Thirsty Dragon: China's Lust for Bordeaux and the Threat to the World's Best Wines
353
Thirsty Dragon: China's Lust for Bordeaux and the Threat to the World's Best Wines
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Overview
An inside view of China's quest to become a global wine power and Bordeaux's attempt to master the thirsty dragon it helped create
The wine merchants of Bordeaux and the rising entrepreneurs of China would seem to have little in common—old world versus new, tradition versus disruption, loyalty versus efficiency. And yet these two communities have found their destinies intertwined in the conquest of new markets, as Suzanne Mustacich shows in this provocative account of how China is reshaping the French wine business and how Bordeaux is making its mark on China.
Thirsty Dragon lays bare the untold story of how an influx of Chinese money rescued France's most venerable wine region from economic collapse, and how the result was a series of misunderstandings and crises that threatened the delicate infrastructure of Bordeaux's insular wine trade. The Bordelais and the Chinese do business according to different and often incompatible sets of rules, and Mustacich uncovers the competing agendas and little-known actors who are transforming the economics and culture of Bordeaux, even as its wines are finding new markets—and ever higher prices—in Shanghai, Beijing, and Hong Kong, with Hong Kong and London traders playing a pivotal role.
At once a tale of business skullduggery and fierce cultural clashes, adventure, and ambition, Thirsty Dragon offers a behind-the-scenes look at the challenges facing the world's most famous and prestigious wines.
Product Details
| ISBN-13: | 9781627790888 |
|---|---|
| Publisher: | Holt, Henry & Company, Inc. |
| Publication date: | 11/10/2015 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 353 |
| File size: | 2 MB |
About the Author
Suzanne Mustacich is a contributing editor at Wine Spectator. She was previously a Bordeaux correspondent for Agence France Presse, a columnist for the Chinese magazine Wine Life, a contributor to Wine Business International, and a television producer for NBC News and several production companies. She holds a bachelor's degree from Yale University and an enology diploma from the University of Bordeaux. She lives in Bordeaux with her family.
Read an Excerpt
Thirsty Dragon
China's Lust for Bordeaux and the Threat to the World's Best Wines
By Suzanne Mustacich
Henry Holt and Company
Copyright © 2015 Suzanne MustacichAll rights reserved.
ISBN: 978-1-62779-088-8
CHAPTER 1
First Growths
Uncertainty hung over the Place de Bordeaux in the early spring of 2009.
Jean-Pierre Rousseau hoped the First Growth estates would release their prices early, setting the tone and tempo for that year's sales campaign. During a bullish year, the five most prestigious Bordeaux châteaux — known as the First Growths — sat back and waited, calculating exactly how high the prices for their wines might go, dragging out the campaign into late June, when everyone would rather be at the beach. During a bad year — and the campaign for the 2008 vintage was shaping up to be particularly bad — the merchants hoped the First Growths would release their prices early, because there was no campaign to speak of, and the pricing hierarchy for Bordeaux's wines was set from the top down. This year, however, banks were collapsing in the United States and Europe and the economy was in free fall; there was really no telling what the First Growths would do.
The Place de Bordeaux isn't a square or a leafy promenade or even a physical building; it is the virtual exchange through which Bordeaux's wines have been sold for centuries, and Rousseau was a négociant, which meant he was a wholesale wine merchant. As was the custom, he bought wine from the châteaux through a licensed intermediary, called a courtier, who brokered the deals. Courtiers were famously tight-lipped, taking 2 percent on every transaction for settling the price and amount of wine — called the allocation — granted by a winegrower to a négociant, and guaranteeing the quality and provenance of the wine. The arm's-length nature of the deals buffered some of the natural suspicion and animosity between growers and négociants. For as long as they had been trading, more than eight hundred years, the négociants tried to drive down prices, and the growers tried to push them up. The négociants needed lower prices to ensure that they could sell the wines to their clients around the world without losing money. Some vintages might be sold instantly, but others might not find a customer until they were in bottles and ready to ship, two years down the line. And some might not sell even then.
