Over the past few years a number of high profile companies have expressed interest in building whisky distilleries in China. In fact, ‘expressing interest’ would be putting it mildly; hundreds of millions of dollars have already been spent on making these dreams a reality. Below we will highlight some of these ventures and the motivations behind them, and investigate how they could impact Scotch whisky in the future.

French drinks producer Pernod Ricard arguably started the trend. In 2019 the group announced plans to build a whisky distillery in the city of Emeishan in China’s Sichuan province. It was an ambitious project with a substantial US$150 million investment.

Following the announcement, the CEO of Pernod Ricard Asia Philippe Guettat described the project as “the beginning of a journey of innovation, expertise and dedication to craft a new, iconic malt whisky that embraces whisky history and heritage with a character unique to Chinese culture”.

In some ways it makes sense that Pernod were so keen to expand in the Chinese market. At the time they were the largest supplier of whisky to China and their financial reports from 2018-19 showed a 21% increase in sales to the country. Building a distillery and developing a brand would doubtlessly further establish Pernod in the region.

Construction was completed and production had started at The Chuan Whisky Distillery by late 2021. A little over two years later and Pernod announced the launch of the inaugural whisky from the distillery.

Chuan whisky was crafted using Chinese ingredients and matured in three different types of oak, including incredibly limited Chinese oak casks. The local climate also has a unique effect on maturation and character of the whisky, with the hot summers and frequent precipitation affecting evaporation.

These releases from Chuan will initially be available domestically and there are plans to release the whisky internationally in the future.

Around the same time that Chuan started production, drinks giant Diageo announced their own plans for a Chinese whisky distillery. In November 2021 they declared a US$75 million investment to build a distillery in Eruyan County. Located in the Yuman Province, the new distillery will feature a visitor centre to attract tourists to the area.

Similar to the Pernod venture, Diageo’s ambition is tap into a massive market, focussing particularly on the country’s emerging middle class. The hope is that being at the forefront of Chinese whisky production will entice the next generation of spirits drinkers in the region.

Diageo already have some experience in trying to influence drinks trends in the country. In 2019, Diageo partnered with China’s third largest baiju producer, Jiangsu Yanghe, to create a whole new whisky for the Chinese market. The result was Zhong Shi Ji, a blended whisky partially matured in traditional Chinese ceramic pots.

At the time of Zhong Shi Ji’s release, much was made of how research showed that 80% of alcohol consumption in China took place during meals and this new spirit sought to offer an alternative for dining occasions. Time will tell if the whisky produced at Diageo’s distillery in Eruyan County will have similar ambitions.

Towards the end of 2023, other drinks companies also announced plans for to build distilleries in China. In December, Angus Dundee revealed their intention to build a distillery in Chun’an by Qiandao Lake. The area is already a popular tourist spot, making it a great location for a distillery and visitor centre. The company behind Glencadam and Tomintoul hope that building a distillery in China will expand their existing presence in the region.

It isn’t just whisky companies looking to break into the Chinese whisky market. Camus, one of the world’s best known cognac producers, declared in November that were investing US$30 million to build a whisky distillery in Bozhou.

Like Diageo, Camus have previous production experience in China, having teamed with Shede Spirits to produce a baiju in 2021. This latest endeavour has the dual ambition of capitalising on the popularity of whisky in China while also boosting the reputation of baiju internationally.

In short, that’s a lot of time, effort and cash being invested into developing distilleries in a region previously not considered for whisky production. The obvious question is “why?”, and answer is even more obvious: “money”.

We’ve already stated how all these companies view the Chinese market as hugely significant. With a population of over 1 billion people, that’s a hell of a lot of potential whisky drinkers. Research suggests there’s already an appetite for spirits in China: data from 2017 highlighted that China was already the world’s largest alcohol market, recording retail sales of US$178 billion; more recent data expected the spirits market to grow by 4.5% annually between 2020 and 2025.

Despite being relatively unknown outside China, the significance of baiju can’t be overstated. Baiju is the national spirit in China and dominates domestic sales, which in turn makes baiju the largest alcohol category in the world in terms of volume. The 2018 Brand Finance Spirits 50 report found that Yanghe, who previously collaborated with Diageo on Zhong Shi Ji, is the third most valuable spirits brand in the world.

