Chinese import demand for wine: evidence from econometric estimations

Abstract

By estimating the demand for imported wine in China, this study investigates Chinese consumer choices in terms of wines and countries of origin, as well as the competition among suppliers. The Restricted Source Differentiated Almost Ideal Demand System (RSDAIDS) model is applied. Three goods (still bottled, bulk and sparkling wines) imported from the main exporting countries (France, Italy, Australia and Chile) and from the rest of the world are analysed. The model also includes socio-economic variables and seasonality. The results show that price sensitivities are different: inelasticity for sparkling wines, elasticity for bulk wines and different degrees of responsiveness for still bottled wines. France plays the role of market leader, and competitive interdependence emerges among its followers. The estimation of import expenditure is characterised by the widening of the wine portfolio. The minor followers generate high competitive dynamism. Relationships of substitutability or complementarity between wines and sources emerge. Finally, research perspectives of wine marketing are suggested.

Keywords:

• wine
• import demand
• China
• RSDAIDS model
• Chinese consumer

Notes

1 For further details, see Yang and Koo (1994).

2 Yang and Koo (1994) explained the separability between domestic and import meats, arguing that ‘Theory does not preclude the domestic production as an import source (Armington; Winters). However the unit value is not what consumers actually pay. Thus, it is difficult if not impossible to construct budget shares using import data with domestic prices. This is especially so when import goods have different marketing channels from their domestic counterparts’ (pp. 401–402). They also indicated that the separability assumption ‘usually is imposed on import demand estimations (e.g. Alston et al.; Seale, Sparks, and Buxton; Weatherspoon and Seale). As Winter pointed out, this is mainly because the import data differ in nature from the domestic data’ (p. 407, note 6).

3 The Harmonized Commodity Description and Coding System (HS) with six digits was used for the three goods ‘still bottled wine’ (with code 220421), which refers to the commodity description related to wine in containers of two litres and less; ‘bulk wine’ (220429), which relates to wine in containers of over two litres, and sparkling wine (220410). The musts (220430) were not considered in the model because they are not significant.

4 Eales and Unnevehr (1988) and Haden (1990) argued that this index causes a simultaneity problem because the expenditure share is also the dependent variable. Thus, they proposed the lagged share and the average share, respectively. This study uses the lagged budget share. Moschini (1995) indicated that the Stone index is not invariant to units of measurement and suggested using mean-scaled prices that are analogous to the Paasche. This suggestion has been considered in the lagged price index, resulting in the following computation:

5 Dc assumes value 0 from 2005 to 2008, and value 1 for the other periods.

6 The Wald test was used (Hayes et al., 1990; Yang & Koo, 1994).

7 While Marshallian elasticities show the total non-compensated effect of product substitution and real income changes, the Hicksian elasticities provide the substitution effect, namely the change in demand after a compensated price variation.