China's reputation as both a wine market and producer looks to be going in only one direction. Mark Godfrey in Beijing speaks exclusively to consultants, sommeliers, retailers and producers on the ground to assess the progress the country has made. 

Barry Lee is probably typical of Chinese wine drinkers. The auto-sales accountant started off drinking a local Great Wall red at an office lunch, then got curious and went to a Beijing branch of the French Carrefour supermarket chain, where he spent RMB78 (US$11.40) on a bottle of Chilean red.

Now he's alternating his weekly one-bottle buy between Australian and French and surfing a new generation of Chinese language wine websites to learn about grapes and vintages.

Lee will never spend more than RMB100 (US$14.6) out of his RMB7,000 (US$1,026) monthly salary on a bottle. He says that makes him amenable to Chilean and Australian wines, which are growing sales in a Chinese market driven by the expansion of the middle class.

But for most consumers in China, the historic tradition and allure of French wines has led this grandest of old world producers to dominate the Chinese market, says Michele Schiura, Shanghai-based general manager of Gourmedis, an importer of foreign food and wine for Chinese retail outlets like German-owned Metro.

Italians are second-placed, while Australian, Chilean and US labels vie for third place in Gourmedis' sales.

Schiura credits a dramatic growth in Chinese wine sales - which grew from 1m bottles three years ago to 5m today - to the appreciation in value of the Yuan as well the reduction of China's import duty on wine to 14%, implemented in 2005. Prices have also dropped dramatically - Metro is selling a Gourmedis-imported Italian red for RMB29 (US$4.25).

Some new world wines benefit from even lower import duties. Chile and New Zealand both have free trade agreements with China, while Australia is in the process of negotiating a similar agreement with Beijing. A Chilean RMB62 (US$9.09) red is the current best seller at Top Cellar, an independent wine retailer with shops in Beijing and Shanghai.

Top Cellar wine consultant Marc Schelcher says Chinese wine drinkers are also attracted by the "smarter and more informative" labelling of new world wines. Schelcher says local customers are guided by price, unless purchasing wine as a gift - "then they'll almost always buy French," he says.

Schelcher predicts that, in 2009, locals will opt for cheaper wine. Margins at Top Cellar, which has opened two new shops in the last couple of months, will be tighter this year, he says. Top Cellar organises fortnightly wine tastings to introduce local wine drinkers to selections of wine.

Schiura, who believes sales volumes will remain stable in 2009, says that local customers will reserve their prestige purchases for French labels. Chinese consumers continue to associate products with nations of origin, he says. "France has become synonymous with quality wine in the same way as Germany is synonymous with quality cars and Switzerland with fine watches in the Chinese mindset. It's a legacy thing."

Gourmedis is currently pushing sales volumes through local, Chinese-style restaurants. Future sales also depend on the exchange rates: "If the Yuan continues to rise, the price of imports will drop and sales of lower-priced wines will rise at the expense of local labels," Schiura says.

While Chilean wines have been very aggressive on price, Italian wine has grown in demand, claims Gourmedis, through the growing popularity of Italian restaurants in China. Italian wine already accounts for a third of Gourmedis wine sales in China, and the company thinks this trend will continue, with Italian wine sales increasing still further, as Chinese diners grow more accustomed to eating in Italian restaurants. This would mirror similar past trends in Japan and the USA where Italian wine sales grew alongside an increase in demand for Italian dining, says Gourmedis.

While imported wines continue to grab market share in the country, local labels such as Great Wall and Changyu account for 95% of Chinese-origin wine sales, the bulk of sales happening in national supermarket chains like Jingkelong. Local wine icons have relied on hired-in French expertise; Pernod Ricard worked with Chinese producer Dynasty, for example.

Some respectable French chateaux have gone into joint ventures here to develop Chinese vineyards. Nicolas Billot-Grima has spent 20 years shuttling between consultancy jobs in Chinese vineyards and his family's La Roche Pipeau chateau in Bordeaux. His own label, Chateau Tayshi, now sells at RMB120 (US$17.59) a bottle and is marketed as a 'high value' gift purchase.

So far, the global economic downturn has not affected sales of domestically produced wine. Billot-Grima expects sales this year to equal those of 2008, when he sold all of the 50,000 bottles that he produced. A small portion of these sales even occurred in France, he says.

Rather than being cowed by local competition, Billot-Grima credits huge marketing spends by Chinese wine giants such as Changyu for promoting the sale of China-based joint ventures involving foreign producers. Chinese vineyards in unlikely locations, like Hebei province near Beijing and Xinjiang province near Pakistan, have used the local media to talk up long-term export potential to places like Kazakhstan and Japan.

Local wine writer Daniel Wei believes producers should focus less on volume and more on quality, however.

"Everyone here wants to make standard Bordeaux in large quantities rather than making small batches of excellent wine," Wei says. Quality remains patchy in vineyards run by independent farmers who often supply grapes to winemakers, which is a problem for Chinese labels such as Changyu that do not grow their own.

Some farmers often water their grapes before harvest to get more tonnage, damaging quality, according to Billot-Grima. "This washes out the aroma," he says.

China's nascent wine market also remains somewhat regional: wineries often concentrate on regions, with only Great Wall having truly national reach. While touted in official media and reports as a wine mecca, the western region of Xinjiang has so far struggled with quality, according to Billot-Grima, who has previously advised a vineyard there. Most of the wine in this Muslim region, bordering Pakistan, is sold as bulk, he says.

Local wines are best at the premium end. "You have to spend to get a good local wine," says Cedric Croas, chief sommelier at the Westin Chaoyang. A RMB 1,500 (US$219) Changyu Shiraz is popular at dinners attended by Chinese officials, says Croas. He ranks Great Wall at the lower tier of the local pecking order, below Dragon Seal, with Changyu towards the high end.

Newer names like Grace, based in the centre-west province of Shanxi, remain relatively unknown. Grace, however, has made it onto the Starwood hotel group's Wines of the World list. Its Chairman's Reserve vintage is "comparable to anything" of the same price range in France, Croas claims.