With this in mind, it’s little wonder that Diageo and a few other pioneering companies tried to carve themselves a piece of such a lucrative market and are now hoping to make a similar impression with locally made whisky.

So what impact will this have on Scotch whisky, if any? Since 2017 whisky has enjoyed a relatively low import tariff of just 5% in China which has benefitted exports to the country. One report suggested the value of Scotch exports increased by over 30% between 2018 and 2022.

One fear could be that domestically made whisky could undercut sales of Scottish made whisky in China, particularly if it is marketed as a premium product in the same way Scotch is.

Above we reported on some of the headline grabbing distilleries in various stages of planning, construction or operation. It’s worth noting that there are also a number of other ventures setting up distilleries in China that are not backed by companies currently associated with the Scotch industry. These range from small start up groups to projects with backing from some of China’s largest liquor companies.

In the near future there will be a large volume of Chinese whisky hitting the domestic market which is highly likely to affect exports to the country. The currently favourable import tariffs might not last forever, and the worst case scenario would be that exports - both in terms of value and volume - could stagnate or shrink.

To illustrate this it might be helpful to consider whisky in India, another country with a huge population and strong spirits market. According to the Scotch Whisky Association, India recently overtook France as the largest export market for Scotch in terms of volume, witnessing a 60% increase in 2022 compared to the previous year.

However, domestically produced whisky outsells Scotch in the country, and it’s not even close. When one looks at the global best selling whisky brands by volume, the top three or four are always Indian whisky.

Whisky imports to the country face massive import tariffs of 150% and the price of Scotch whisky in India is expensive when compared to Indian made spirit. Therefore the local (and absolutely massive) market favours Indian whisky. So, despite increasingly strong Scotch exports to the country, there’s strong evidence to suggest that an abundance of native whisky combined with unfavourable import conditions would restrict Scotch sales in any market.

Of course, the major drinks companies will be acutely aware of this. Top selling Indian brands such as McDowells and Imperial Blue are owned by Diageo and Pernod Ricard respectively. Evidently these companies recognise the benefits of getting their foot in the door of a market with near exponential potential for growth, even if it comes at the expense of sales of their other goods in the country.

Nevertheless, Scotch whisky enjoys a global reputation as a high quality spirit and in many cultures is seen as a marker of social status. This has been one of the driving factors in its popularity and growth pretty much from the point the first bottle was exported centuries ago.

In China, single malt Scotch whisky made up a third of all Scotch whisky imports in 2017. Data from the same period showed consumers were also likely to pay more than the average price of a bottle for a ‘higher quality’ Scotch.

Similarly, recent data from India suggests that, although blends have long been favoured in the country, single malt sales are also increasing in the country, particularly in the ultra premium category.

Hopefully I’m not being overly optimistic but I like to think that there will always be a demand for Scotch whisky globally. (There’s another conversation to be had about the long term viability of the on-going trend of ‘premiumisation’ of Scotch whisky, but this discussion is already going long…)

Indeed, recent data from the SWA goes some way to support this idea; Scotch exports increased 31% between 2018 and 2022 and accounted for 77% of all of Scotland’s food and drinks exports during this period.

So if we consider Scotch sales to be relatively safe internationally despite domestic competition from Chinese spirits, could Chinese whisky become the next big trend in global spirits?

It feels impossible to consider nowadays, but there was once a time when there was little to no demand for whisky from Japan. Today, Japanese whisky is treated with respect and reverence. Many new releases earn top awards at prestigious events while brands such as Karuizawa are always in demand among collectors.

So while some of these new Chinese distilleries are focussing on the domestic market initially, they could very well turn their eyes to the rest of the world sooner rather than later.

That said, Japanese whisky’s rise through the 21st century has done nothing to diminish Scotch’s status or sales in the past 20+ years. If a Chinese brand, or Chinese whisky in general, does become the next big thing, then it’s likely to do so alongside rather than at the expense of Scotch.