China’s Winemakers Seek Their Own Napa Valley

China’s Winemakers Seek Their Own Napa Valley

On a fall evening in a fluorescent-lit classroom at Tsinghua University in Beijing, a dozen students listened intently. The speaker, Emma Gao, held a glass to the light and asked them to study the swirling liquid inside. Tsinghua is known as the “M.I.T. of China,” but this was no freshman seminar in fluid mechanics. It was a gathering of the student wine club.

Ms. Gao, a diminutive woman with a quick smile, was conducting a tasting of recent vintages from her family-run winery in Ningxia, a remote Chinese region on the edge of the Gobi Desert. Behind desktops lined with glasses, the students sniffed and sipped, comparing a fruity red with a richer, oakier French-style wine.

Since her winery has begun to win international acclaim, Ms. Gao, who is 38, has emerged as the unlikely new star of an even more unlikely new Chinese industry. The winery, Silver Heights, has been a pioneer in China, bringing sophisticated Western winemaking techniques to what had been an industry focused on bulk production.

French winemaker Möet & Chandon's property in Ningxia
Shen Yang, estate director of the French winemaker Möet & Chandon’s property in Ningxia. The sparkling-wine facility has become a standout since opening two years ago.

Taking a cue from that boutique-winery model, Ningxia has ambitions to become the Napa Valley of China. Local winemakers have won prestigious awards, and plans are underway to double the region’s vineyards and create a wine tourism hub. Foreign investors have also taken notice. The French Champagne maker Möet & Chandon makes sparkling wines there, while the spirits giant Pernod Ricard is spending heavily to modernize its local winery.

“People know Napa makes the best wines in America and Bordeaux makes the best wines in France,” says Hao Linhai, a top regional official who oversees the industry. “When they think of Chinese wines, we want them to think of Ningxia.”

While China is better known for fiery, 100-proof baijiu than prized vintages, its fast-growing middle class is increasingly demanding Western delights. And that includes fine wine.

Chinese drinkers quaffed more than 1.5 billion bottles of red wine in 2014, double the level of 2008, according to IWSR, a research firm based in London. Over all, China ranks fourth in red wine consumption, behind France, the United States and Italy. Wine production in the country has surged to meet that demand. From virtually nothing in the early 1980s, it is now the world’s seventh-largest winemaker.

Aided by the same long-range planning and government support that have brought success in everything from textiles to high-end electronics, China made 120 million cases of wine in 2014. That’s a bit less than a third of what is produced in the United States, and just behind the export powerhouses Australia and Argentina.

But Chinese wine is made almost exclusively for the domestic market, says Ma Huiqin, a professor at China Agricultural University in Beijing who works closely with Ningxia’s wine industry. And until recently, most of it was barely drinkable by Western standards, produced by giant industrial winemakers.

Now a new generation of Chinese winemakers is trying to upgrade quality in an effort to win over local wine drinkers as their tastes become more discerning, as well as capture the aficionados who drink mostly imports from France, America and elsewhere. And eventually, as with many other Chinese industries, the most successful will look to sell their wines overseas.

“They’ve got all the money in the world, they’ve got all the ambition in the world, and they’ve hired all the top consultants,” says Steven Spurrier, the British wine merchant who organized the “Judgment of Paris,” the 1976 blind tasting that stunned the wine world when California wines beat the French. “It’s inevitable the Chinese are going to make better and better wines.”

A Sudden Stampede

Sitting in the courtyard of her family’s ramshackle compound outside the regional capital of Yinchuan, Ms. Gao of Silver Heights looked out over the vineyard her father planted nearly 20 years ago. Among the first in the region to plant grapes, he suggested she go to France to study winemaking in 1999. “I was 21. I said, sure, why not?” she said. “It was France that interested me, not winemaking.”

After earning a degree in oenology, she did a stint at the highly regarded Château Calon-Ségur, where she met, and eventually married, the winemaker. French attitudes made a deep impression. “I learned to focus on quality, to make the best wine you can with the material you have,” she said.

After Ms. Gao returned to China, the first vintage she and her father produced in 2007 was just 10 barrels, or 3,000 bottles. Today, Ms. Gao makes four wines, with total production of 60,000 bottles. A 2013 bottle of her Summit label sells for around $75.

China's winemakers
An expansive view from the rooftop of Château Changyu Moser XV in Ningxia.

