Economy

The Chinese Investors Snatching Up Bordeaux Vineyards

St Emilion grapes
St Emilion grapes
Nathalie Silbert

BORDEAUX - The sale of the Château de Gevrey-Chambertin at the end of August has revived the specter of France's vineyards being transferred en masse into the hands of Chinese billionaires. However, in the Bordeaux region itself, these new investors seem to be rather well received by professionals in the field.

Until August 22 of this year, no one in France had heard of Louis Ng Chi Sing. But when Ng, an extremely wealthy resident of Macao who runs casinos there, bought himself the Château de Gevrey-Chambertin in Burgundy, there was a hue and a cry. The Front National, a far-right party, even gave the news a political turn, saying the sale was "emblematic of the danger threatening French heritage."

The feverish opposition was predictable. By acquiring one of the most renowned vineyards in Burgundy, Louis Ng roused the fears of vineyard owners worried that they will not be able to keep their land in the family. The sale also revived the specter of French vineyards being turned over en masse to Chinese billionaires.

A journey through the Bordeaux region sheds a different light on this "threat." There, the arrival of Chinese money is no novelty. In the past three years, Chinese investors as different as financier Peter Kwok of Taiwan, actress Zhao Wei, and agro-industry businesses like the state-owned conglomerate Cofco have bought up vineyards in the region, the only part of France up until
now to attract so many foreign buyers - without provoking any backlash.

"We are happy to welcome these buyers who pay for their purchases in cash, invest, and create jobs," says Stéphane Defraine, president of an organization to protect and manage the Entre-Deux-Mers wine appellation. It is true that the cosmopolitan city of Bordeaux has long been accustomed to English, German, Belgian and American investors, among others, and to selling its wines abroad.

In recent years, China has become one of Bordeaux's major markets. For the Chinese, who are just discovering wine, Bordeaux is the wine of reference and bears all the prestige of 
France's classic grands crus. Mainland China has become the number one importer of Bordeaux wines, far ahead of Germany or the UK. The Chinese bought 70 million bottles of Bordeaux-- 82.5 million including Hong Kong-- between June 2001 and the end of May 2012, according to the CIVB, the Interprofessional Council of Bordeaux Wines. Hong Kong is currently the best
market in the world for the most expensive wines. In total, these sales brought in 650 million euros.

What “invasion?”

These Chinese commercial partners were even more welcome because their investments in the region rescued properties that were in serious difficulties or which were having inheritance problems, meaning they were not necessarily easy to sell. "There are a lot of vineyards for sale around here," explains Daniel Carmagnat, a real estate agent from Sainte-Foy-la-Longue.

Up until now, Chinese billionaires have mainly bought lands producing generic appellations or labels. The idea of an "invasion" of French vineyards by the Chinese makes local people smile, at least for now. They note that the Chinese
represent a tiny minority of the 8,000 listed vineyards.

Still, the Chinese are certainly making headway. According to the Aquitaine Atlantique Safer, a French government overseer of rural development, 11 domaines were sold in 2011, and 15 since the beginning of this year.

The Chinese who invest in French vineyards usually have similar goals. Patrice Klug, founding associate of MK Finance, which has sold four properties to Chinese investors, says, "They believe that investing in French real estate is a good diversification of their money. They are buying a little piece of French history and culture by becoming the owner of a vineyard, while at the same time it is a solid financial decision. To attract them, you have to show them a handsome building that they can show off in their country as an image of their social success." He remembers spending eight days traveling around the Bordeaux region with the daughter of the owner of the Longhai group, Daisy Cheng, as she is called in France. "She was thrilled by the turrets, the lake, and the legend that King Henri IV was arrested at the Château Latour-Laguens," he says.

Symbols of French luxury

The name is important too. It needs to sound French and, if possible, remind the listener of the grands crus, like the Château Latour-Laguens, which, since its sale, has been turned into a brand of stores, books, etc.

Once the vineyard has been bought, the idea is for the production to target the Chinese market. The Chinese know that they will attract consumers more with the symbols of French luxury.

The Château Grand Mouëys d'Au, in Capian in the Entre-Deux-Mers region, is surrounded by a lovely park and a vineyard of 60 hectares of Côtes de Bordeaux. Its new proprietor, the Ningxia Group, known in China for its wine flavored with Goji berries, would like to export to China half of the 350,000 bottles it produces every year.

Before its sale, the domaine, then held by the Bömers family, had been in trouble due to the loss of some of its larger clients in Germany. "The Chinese market will help us return to financial health," says Guy Durand Saint Omer, the general director hired by Jinshan Zhang, the head of the Ningxia Group.

