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China will continue to lower tariffs on imported alcoholic drinks next year. The moves are expected to bring challenges to Chinese alcohol producers.

According to the country's commitment to the World Trade Organization (WTO), import tariffs on foreign alcohol, except apple wine, pear wine, honey wine and other fermented drinks, will be reduced to somewhere between 10 and 30 per cent in 2005 from the original 65 per cent.

"The reduction of import tariffs will lower the threshold for foreign alcohol makers' entering the Chinese market," said Liu Yuan, secretary-general of the China Liquor Industry Association.

The tariff cut will put much pressure on China's wine producers, Liu said.

China was a latecomer in wine production, and only after the 1980s has the sector had relatively fast growth, Liu said.

After more than 20 years' development, the market remains small.

In 2003, China produced 350,000 tons of wine, but only accounted for about 1 per cent of the country's total alcohol production.

China's per-capita consumption of red wine is a mere 0.5 litre, while the world average is 15 times as much, at 7.5 litres.

But with wine culture spreading in China, more and more people have begun trying wines. The market is expected to grow rapidly.

It is estimated that China's wine market will grow by 10 per cent annually on average during the next few years, while at present the global wine market grows at only less than 1 per cent a year.

Huge market potential, as well as the lower market entrance threshold, will attract more foreign wineries into the Chinese market, Liu said.

Therefore, it is important for domestic wine makers to learn how to compete with their foreign counterparts in the future, though at present big domestic wineries dominate the market.

Earlier research by Sino-Monitor, an independent market research company, shows four top Chinese wine brands, Changyu, Great Wall, Tonghua and Dynasty, control over 60 per cent of the country's wine market.

"But generally speaking, foreign wine makers enjoy advantages in product quality, production technology and management," Liu said.

But tariff cuts will not have an impact in the short term, as tariffs are not the only factor affecting wine prices.

China slashed import tariffs on wine products to 14 per cent at the beginning of this year, but wine prices, especially for low and mid-end products did not drop too much, wine dealer Wang Fubin told China Daily.

Wang is the sales director of Beijing Oriental Montrose Commerce and Trade Co, one of the oldest imported wine distributors in China.

His company now deals with more than 700 types of wines imported from 17 countries.

Foreign wine makers have not made any price changes for the Chinese market due to tariff cuts during the past year, Wang said.

On the contrary, due to high consumption and value-added tax, as well as foreign exchange issues, wine prices imported from some countries even increased by a small margin.

"The opening of China's retail sector will have more of an effect on the wine market," said Liu.

China opened its retail sector on December 11, according to its WTO commitments.

"If foreign companies have control over the distribution channels, Chinese wineries will have difficulties in marketing and sales," Liu said.

Chinese wineries have felt the pressure and are improving competitiveness.

Changyu has begun co-operating with a French company to introduce its experience into China and has tried to improve Changyu's wine quality and develop high-end products.

In addition to the wine market, the liquor sector is likely to be influenced in the long term because of large scale tariff cuts on foreign distilled alcohols.

According to the WTO agreement, import tariffs on distilled alcohol such as brandy and whisky will be cut to 10 per cent next year from 65 per cent this year.

"These reductions in prices of foreign alcohol caused by lower tariffs might take part of the market from Chinese liquor makers," said Liu.

However, the influence will not be too much, at least in the short term.

Drinking white spirits has a long history in China and people are used to drinking it during dinners or banquets.

According to Liu, white spirits see the largest consumption in the country in terms of sales.

The annual consumption of white spirits is 4 to 5 million tons.

Compared with liquor and beer drinkers, only a small part of the population drink foreign alcohol.

"It will take time for foreign alcohol makers to cultivate customers," Liu said.