. by entering into a Joint Venture). Large foreign wine producing companies are advised to conduct profound market research and to very carefully consider all legal and commercial risks involved before entering the market. Moreover, they should make sure to establish a relationship with the agricultural bureaucracy involved in the various approval and incorporation procedures for the setting up of a winery in China.

HIL International Lawyers & Advisers is an international law firm with a strong agricultural practice. We have many clients that are active in the Chinese and European food and beverage industry and have profound experience in assisting them with their entry into the Chinese market and related transactions.

Kristie Tien