“She’s considered the best winemaker, with practically the best wine, in all of China,” says Gérard Colin, a French consultant who helped Château Lafite Rothschild develop a winery in China. “Emma put Ningxia on the map.”

A poor coal region wedged below Inner Mongolia, Ningxia, with its hilly, arid scrubland, is ill suited for most agriculture. It’s dry and hot in the summer, with long, freezing winters. But its sandy, rocky soil proved ideal for growing grapes. The Helan Mountains to the west protect the vineyards from harsh desert winds, while cool nights keep the grapes from ripening too fast.

Eager to create a new industry, the regional government built extensive irrigation systems starting in the late 1990s and put winemaking at the center of development plans. In 2005, the government helped start the area’s first “demonstration” winery, Helan Qingxue.

A major turning point came in 2011 when Helan Qingxue won a gold medal in a prestigious international competition by the British wine publication Decanter. A 2009 bottle of its Jia Bei Lan was named best red Bordeaux varietal over £10, beating out rivals from Napa, Australia and Bordeaux.

Suddenly, what had been a slow buildup turned into a stampede. The award “made people realize that wine could be a great business,” said Guo Xiaoheng, a native of the region who trained as a sommelier in France before returning to sell winemaking equipment. Demand — and prices — for Ningxia’s wines began to take off.

A decade ago, Ningxia had just a handful of wineries. Today, there are more than 70, with 40 more under construction, and the government plans to reach 200 by 2020. As elsewhere in China, red wines dominate, mostly the Bordeaux blends — principally mixtures of cabernet sauvignon, merlot and cabernet franc — popular in China.

Jancis Robinson, a British wine journalist, judged a blind tasting of Chinese wines in Shanghai last year. “Ningxia really did shine. They produced most of the top wines,” she said. They are now “very acceptable commercial quality wines.”

For Ms. Gao, that’s not good enough. Early one morning in May, she drove an hour out to the Helan Mountain foothills, where she is building a winery with more advanced equipment. The expanded vineyards will allow Silver Heights to grow to 200,000 bottles per year.

Surveying the waist-high vines jutting from the rocky soil, she said it takes five years or more before they produce the quality she requires. In a nearby plot, she has begun to experiment with pinot noir, chardonnay and other varietals.

“We want to try the land, to see what’s suitable,” she says. “We are not investing for one or two years; we’re investing for the next 100 years. Those will be wines for future generations to make.”

The Chateau Economy

Möet & Chandon’s new sparkling wine facility — with its clean modern lines and state-of-the-art equipment — has become one of the area’s biggest standouts since it opened two years ago.

Chinese winemakers
Emma Gao of Silver Heights Winery, one of the best-known Chinese winemakers.

Pointing out the giant tanks used to produce 50,000 cases last year, the estate director, Shen Yang, says Chandon is in the first phase of a long-term investment aimed at getting China’s white-collar professionals to drink more sparkling wine.

“Our mission in China is to create a new market for this wine,” Mr. Shen said.

Today, Chinese demand for sparkling wines is tiny — roughly 2 percent of total wine consumption, he says, compared with 9 percent for mature markets. But Möet & Chandon decided that with imports rising, it was time to start producing locally.

“China’s market has enormous potential,” he added. “The interest in wine now is a reflection of its stage of economic development.”

Ningxia’s growing reputation has attracted investment, as domestic and international players alike look at China’s market. The region’s wineries produced 270 million bottles in 2014, nearly triple the level of three years earlier.

The resulting boom has reshaped Yinchuan. Signs of prosperity are everywhere, from the five-star Kempinski Hotel to the office towers and apartment complexes popping up all across the city. On the city’s outskirts, a constant flow of tractors and trucks race along winding two-lane roadways rutted with potholes. A new highway to speed visitors to the wineries is under construction.

Changyu Pioneer Wine, China’s oldest domestic wine producer — and one of the three giants that dominate the market — has spent over $100 million creating a Disneyesque, nearly 140,000-square-foot “chateau,” complete with fountains, turrets and two suits of medieval armor guarding the gates. Run in partnership with the Austrian winemaker Lenz Moser, it is the latest of six castles that Changyu has built around China to draw middle-class Chinese who have begun to enjoy Western-style vacations. The general manager, Ruan Shi Li, says he expects 80,000 visitors this year, more than double its first year.

