California wineries see China as market with a major thirst.

Last year, the United States exported a paltry $5.6 million worth of wine to China-chump change by the standards of that nation's colossus economy. But California wineries are eyeing the potential benefits of the recent yuan revaluation, not to mention an estimated market of 250 million Chinese wine drinkers--and they're making plans.

"There's a huge opportunity here if you can overcome logistics," said Ian Ford, managing partner of Sununergate Fine Wines, a Shanghai-based distributor that imports several California wineries, including Jordan Wineries, Silver Oak Cellars, and Ridge Vineyards.

A booming economy, improving commercial distribution channels and lowered tariffs are largely responsible for the growth in wine sales. Whether the 2.1 percent currency adjustment last month will generate lots of new business is debatable, but further revaluations could spur a more fundamental shift in consumer behavior.

"Once you get over 5 percent, that would be a pretty significant change," said LaVerne Brabant, director of the U.S. Agricultural Trade Office in Beijing. "The market is very good here for all wines, not just from California."

Still, many see the revaluation of the yuan as a positive for the wine industry. "We've suffered in this market up until now with the U.S.-dollar denomination peg, so it's nice to get something good going our way," Ford said.

Total wine sales in China topped $896 million last year, up more than 17 percent from 2003, according to China Wine Online. Among imported bottles, French wine leads the way, accounting for $14.2 million of the market. Australia has $6.3 million of the bottled wine market, while the U.S. came in third, at $5.6 million. That's a 90 percent jump from the previous year, according to Wine Institute data.

"In terms of importance, China is the big one," said Setoshi Tanaka, manager of wine exports for Beringer Vineyards. "Everybody wants to be in China."

Seeking middle class

Distribution used to be restricted to Chinese firms or partnerships with Chinese companies. But as part of China's ascension into the World Trade Organization, the rules have been adjusted so that foreign companies are being allowed in to market and distribute.

Most wine is still sold in places frequented by Western travelers, such as hotels, restaurants and clubs, although big box retailers like Wal-Mart Stores Inc. are starting to stock varietals from California and other locales.

"They're building new retail shops like mad, and that's bringing high-end grocery stores to consumers--especially upper-middle class consumers--and they're indulging in a few more imported luxury items, like wine," Tanaka said.

The move into big-box stores is important because they have become popular weekend destinations among middle- and upper-middle class consumers. "When something becomes 2.1 percent cheaper and that keeps appreciating slowly within those trading bands, maybe that is enough to spur somebody to try wine for the first time," said Eric Pope, manager of winery programs for the San Francisco-based Wine Institute.

The grape-wine culture is still developing in China, led in part by foreign wineries entering the market with wine classes and trade shows, as well as a competitive domestic industry that's developed over the past two decades.

There are around 300 wineries in China, mostly small- and medium-sized, and national production has risen to 300,000 tons a year. According to the publication Wine Business, Cabernet Sauvignon and Chardonnay are among the leading varietals.

The French have been in China for years producing grapes, through joint ventures with Chinese firms. U.S. companies have recently followed suit. Robert Mondavi Corp., now a division of Constellation Brands Inc., set up bottling operations in China and the full line of its mid-priced Woodbridge wines are bottled there for distribution.

As in the United States, much of China's wine market centers on the middle- and upper-class. "There's a large group of Chinese yuppies who, if they're about 30, for most of their waking life have seen life get better by about 9 percent per year," Brabant said. "They are a large consumer class."

The market is competitive. Chinese wines sell for $4 to $7 a bottle, while imported wines, stuck with a 46 percent tax, are typically priced at $10-$15 for the cheapest bottle.

California wines face the challenge of maintaining the appeal of a luxury item while trying to entice consumers with affordability. There are some signs of progress. France's lead in China's imported bottle market has begun to slip, down 5 percent last year to 36 percent of that market.

"Because the Euro was so expensive, the impact was an increase in imports of wine from California and Australia," said Johnson Ng, of the Hong Kong Trade Development Council in Los Angeles.