In the spring of 2009, the courtiers and négociants fervently hoped they were not going down in flames. For the past several months, the market for Bordeaux wine had been collapsing, a casualty of the global economic crisis. Importers couldn't place orders because their credit lines were frozen. Restaurants closed their doors for lack of customers. Collectors, hit hard for cash, emptied the contents of their cellars at fire-sale prices. And for the first time since the Asian banking crisis of the late 1990s, canceled orders were flooding into the Place de Bordeaux. In a matter of days, the châteaux would offer six hundred million bottles of their new vintage for sale, and customers were begging off. The mood on the Place de Bordeaux was morose.
Not a customer in front of us, thought Rousseau.
He knew how much he could spend, and he knew that many of the smaller négociants didn't have the cash reserves to buy wine they couldn't immediately resell.
When the market was like this, the larger négociants — Compagnie des Vins de Bordeaux et de la Gironde (CVBG), Maison Ginestet, Maison Joanne, Maison Schröder & Schÿler, and Rousseau's own firm, Diva — increased their allocations of certain wines, so that when the market turned, and it would turn eventually, they would control large quantities of the most sought-after labels. "There is always someone trying to replace you," said Rousseau. "It's so difficult to get allocations of the top châteaux that no one wants to leave the stage."
It was a crapshoot, but no one stepped onto the Place de Bordeaux if he didn't like to gamble.
Late on the afternoon of April 16, 2009, one of the five First Growth estates, Château Lafite Rothschild, released its 2008 vintage at &8364;130 ($166) per bottle. For any négociant who still had money, this was a very good deal indeed: it was 30 percent cheaper than any other available Lafite vintage. Other châteaux followed suit, dropping their prices in the face of the weak market. But the gesture was not enough for the American distribution giant Château & Estate Wines. For the first time in thirty-five years, C&E refused its Bordeaux allocations, leaving a huge quantity of the world's finest wines unwanted and unsold. The betrayal reverberated across the region.
At Diva's offices at 34 quai de Bacalan, Rousseau looked on with a mix of resignation, satisfaction, and curiosity. It had been a predictably feeble campaign, but he had taken advantage of the lower prices and the weakness of certain of his competitors to increase his allocations. The wines would not be bottled for another eighteen months, but he felt he could hold on until the market turned. And he hadn't been forced to finance as much of his purchases out of his own pocket as he had feared. He had already resold some of the wine to regular customers who were weathering the banking crisis, which had helped to reduce his exposure. But it was his client in Hong Kong that had jumped in with both feet. The percentage of Rousseau's business with that client had doubled. It was extraordinary.
"I've sold 20 percent of the wine to Topsy Trading," he said with a combination of relief and astonishment.
The impact on Bordeaux would be immediate if slight, a rivulet sprung from a barrel.
* * *
Topsy Trading is a Hong Kong–based wine importer owned by a legendary local merchant named Thomas Yip. Yip's family had fled Sichuan Province for Hong Kong shortly after the Communists took control of China in 1949. The Yips were entrepreneurs, and by the time Thomas was in his twenties in the 1960s, he was running his own travel business. When his wife pressured him to find a more stable income, he took a job in the warehouse of Caldbeck MacGregor & Company, the leading wine and spirits importer in East Asia.
From its premises at 4 Foochow Road, just off the Bund in Shanghai, Caldbeck MacGregor had dominated the market for fine wine in that city's international settlement before the revolution. After 1949, the company's Hong Kong office slaked the thirst of the British colony's many diplomats and businessmen. Yip was quickly promoted to controller of the company's wine division, where he thrived, building a network of contacts in the cellars of Europe and in Hong Kong's hotels, restaurants, and duty-free shops.
Within a few years, the Hong Kong and Shanghai Hotels group, informally known as the Peninsula Hotels group, recruited Yip to supply wine to its hotels, and when he proved good at it, Peninsula branched out and started supplying wine to other hotels as well as restaurants. In 1976, the company created Lucullus, a wine and food outfit, putting Yip in charge.
