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Move over Bordeaux: French premium winemakers eye China vintage

Flight of wine at California Pizza Kitchen
Source: California Pizza Kitchen
Flight of wine at California Pizza Kitchen

In a few remote corners of China, two of France's top winemakers have more on their minds than a trade row with their most promising export market.

In three far-flung provinces, a world away from Beijing's allegations of European wine dumping, makers of such lofty French brands as Chateau Lafite-Rothschild and Dom Perignon champagne are investing millions of dollars to produce vintages they hope will put Chinese wine on the world map.

In a country where cheap plonk and overpriced mediocre wines still define the domestic industry, the French are partnering with Chinese investors to produce super-premium wines for increasingly discerning drinkers at the market's top end.

(Read More: 'Red Obsession': How China Is Transforming the Bordeaux Market)

They will likely charge hundreds of dollars per bottle when the wines start appearing in a year or two, turning out deeply rich reds and elegantly sparkling wines for wealthy Chinese drinkers who they hope will be proud to serve local vintages that are the equal of their imported collections.

"China deserves the production of great wines," said Christophe Salin, president of Domaines Barons de Rothschild (DBR), which owns the vaunted Chateau Lafite, Ch. Duhart-Milon and Ch. L'Evangile, among other French labels. "Without wanting to copy Lafite, we wish to produce a great wine on Chinese soil," he added in an interview.

"Shangri-La"

DBR is investing 100 million yuan ($16.3 million) with partner CITIC, a state investment firm, to develop 25 hectares (62 acres) of vineyards in eastern Shandong province to produce super-premium red wine for the Chinese market.

Moet-Hennessy, the wine and spirits arm of luxury group LVMH Moet Hennessy Louis Vuitton SA, is also looking to make a top-end Chinese red and is planting 30 hectares (74 acres) of grapes in remote mountains of southern Yunnan province.

Moet-Hennessy studied climate and soil conditions at hundreds of locations around China before settling on an area the government calls "Shangri-La", abutting Tibet, to grow Cabernet sauvignon, Cabernet franc and Merlot grapes.

(Read More: In China, Fake European Wine More Worrying Than Tariffs)

Moet-Hennessy CEO Christophe Navarre won't divulge the investment there but says it is borne two-thirds by Moet-Hennessy and one-third by its Chinese partner, winemaker VATS.

"I dream one day to go back to France with a bottle of red wine produced in the region of Shangri-La and I can say it's the best wine in the world," Navarre said in announcing the venture last year.

Moet-Hennessy's wine portfolio includes the vaunted Ch. Cheval Blanc and Ch. d'Yquem, the world's most coveted dessert wine. Its champagnes include Dom Perignon, Moet & Chandon and Krug - and it is developing vineyards in Ningxia Hui autonomous region in north-central China with a view to producing China's first ultra-premium sparkling wine.

(Read More: French Palace Wine Auction: Not Just For Snobs)

Neither DBR nor Moet-Hennessy plans to market its Chinese wines under existing brands. Both say they want to give the wines a unique Chinese identity - a strategy that is questioned by some within the Chinese wine industry.

"If they don't put their brand on it then people won't buy it at a very high price," says Monica He, who works with wine importer Menvis in Beijing.

Growing thirst

DBR's and LVMH's investments into China aim to capitalize on China's growing thirst for premium wines, but could also help their extensive line-ups of mid-priced wines and spirits.

Chinese consumers are drawn to either high-end or cheap wine, leaving a gap in the middle of the market. By producing a Chinese "halo" wine marque, the French winemakers could draw drinkers to their imported mid-range lineup.

(Read More: EU and China agree minimum import price near spot price)

The French investors do not have plans to produce still white wines in China, as red wine and champagne are more fashionable for upwardly mobile Chinese wine drinkers.

China is the world's fifth-largest wine consumer, according to a study last year for VINEXPO, an annual wine trade show that alternates between Bordeaux and Hong Kong. The study forecast annual consumption growth in China and Hong Kong at 54.3 percent between 2011 and 2015, or a billion more bottles every year.

China's wine market is dominated by a few large local producers that make bulk and mid-priced wine, and some premium-priced wines selling for more than $100 a bottle, but these are usually considered far inferior to much cheaper imported wines.

(Read More: Wine Vs. Solar panels: China Hits Back at EU)

So can China produce something at the highest level?

"The potential there is to make something very, very good," says Jim Boyce, who follows China's wine industry on his blog Grapewallofchina. "There are a lot of people who've been telling me for years that Yunnan is where it's going to happen."

Meanwhile, Beijing and Brussels are in talks to end their trade dispute over wine, with a settlement seen as likely after the two sides struck a deal last week in a separate row over Chinese solar panel exports to Europe.

Beijing had launched its investigation into European wine sales after the European Union moved to impose steep import duties on Chinese solar panels.

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