But some are starting to worry about whether the breakneck growth is sustainable, as the new wealth has prompted something of a speculative land rush. Chen Deqi was among Ningxia’s earliest investors, buying 25,000 acres in 2007. Now he’s dividing it into 100 parcels to create “mini chateaus” for the wealthy.

Mr. Chen says he already has buyers willing to pay 1 million renminbi — roughly $160,000 — for the first two. He says the land is now worth 20 times what he paid for it.

Others are concerned that quality could suffer. Xie Donjiang, a Ningxia native who developed a wine property south of Beijing and also owns the Ektimo winery in Sebastopol, Calif., returned to check out Ningxia last fall. He was disappointed.

He argues that Ningxia officials have encouraged the willy-nilly planting of grapes without understanding which varietals are best suited to its terroir — the combination of soil, exposure and climate that makes each vineyard unique.

“Ningxia is pushing too hard,” Mr. Xie said. “This is basic analysis for wine, but the government is not doing it.”

wine-bottling machine
A wine-bottling machine at Château Changyu Moser XV.

Creating Connoisseurs

Zhou Jianyu is a businessman from Hunan. Like many younger Chinese, Mr. Zhou acquired a taste for wine while studying abroad. At first, he favored European wines — mostly French and Italian. But three years ago, he began drinking only Chinese wines. “They were excellent, so I began to drink more,” he said.

On a tour of Legacy Peak, one of Ningxia’s best new wineries, Mr. Zhou and his friends had a lunch of fish, crabs, chicken and vegetables. While they ate, the winemaker, Zhou Shu Zhen, discussed the local climate and explained how a longer barrel aging added depth to her reds.

“For many people, California or French wines have their own flavor,” said Mr. Zhou, who is not related to the winemaker. “But I’ve discovered that Ningxia’s wines have their own flavor and character too.”

As Ningxia races to expand, cultivating customers like Mr. Zhou will be critical. Much of the explosion in wine consumption was driven by government officials and executives at state-owned companies buying expensive vintages for banquets and gifts. In the last two years, the government has been on a tough anticorruption campaign, and one consequence was a 12 percent drop-off in red wine consumption last year. The stock market crash and slowing economy this year are not helping.

The shakeout is forcing winemakers to focus on “real buyers,” says Fongyee Walker, the managing director of Dragon Phoenix, a wine education consultancy based in Beijing. That is the middle- and upper-class Chinese who drink wine because they like it, not because of the status or favors it brings.

To build that customer base, Ningxia’s producers say they are concentrating on getting their wines into shops and restaurants in Beijing and other major cities. Few Ningxia wines are available outside the region, and prices are high.

“Even if people love our wines, they cannot find us,” says Wang Fang of Kanaan Winery. Both Kanaan and Legacy Peak have recently signed deals with top wine distributors.

Many are also envisioning a time when top Chinese wines will be a common sight on the shelves of American or European stores.

Mike Insley, a New Zealander who recently arrived to upgrade Pernod Ricard’s vineyards, says the area reminds him of Marlborough — the center of his country’s wine industry — in the late 1980s. Back then, New Zealand’s wines had no international recognition and its vintners were only beginning to understand the wines they produced.

Today, wine is New Zealand’s No. 6 export, with sales of more than $940 million. “That’s what happens when a country gets this right,” Mr. Insley said.

Chinese vintages are starting to pique overseas interest. Bruno Paumard, a French winemaker who exports to Britain, Australia and Hong Kong from a large estate in nearby Inner Mongolia, has begun to ship his wines as well. And Changyu Moser XV, which now sells about 170,000 bottles a year in Britain, Germany and the Netherlands, is gearing up for a big expansion. Mr. Moser says it aims to hit roughly five million bottles across the Continent within a few years; he will also soon begin talks with American distributors. Thanks to a strong 2015 vintage, he adds, “we have a chance to make China a real player in the international arena.”

Silver Heights has also had interest from Europe. But Ms. Gao worries that Chinese wines are still too expensive to compete in international markets. For now, expanding her vineyards and improving her winemaking are more important than exporting.

“We do not have time for that now,” she said with a laugh. “Maybe next year.”

China’s Winemakers Seek Their Own Napa Valley

Hotels join the crowdfunding craze

Hotel crowdfunding

Hotels join the crowdfunding craze

The online money-raising craze that made possible both the Pebble smartwatch and the Oculus Rift virtual reality system is now becoming a trend in the hotel hospitality industry.

