In the eastern foothills of China’s Helan Mountains, a 200km range that sets a north-south border between Inner Mongolia’s Alxa region and Ningxia, the cabernet sauvignon grape has supplanted the wolfberry as the biggest cash crop on this barren land. Zhihui Yuanshi , a vineyard that was redeveloped at a cost of 200 million yuan (US$29 million) a decade ago from an abandoned quarry, is now a 267-hectare (660 acre) plantation that produces 100,000 bottles of wine a year. Owned by Yuan Hui, who made his fortunes from sand mining, the vineyard produces a rose, a chardonnay and four merlot-cabernet sauvignon blends for China’s domestic market. The vineyard is now being overseen by the founder’s 26-year-old daughter, Yuan Yuan, with advice from Bordeaux-based consultant Patrick Soye and the China Agricultural University’s viticulture professor Duan Changqing. “I wanted to do something meaningful instead of just getting any other job,” she said during a recent media visit to her vineyard near Yinchuan. “We want to come up with a boutique wine.” While Zhihui Yuanshi has been around for a decade, there are new plantations opening up in Ningxia just two hours away from the family-owned vineyard. There are now 86 wineries in Ningxia, a hardscrabble region of 6 million people that sits near the bottom of China’s per capita income ranking, ever since the local government mobilised capital and labour to develop the mostly desert region. Ningxia now accounts for a quarter of China’s total plantations raising grapes for wine, and more than 90 per cent of what is produced is red. Like many other inland provinces in China, Ningxia still depends heavily on agriculture and coal mining, which made up about a fifth of the region’s 2016 industrial output. To help lift the livelihoods of its population, the local government pushed for viticulture at a breakneck speed. While the planting of grapes has shrunk in France, Italy and Australia since 2012, cultivation expanded in China by 20 per cent, to 847,000 hectares by 2016, second in size only to Spain, according to data from the International Organisation of Vine and Wine (OIV). Wolfberries, which are commonly used in Chinese cuisine and herbal medicines, occupy less than 300,000 acres in Ningxia. China is betting on the wine industry to help transform the rural economy. The ruling Communist Party declared that “China cannot become modernised without modernising its agriculture and rural areas,” according to a policy document last year. Future of wine: how China, climate change and technology will transform the industry As many as 120,000 grape farmers now till the land in Ningxia, producing 1,018 hectolitres (26,893 gallons) of wine a year out of 93,300 acres of vineyard, planting imported varieties like cabernet gernischt, merlot, cabernet franc, pinot noir, malbec, chardonnay, and sauvignon blanc. That scale of cultivation contributed 20 billion yuan to Ningxia’s economy, making up 28 per cent of farmers’ income, according to the local government. China is the fifth-largest consumer of wine in the world. Last year, the world’s second-largest economy bought a total of 17.9 million hectolitres of wine, behind the top buyers US, France, Italy and Germany, according to the OIV. Most locally produced wine is sold to the domestic market, with exports to the rest of the world just 8 million litres in 2015, according to the last official figures with a breakdown of Chinese wine exports. To be sure, grape wine has been produced in China since the Han dynasty (206BC to AD220), but alcoholic beverages have been dominated over the centuries by liquor distilled from rice, sorghum and other grains. Chinese wine cannot keep up with Old World and New World vintages in quality, consistency and marketing, analysts said. Sanzhihun, the flagship cabernet-merlot blend of Zhihui Yuanshi, is dry with very little fruit. The wine, which does not identify its vintage on the label, is available for 980 yuan a bottle on JD.com’s website, which makes it among the most expensive Chinese blends on theonline shopping website. China wine market: millennial drinkers are buying online and moving away from established brands, Vinexpo hears By comparison, a bottle of Concha y Toro’s Reservado Premium cabernet sauvignon imported from Chile lists for 60 yuan on the same e-commerce platform, while Changyu’s cabernet sauvignon Dry Red Wine is listed at 66 yuan. “[There is] a lack of differentiation compared to more established wine regions” of the world, said Tommy Keeling, head of Asia-Pacific research at the International Wine and Spirits Record, an industry database. “In Portugal, 60 per cent of the wine retailed at less than € 1 (US$1.20). Some of the wines imported from Chile and Spain arrive in China for the same price as local producers. Quality is much better [than wine sold at the same price]. Chinese wine has been struggling because of