China wine drinkers move upscale, taking pressure off brewers

China's increasingly sophisticated wine buyers are picking up fewer bottes at higher prices, which gives the country's leading beer makers plenty of room to flourish at the lower end of the liquor market.

Singapore brokerage firm DBS Vickers points out that top Asian wine merchants like China Foods (thinly traded as CHFHF , quote ) booked 2.1% lower sales volume last year but the average price per bottle rose significantly.

This indicates that Chinese wine drinkers are supporting their habit by moving up market but relatively few new converts to the world of wine are emerging. If anything, the rate of wine consumption is dipping .

However, the same companies are reporting double-digit volume growth in their non-wine beverage sales, which means Chinese are drinking a lot more of both soda and beer.

DBS Vickers considers this neutral for the wine merchants -- Dynasty Fine Wines ( DYFWF , quote ) and ultra-thinly traded China Tontine ( CATWF , quote ) -- although the positive sum-of-the-parts argument keeps diversified beverage seller CHFHF as a "buy" as far as they're concerned.

The pure brewers, on the other hand, have a lot more to gain from the combination of a rapidly expanding market and the elimination of the competitive threat that wine might otherwise pose.

The Chinese middle class has yet to shift in vast numbers from beer to wine consumption.

And with the wine group looking fairly rich -- 2012 P/E ratios are pushing north of 35 -- the brewers offer attractive value as well as a better growth outlook.

DBS Vickers like China Resources Enterprise ( CRHKY , quote ), the biggest and most liquid of the country's domestic beer companies.