Crowdfunding is being used to help raise funds to transform a historic building in San Francisco’s gentrifying Mid-Market neighborhood into a hip, high-tech YOTEL-branded hotel.

In a joint venture with a Kuwaiti real estate company named AQARAT, New York-based real estate investment firm, Synapse Development Group is spearheading the redevelopment of 1095 Market Street. If all goes according to plan, the antiquated office building will soon become a 203-room hotel—the city’s first financed via crowdfunding and located just blocks from the headquarters of tech heavyweights Uber and Twitter.

“We thought crowdfunding a small portion [10 to 15 percent] of the equity on this deal would fit with the ethos of the neighborhood, given the demographic of the young, millennial, tech-heavy crowd that is there day-to-day,” Justin Palmer, Synapse’s CEO, told CNBC in an interview last week.

“It’s a good way to encourage local buy-in on the project,” said Palmer. “These people can reap investment benefits as owners and also actually visit the property, go to the restaurant, the roof top bar and get owners’ discounts on room rates.”

How to build a hotel through crowdfunding

Synapse isn’t the first company to crowdfund a hotel, however. In 2014, the Hard Rock Hotel in Palm Springs used the platform to raise $1.5 million to help refinance and renovate the property. For a minimum investment of $10,000, individuals became equity owners and received a package of VIP guest perks.
Real estate crowdfunding site RealCrowd is hosting the YOTEL San Francisco offering, which is open to accredited investors. In addition to equity ownership, investors are being offered Kickstarter-type perks, such as t-shirts, annual parties and personalized perks at investment tiers starting at a minimum of $25,000.

“They’re trying to marry the concepts from the last generation of crowdfunding, when you were just a supporter to being also an owner,” said Mitch Roschelle, partner and real estate advisory leader at PwC, “but there are a lot of complicated security laws you need to deal with.”

A lot of those security laws are still quite new, dating back to the Jumpstart Our Business Startups (JOBS) Act, which was signed into law in April 2012. That eased some fundraising and advertising restrictions for small companies.

With real estate crowdfunding growing globally, from $1 billion in 2014 to a projected $2.5 billion in 2015, Roschelle thinks it’s a growing trend — and one that makes sense for hotels.

“A lot of crowdfunding has been in the intellectual property space, for movies and start-up businesses,” said Roschelle. “It was inevitable that crowdfunding would make its way to properties where investors could visit or even stay at the very place they funded.”

According to Crowdnetic, which tracks crowd financing, since September 2013 there have been over 300 securities-based crowdfunded real estate development and investments offerings out of 6,260. Twelve of those have been for hotel properties.

Of that number, “10 … have been successful, and I would not be surprised if the early successful hotel offerings spurred other hotel and lodging properties to come on board with this still-new capital-formation tool,” said Janet Rosenblum, Crowdnetic’s director of research.

Synapse’s YOTEL underscores how the real estate industry is grappling with major changes in how to build and finance projects.

“With technology and the regulatory changes, there’s been a transformational shift in how people manage their money,” said Adam Hooper , co-founder and CEO of RealCrowd, “We’re still building a stadium and I don’t even know if the game has started yet.”

Hotels join the crowdfunding craze

This is Why Solar Panels Will Boom Early Next Year

This is Why Solar Panels Will Boom Early Next Year

The global market for solar panels is expected to soar to a record high in the first half of 2016 because of strong demand as well as favorable policies in the U.S. and China, says a new report from research firm IHS Technology.

However, in the second half of 2016 and into 2017, growth is expected to slow after the U.S. lowers its solar tax credits and a push by China to install more panels.

Fortune

This is Why Solar Panels Will Boom Early Next Year

CFOs can create a competitive advantage in PE

The overwhelming demand for private equity makes it the asset class of choice. But investors are now focusing on operational excellence as a key differentiator.

Investors have added a new layer — proven operational excellence — to their definition of ‘performance.’ To create a competitive advantage, private equity CFOs must demonstrate that their internal operations are both effective and efficient.

CFOs can create a competitive advantage in PE

Growth Matters

One of the biggest advantages emerging markets have offered investors is a strong growth story: Over the past decade, growth in emerging markets has outpaced growth in developed markets by more than double. Growth in gross domestic product (GDP) looks like it will continue to outperform that of developed markets for at least the next five years, according to estimates by the International Monetary Fund. 

While it’s true that growth and stock market performance can be divergent at times, there is no question that growth matters since company earnings depend on general economic growth.

Growth Matters

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