that.” Running a vineyard successfully and profitably is harder than building it. Almost 80 per cent of the wineries of Ningxia were built in the last five years, and most are not operating at full capacity. There are already sizeable vineyards operated by Hong Kong-listed Dynasty and Shenzhen-listed Changyu Pioneer, the largest wine producer in China, also known for its construction of a number of elaborate European-inspired chateaux and wine villages that are now popular wedding venues as well as must-see attractions for tourists and wine lovers. Medium and small chateaux such as Zhihui Yuanshi are likely to suffer from high funding costs, poor cash flow and growing expenditures. Many wineries have not been able to build strong networks to market and distribute their products effectively locally and internationally. The wine business is notoriously competitive. China is up against players that have been around for centuries, with extensive local and global networks and strong track records, particularly in the production of low-end wine, an area where Chinese wine producers had hoped they would have an edge over their more established competitors. But it has not turned out that way. How to buy a French chateau: seminar lures Chinese at Vinexpo Hong Kong fair Great Wall Wine, a popular wine at banquets that was served at a state dinner hosted by China’s President Xi Jinping for US President Donald Trump last year, suffered an 8 per cent drop in sales, according to Hong Kong-listed China Foods’ earnings report for the first half of 2017. The firm, which owned the Great Wall brand, said the plunge of revenue in Great Wall Wine was due to tepid growth emanating from intense competition from imported wine which it also sold, albeit with a lower gross profit margin. Overall, sales in low-end wines declined by 22.9 per cent, the company said. It eventually sold the Great Wall wine business, which booked a loss last year, to its parent, the state-owned grains and agricultural trader COFCO Corp, for HK$5.07 billion (US$645 million). “To produce the cheapest wine you need to have widespread mechanisation, automatic harvesting and all that [to cut costs],” said Keeling. Already, some Chinese wine producers such as Changyu are changing their strategy. They have opted to buy vineyards abroad, then sell the wine back home in China to boost revenue. The company has been investing in vineyards in France, Spain, Chile and Australia. In an interview in March with Bloomberg, Changyu’s chairman, Zhou Hongjiang, said local wines made up about 80 per cent of Changyu’s sales and imported ones contributed 5 per cent, with the remainder from brandy. The company has decided to cut local wines to half of overall sales, lift imported ones to 20 per cent and then the rest would be generated from brandy. Can a bear equity market ignite interest in fine wines as an alternative investment in China? So what about the prospects for Ningxia to produce a high-end product of its own? It sits on the same latitude as the Calabria region in southern Italy, where wines are known for their high alcohol content and are mostly used as blending components for other wines. Even though Ningxia’s dry air and high altitude are good for grape cultivation, its long frigid winters – where temperatures can plunge to below freezing for five months of the year – offer a very short planting season, curtailing the quality of its wines. “[Ningxia] gets very cold in the winter, so you have to bury the vines, which adds to costs and limits the lifespan of the vines,” said Keeling. “To produce good wine you need relatively old vines. In the long term, this is likely to be a problem in developing Ningxia as a high-end wine-producing region.” There are some attempts to produce a fine wine in China, including one winery that was managed by France’s LVMH, which has set up a venture in Yunnan province in the foothills of the Himalayas. Ao Yun, a cabernet sauvignon and cabernet franc blend, sells for US$300 a bottle, and has won over wine critics around the world. Compared to Ningxia, Yunnan’s winter is relatively mild and there are better chances for the vines to age. So while Ningxia has been fast to ramp up production, it will take a long time for the region to produce its own high-quality wine, according to Jeannie Cho Lee, a Hong Kong-based wine consultant. Each region in China needs to have its own identity when it comes to making a wine that will stand out from the crowd, she said. Lee is looking for “Chinese wine that expresses its unique origins and is distinctly different from other high-quality cabernet sauvignon blends in the world”. “Ningxia is one of the best regions in China, but we can’t determine yet if it is the best for wine production,” said Lee. “China is just being discovered as a wine-producing country, so we need time. In Europe it took many hundred years to discover the right combination.”