It will be even more profitable because the conglomerate, like other Chinese companies, is able to rely on its own distribution network to sell its wine in the Chinese market. By bypassing middlemen and importers, it increases its profit
margin. And that can be considerable. In Beijing, a bottle of a minor Bordeaux that costs between 2.5 and 3 euros at the vineyard can be sold for between 15 to 40 euros.

Ambitious projects

The ambitions of Chinese investors go further. They arrive in Bordeaux with ambitious projects and the desire to improve their wine. Chinese movie star Zhao Wei, an actress who has sold 80 million box office tickets in her country, bought the Château Monlot from Bernard Rivals. The actress plans to spend five million euros more in improvements to the seven-hectare vineyard, which produces a Saint-Emilion grand cru. "To improve the quality of her wine, she has asked for help from Lydia and Claude Bourguignon, who are specialists in wine cellars, and from Jean-Claude Berrouet, the wine historian of Pétrus," says the former owner.

Moreover, "they often add eco-tourism projects to their investment," says Guy Chateau, general director of the Aquitaine region for the Crédit Agricole bank. Jinshan Zhang, for example, plans to fill the bedrooms of the Château du Grand Mouëys with paying Chinese guests. He also dreams of creating a golf course. Some wealthy Chinese are buying several vineyards in order to organize wine tours.

These investors are shrewd businessmen, often from Hong Kong or Singapore, which makes currency transfers easier. "They do not over-pay," Guy Chateau observes. Taking advantage of the low price of land in the Bordeaux region, which is at its 1990 level of around 15,000 euros per hectare, they have usually spent "only" a few million euros.

Wary and thorough, the Chinese surround themselves with people they trust, who speak excellent French, and they go through all the documents carefully. "They want to understand our social regulations and our tax system," explains Guillaume Rougier-Brierre, associate at Gide Loyrette, which negotiated the sale of the Château de Viaud to Cofco. "They go as far as to have the wine tasted by a third party to make sure they are not being cheated," adds Bernard Boireau, a Libourne notary who managed the sale of the Château Monlot.

Where next?

The Chinese buying fever could just be getting started. According to Safer, 15 dossiers are currently being considered by Chinese buyers. As an indicator of what is at stake for business, Diva Bordeaux, a wholesaler specializing in the best grand crus, was acquired this summer by Bright Food, an agribusiness heavyweight owned by the municipality of Shanghai. According to Jean-Pierre Rousseau, general director of Diva who sold his shares to the group, the sale gave Bright Food "history, an image, and also authenticity" in a Chinese market undermined by fraud, but which is also booming.

The developing Chinese middle class promises steady future growth for wine consumption. Bright Food owns 230 stores and 20 or so department stores in which salespeople receive training in the art of wine. Like Cofco, it hopes to ensure its supplies.

In the future, will the Chinese covet the prestigious grands crus that their billionaires are already snatching up? It is possible. But the prices will then be in the range of hundreds of millions of euros, and they will find rival buyers in
their path. Their appetite for vineyards could also go beyond the borders of the Bordeaux region. After Cognac, where a Chinese has just bought the insolvent Menuet brand, they could be interested next in the châteaux of Languedoc-Roussillon, which are still reasonably priced and whose wines are prized in China. The wines of Burgundy are still little known in China. They will not be a target except for certain numbers of aesthetes, ready to pay a high price. "The only way to succeed on the Chinese market is to sell large quantities," remarks David Balzan, general director of Cordier-Mestrezat, a major Bordeaux wholesaler. The Burgundy wine region is composed of wine appellations scattered across multiple properties, which are much smaller than the vineyards of the Bordeaux châteaux. Largely pre-empted by European buyers, it is too small to provision the huge Chinese market. In any case, the political turn of events since the acquisition of the Château de Gevrey-Chambertin has shown the Chinese how sensitive the subject can be. In 1988, Henri Nallet, François Mitterrand's agriculture minister, refused to allow the Japanese to invest in the domaine of Romanée Conti.

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Geopolitics

Erdogan And Boris Johnson: A New Global Power Duo?

As Turkey fears the EU closing ranks over defense, Turkish President Erdogan is looking to Boris Johnson as a post-Brexit ally, especially as Angela Merkel steps aside. This could undermine the deal where Ankara limits refugee entry into Europe, and other dossiers too.

Johnson and Erdogan in NYC on Sept. 20

Carolina Drüten and Gregor Schwung

-Analysis-

BERLIN — According to the Elysée Palace, the French presidency "can't understand" why Turkey would overreact, since the defense pact that France recently signed in Paris with Greece is not aimed at Ankara. The agreement covers billions of euros' worth of military equipment, and the two countries have committed to come to each other's aid if they are attacked.

Although Paris denies this, it is difficult to see the agreement as anything other than a message, perhaps even a provocation, targeted at Turkey.

