There are probably many hotter trade news stories out there right now, but this one intrigued us because it has a number of different elements. It’s about how China learned the techniques of a new industry, using a combination of market forces and government intervention; negotiated a liberalizing trade agreement, roughly following the model of the United States and others for such agreements; and then creatively used anti-dumping measures, with techniques it had also learned from others, to limit the competition that resulted. There is not necessarily a grand moral to this story, but a theme underlying it is that China is learning from the rest of the world, in both good and bad ways. There may be a lesson in here about how to nudge China in particular directions, but that’s something for another blog post.
China Learns to Appreciate Wine
Neither one of us is a wine aficionado, but we think it’s safe to say that China has not traditionally been known for its winemaking prowess or for its love of wine. Even though ancient Chinese started grape cultivation more than 2,000 years ago, grape production in China had been negligible for a long time. It was not until 1892 that the first modern Chinese winery was established, and its operation mainly relied on imported vines from the United States and Europe. The policy of “reform and opening-up,” which began in the late 1970s, boosted the Chinese wine industry in several ways: The resulting economic growth led to a rapid increase in grape and wine production; strong western influence introduced wine to more Chinese; and economic development generated more wealth and income that allowed the Chinese people to afford more imports. Furthermore, China’s accession to the WTO substantially lowered tariffs on wine, from 65% to 14% for bottled wine. These factors resulted in a significant increase in China’s wine imports. Between 2000 and 2011, China’s wine imports rose from $4.9 million to $1.3 billion per year.
Clearly, China is moving up the learning curve for wine, developing both a taste for drinking it and a knack for producing some unique products. The story of award-winning Chinese wine production starts with a bit of government intervention as well as some private sector consulting. As a 2018 New Yorker article tells us, the center of Chinese winemaking is Ningxia, a province in the northwest that is described as “a poverty-stricken coal region whose dusty scrubland was in danger of desertification.” In the 1990s, the Chinese government
began to invest seriously in its infrastructure, irrigating immense tracts of desert between the Yellow River and the Helan Mountains, much as the phoenix had done. A few years ago, local officials received a directive to build a ‘wine route’ through the region, similar to Bordeaux’s Route des Vins. European winegrowers, hired by the government as consultants, had identified Ningxia’s continental climate, high altitude, dry air, and sandy, rocky soil as ideal for vineyards.
Not exactly a free market approach, but nonetheless, it makes sense for developing countries to think about replicating the commercial successes of more developed countries. If the conditions were suitable for wine production in Ningxia, someone was going to come up with the idea of producing wine there at some point. Entrepreneurs keep their eye out for these sorts of market opportunities.
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