Nothing symbolized the tangled history of China, Hong Kong, and commerce more than Peninsula. The hotel group was owned by the Kadoorie family, Sephardic Jews from Baghdad who had arrived in Shanghai via Bombay in the nineteenth century and had made a name for themselves as international merchants. As their influence and wealth grew, the Kadoories diversified into real estate and utilities, founding Hong Kong's first electricity company, China Light & Power Company Syndicate, in 1901. When the Japanese seized Hong Kong during the Second World War, the British surrendered to their conquerors at the Kadoories' Peninsula Hotel in Kowloon. Several family members were imprisoned during the war, and another heavy blow came after the Communist victory in 1949, when Mao Zedong's government forced the Kadoories to sell their stakes in their prized properties, including the Palace Hotel and the Astor House hotel, at a heavy loss. Despite this, the family decided to stay in Hong Kong, rebuilding and investing.
Three decades later, in 1979, the Kadoorie family agreed to manage the 528-room Jianguo Hotel, a five-star hotel in Beijing, the first hotel joint venture in the People's Republic of China. When Deng Xiaoping launched his policy of gaige kaifang in December 1978, opening China to the West, few believed Deng would achieve his goal of quadrupling China's gross domestic product within twenty years through a transition to state capitalism. But Deng did what his predecessors never dared: he admitted that his country could benefit from Western science, technology, manufacturing, banking, and commerce. China would import and absorb all that the West knew, and export all that it wanted to buy. To accelerate the process, Deng allowed the formation of joint ventures between Western corporations and Chinese state agencies, including the Jianguo Hotel.
At Jianguo, Thomas Yip was responsible for the first private contract to import wine into China. As he considered his orders for the hotel and its restaurant, Justine's — the first French restaurant in Communist China — Yip realized that he would be selecting a wine list for foreigners, who could afford to spend a night or a week in a luxury hotel, and not for Chinese workers, who drank a fiery grain alcohol called baijiu. There were no Chinese consumers yet for imported wine. The country was desperately poor and primarily agrarian; the Chinese did not have wineglasses, decanters, or corkscrews, and they did not dream of vineyard landscapes and First Growths aging quietly in the cellar. Per capita annual income was $182. A night at the Jianguo cost $90 to $120. Even a thimbleful of Bordeaux's most basic wine was well beyond the spending power of most government or military officials, let alone a typical Chinese family.
But Yip knew exactly what the first luxury hotel in the People's Republic of China needed on its wine list, and it was Bordeaux. Five-star hotels, watering holes for expats and tycoons, were Bordeaux's reliable clients all over the world. At the time, the entire Chinese trade for Bordeaux was worth just $10,000, a scanty 311 cases shipped directly to the diplomatic missions. But Bordeaux's commercial structure meant that famed wines such as Château Lafite were sold as commodities, making them available to anyone, anywhere.
From Yip's perspective, what made Bordeaux especially marketable was the 1855 Classification, which singled out sixty-one châteaux, mostly from the Médoc peninsula, as the leading wines from France's largest and wealthiest wine-growing region. It appealed to connoisseurs and novices alike. Everyone easily grasped the five rankings, and the classification made it easy to justify a hierarchy of prices. It read like a supply and price list, ratified by pomp and history — which was exactly what it was.
The classification was originally created for that year's Universal Exhibition in Paris. In the months leading up to the opening, the leading citizens of Bordeaux were arguing over which wines to send. The previous November, they had received a letter from Dijon stating that the winegrowers of Burgundy and Champagne were putting their wines on display for the world's visitors, but none of Bordeaux's elite had thought to send their wine to Paris. Wine was a traditional agricultural product, hardly an example of French industrial might. But the Bordeaux growers had heard that their competitors from Burgundy and Champagne were going to be represented at the exposition, and they wanted to be included as well.
This created a delicate situation. Both the growers and the négociants had a financial interest in how the wines were to be presented to the exposition's expected five million visitors, and they weren't completely aligned. At the time, nearly all wine was bottled by the négociants, who bought it in barrels from numerous châteaux, aged the wine in their cellars, and labeled the bottles for public consumption. Quality and quantity varied from vintage to vintage, and the system allowed the négociants to combine the harvest from more than one estate in the same commune, or village, in order to bottle enough of a distinct wine. Négociants gained recognition not only for their business acumen but also for their ability to blend and age wines. The négociant's name on the bottle's label was more important than the name of the estate or the location of the commune. Still, some estates managed to achieve renown for their wine, and these wines were sold as "château" wines. Several négociants might sell wine from the same château, and the bottles would carry the négociant's label. The négociants had all the power.
