China-Bordeaux Growing Pains

Given the speed at which the Chinese are investing in Bordeaux—three châteaus purchased since the beginning of the year—and the vast cultural divide, a deal was bound to turn sour.

In January, Zhongai, a subsidiary of a real-estate company based in Dalian, China, acquired Château de la Salle, a 46-acre estate in Blaye, after nearly three years of often acrimonious negotiation. Unlike other recent deals, there was no press release, no celebratory Champagne—nothing but stony silence from Dalian and bitter complaints from Bordeaux. “I’ve never witnessed a transaction like that,” said Patrick Etineau, real-estate developer and former owner of de la Salle. “They bought that château like you buy a bag of candy.” Etineau accused Zhongai of neglecting the property and not fulfilling the terms of the deal.

Zhongai, which did not respond to requests for an interview, has done little since buying the property. Two months into their ownership, the house remains shuttered. There is no manager. The two employees show up but there is no money to put diesel in the tractor. “They have never even visited the estate,” said Etineau. For the 2011 harvest, Zhongai has sent no money to hire the seasonal labor needed to prune and train the vines. “I put my heart into making a good wine,” said Etineau. “I never would have sold them the château had I known.”

The situation could not be more different across the estuary in the Médoc, where Richard Shen Dongjun, a jewelry mogul from Nanjing and CEO of the Tesiro retail chain, recently purchased Château Laulan Ducos. Shen considered 40 châteaus and closed the deal on Laulan Ducos within a year. “We tried to beat COFCO, but they signed two weeks before us,” said Zhou Linjun, the Tesiro executive who handled the purchase, referring to the recent purchase of Château de Viaud by the state-owned Chinese conglomerate. “Of course, they took three years.”

One day into his Bordeaux venture, Shen had the former owner in place as estate manager, new barrels and harvesting equipment were on order to improve the quality, his marketing team was fine-tuning a new label, and the wine was slated to debut at an upcoming event for the Belgian royal family. “We are very strong in marketing,” said Shen, who admits that the cost of launching his wine brand in China might cost more than the château itself.

With 200 retail stores, 3,000 employees and a long list of VIP clients, Shen knows something about sales and marketing. In short, he represents the competitiveness, dynamism and wealth Bordeaux needs from China.

So what went wrong in Blaye? “How well the transaction goes depends on if the buyer is used to the West,” said Wang Wiemin, partner at SRSF, a Sino-French agency that helps Chinese investors find châteaus and brokered the sale of Château de la Salle. Zhongai’s château acquisition was both its first international venture and first foray into wine. The executives’ lack of experience led, understandably, to delays in payments, decision-making, and procuring foreign currency.

A surprising problem arose when Zhongai executives insisted that Chinese law govern the contract, which they wanted written in Chinese. “It took a long time to make them understand that Chinese law does not apply to a transaction in France,” said Bruno Hické, a lawyer and partner at SRSF.

Differences in the legal systems also sparked misunderstandings. “Americans and French, we are very formal—we want contracts. But the Chinese say ‘No,’ we won’t sign a contract,” said Hické. “A contract serves no purpose for them. It’s not important, because they can easily break a contract in China. What counts is your word.”

Also, French executives often employ a negotiating tactic that rubs potential Chinese partners wrong. “I had a deal last year that completely fell apart because the French side kept trying to get more. The French will always try to get more, but with the Chinese, you must not do this,” insisted Hické.

In the case of Château de la Salle, Etineau, being French, naturally tried to ‘get more,’ making the Chinese wary. Another point of contention arose when, after the preliminary contract was signed, Etineau continued selling wine to maintain a cash flow.

At the same time, Zhongai revealed plans to expand into neighboring vineyards and dump all the production into the vats without any selection for quality, diluting any notion of terroir. It took all of Wang and Hické’s patience to ease the sale to a rickety, bitter finish.

The two employees do their best to prune 46 acres of vines but spring is already in the air. Arguments over money continue and a potential lawsuit looms. “In terms of money, they did not keep their word,” said Etineau. “All I can do is lay a claim on the stock—but 80,000 bottles are already labeled in Chinese!”

Over at Laulan Ducos, Zhou said that the acquisition was not without complications, but her understanding of French culture and Shen’s long experience with the Belgian diamond trade allowed them to manage French dickering. “The biggest difference is that in China, we do not have so many laws and we will do anything for money,” said Zhou. “But in Bordeaux, people take care of their land and they do anything for good business.”

But she admitted that the French “change their minds frequently. Sometimes it makes me crazy, because we have to change all of the planning for nothing.” She advises clients, “Be patient and always prepare a Plan B.”