Officially, the Turkish government is unruffled, saying the pact doesn't represent a military threat. But the symbolism is clear: with the U.S., UK and Australia recently announcing the Aukus security pact, Ankara fears the EU may be closing ranks when it comes to all military issues.

What will Aukus mean for NATO?

Turkey has long felt left out in the cold, at odds with the European Union over a number of issues. Yet now President Recep Tayyip Erdogan is setting his sights on another country, which also wants to become more independent from Europe: the UK.

Europe's approach to security and defense is changing dramatically. Over the past few months, while the U.S. was negotiating the Aukus pact with Britain and Australia behind the EU's back, a submarine deal between Australia and France, which would have been worth billions, was scrapped.

The EU is happy to keep Erdogan waiting

Officially, Turkey is keeping its cards close to its chest. Addressing foreign journalists in Istanbul, Erdogan's chief advisor Ibrahim Kalin said the country was not involved in Aukus, but they hope it doesn't have a negative impact on NATO. However, the agreement will have a significant effect on Turkey.

"Before Aukus, the Turks thought that the U.S. would prevent the EU from adopting a defense policy that was independent of NATO," says Sinan Ülgen, an expert on Turkey at the Brussels think tank Carnegie Europe. "Now they are afraid that Washington may make concessions for France, which could change things."

Macron sees post-Merkel power vacuum

Turkey's concerns may well prove to be justified. Outgoing German Chancellor Angela Merkel always argued for closer collaboration with Turkey, partly because it is an important trading partner and partly because it has a direct influence on the influx of migrants from Asia and the Middle East to Europe.

Merkel consistently thwarted France's plans for a stricter approach from Brussels towards Turkey, and she never supported Emmanuel Macron's ideas about greater strategic autonomy for countries within the EU.

But now she that she's leaving office, Macron is keen to make the most of the power vacuum Merkel will leave behind. The prospect of France's growing influence is "not especially good news for Turkey," says Ian Lesser, vice president of the think tank German Marshall Fund.

Ankara fears the defense pact between France and Greece could be a sign of what is to come. According to a statement from the Turkish Foreign Ministry, the agreement is aimed "at NATO member Turkey" and is damaging to the alliance. Observers also assume the agreement means that France is supporting Greece's claims to certain territories in the Mediterranean which remain disputed under international law, with Turkey's own sovereignty claims.

Paris is a close ally of Athens. In the summer of 2020, Greece and Turkey were poised on the threshold of a military conflict in the eastern Mediterranean. Since then, Athens has ordered 24 Rafale fighter jets from France, and the new pact includes a deal for France to supply them with three frigates.

Photo of French President Emmanuel Macron and Greek Prime Minister Kyriakos Mitsotakis on September 27 in Paris

French President Emmanuel Macron and Greek Prime Minister Kyriakos Mitsotakis on September 27 in Paris

Sadak Souici/Le Pictorium Agency/ZUMA

Erdogan’s EU wish list

It's not the first time that Ankara has felt snubbed by the EU. Since Donald Trump left the White House, Turkey has been making a considerable effort to improve relations with Brussels. "The situation in the eastern Mediterranean is peaceful and the migrant problem is under control," says Kalin. Now it is "high time" that Europe does something for Turkey.

Erdogan's wish list is extensive: making it easier for Turks to get EU visas, renegotiating the refugee deal, making more funds available to Turkey as it continues the process of joining the EU, and moderniszing the customs union. But there is no movement on any of these issues in Brussels. They're happy to keep Erdogan waiting.

Britain consistently supported Turkey's ambition to join the EU

Now he is starting to look elsewhere. At the UN summit in September, Erdogan had a meeting with British Prime Minister Boris Johnson at the recently opened Turkish House in New York. Kalin says it was a "very good meeting" and that the two countries are "closely allied strategic partners." He says they plan to work together more closely on trade, but with a particular focus on defense.

 Turkey's second largest export market

The groundwork for collaboration was already in place. Britain consistently supported Turkey's ambition to join the EU, and gave an ultimate proof of friendship after the failed coup in 2016. Unlike other European capitals, London reacted quickly, calling the coup an "attack on Turkish democracy," and its government has generally held back in its criticism of Turkey.

At the end of last year, Johnson and Erdogan signed a new free trade agreement, which will govern commerce between the two countries post-Brexit. Erdogan has called it "the most important treaty for Turkey since the customs agreement with the EU in 1995."

After Germany, Britain is Turkey's second largest export market. "Turkey now has the opportunity to build a new partnership with the United Kingdom and it must make the most of it," says economist Ali Kücükcolak from the Istanbul Commerce University.

Erdogan is well aware of this, as Turkey is in desperate need of an economic boost. Inflation currently stands at 19%, and the currency's value is consistently falling. Turks are feeling the impact on their daily lives: food and rent are becoming increasingly expensive, while salaries remain unchanged.

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