The exhibition presented an opportunity as well as a threat. Some growers thought they could use the limelight of the exhibition to achieve higher rankings on the courtiers' price lists. Others might even have hoped to cut out the négociants, circumventing the Place de Bordeaux and contacting buyers directly. The négociants could not countenance that; it would spell the end of their livelihood.
Tensions were heightened by the question of how to label and rank the wines. Everyone agreed that there were far too many Bordeaux wines for all of them to be presented physically, and that a selection of the best wines should represent the region. They also agreed that a lineup of uniform bottles did not make a good display; Bordeaux's wines would come across as ordinary rather than individual and magnificent. The selection of the wines and the design of the labels required diplomatic handling, so as not to give advantage to either side, nor allow a single château to stand out. In the end, the wines were labeled with the name of the château and the owner, and the display at the exhibition was illustrated with a large map of the entire region, promoting the different wine villages.
The task of ranking the wines was given to the courtiers, who kept meticulous notebooks listing the transactions for each vintage. Prices varied by vintage, of course, but the relative hierarchy of prices remained fairly stable. It was impractical and inefficient for the courtiers to renegotiate prices each year, especially as the reputations of many wines were well established. A few estates were known to the courtiers for consistently making higher quality wines, and these were sold under the name of the estate rather than the name of the commune. The practice inspired other growers to improve their wine, too.
The courtiers had started calling the most expensive wines Premier Crus, or First Growths. So when the Union of Courtiers was asked to rank the red wines of Bordeaux for the display, they quickly consulted their meticulous notebooks and selected sixty wines, placing them into five crus, or growths, according to their reputation and typical prices. All were produced on the Left Bank of the Gironde estuary as it flowed to the Atlantic Ocean. Within each growth, the names were listed alphabetically on the illustrative map, with the courtiers insisting that the estates of each category were of equal merit. They also published the price range for each growth to justify their rankings. Three red wines from the Médoc peninsula were placed in the Premier Cru: Château Lafite, Château Latour, Château Margaux. They were joined by one red wine from the Graves, Château Haut-Brion, the first estate to obtain higher prices than other wines from Bordeaux.
The 1855 Classification was never intended to be an official, perpetual guide to Bordeaux. Even as the courtiers submitted their list, they demurred from an "official list" as the classification was a "delicate thing & likely to arouse sensitivities." But the guide was such a success that it has been modified only twice since its inception. Not long before the exposition closed, Château Cantemerle was added to the list of Fifth Growths. Then nothing changed until 1973, when Château Mouton Rothschild rose from Second Growth to First Growth status, following decades of lobbying by its owner, Baron Philippe de Rothschild. What started as a courtiers' price list became an immutable promotional tool — a stamp of quality that transcended a single year's bad weather and a buying guide in shorthand, written by an ostensibly neutral authority. It frustrated the upwardly mobile aspirations of lower-ranked châteaux, but it made Bordeaux the envy of wine regions around the world. While later classifications were developed for other regions, the 1855 remained the calling card for Bordeaux, used by négociants to introduce the wines into new markets.
Thomas Yip saw that the 1855 Classification was perfect for the Chinese market because it satisfied a deep cultural itch: the need to save and display "face," particularly the forms of face known as gei mianzi and liu mianzi. Gei mianzi was the Chinese belief that you gave face or honored someone by showing him or her respect. The most frequent example was offering a gift appropriate to a person's status. Liu mianzi was the belief that you gained face by avoiding mistakes. Wise action reinforced your honor and reputation.
The classification had history, allure, and a precise ranking of status. It was a gift giver's dream.
(Continues...)
Excerpted from Thirsty Dragon by Suzanne Mustacich. Copyright © 2015 Suzanne Mustacich. Excerpted by permission of Henry Holt and Company.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents
1. First Growths
2. No Boundaries
3. Planting Vines
4. Lucky Red
5. Château Mania
6. All in a Name
7. Standoff
8. Shifting Winds
9. Gan Bei
10. Adjust Measures to Local Conditions
Epilogue: Shangri-La