A VIEW OF THE CHINESE FINE WINE MARKET

In the European and USA wine world, there is a lot of talk about Hong Kong and the Chinese wine market. Here is a view from London by an author who has worked for an American wine business and worked in Hong Kong.

Twenty-five years ago, tourists could take a day-trip from Hong Kong to Shenzhen, the town across the river that separates Hong Kong from the mainland. At the border post of Lo Wu sparse shops sold cheap clothes and souvenirs. Today, there is a Bentley showroom and shiny towers in other parts of the border post.

It is not just fast cars that are sold in Hong Kong and China. The removal of tax on wine in Hong Kong in April 2008 saw international wine auctioneers and merchants charge into Kowloon.

While the US economy remains depressed, China drives forward ceaselessly. The fine wine market increasingly reflects the changing balance of global economic power. In the 1980s and 1990s US collectors dominated the market. But now Asia, and particularly China, is in the ascendancy.

Auctions in Hong Kong totalled the equivalent of US$70 million in 2009, which represents about a quarter of all wine sales there. London, long considered the de facto capital of global fine wine trading, totalled $34 million. New York remained top at $135 million.   

Many European and American wine merchants have opened shops in Hong Kong, Beijing and Shanghai. China is not just the future – it is the present.

Chateau Lafite

The current fine wine market relies heavily on two things: Chateau Lafite and Hong Kong. As it says in Sun Tzu’s The Art of War, “it is the nature of logs and boulders that on flat ground, they are stationery, but on steep ground, they roll.” Imagine those logs and boulders as Lafite and that steep ground as the hills of Kowloon.

Chateau Lafite has become the most sought after wine in the world. In China, everyone – or at least every millionaire – must have Lafite. But it is less obvious to Westerners why this wine is so popular in Asia. Apparently the name is memorable and easy to pronounce, though it tends to be called “Lafay” by Chinese speakers. Some suggest that the etched label is also an attraction; this might also at least partly explain the increasing interest in Duhart-Milon, Clerc-Milon and Beychevelle.

Asians also appreciate some of the broader cultural implications of Lafite and other fine wines. There is a nascent interest and understanding in China, or at least in Confucianism, of what fine wine supposedly represents – balance, harmony (ho) and a sense of place, and that this ho comes from the unique conditions of a specific geographical site.

Breath of the Tiger

As it says in the Book of Changes, a Chinese classical text, “Without the breath of the tiger there will be no wind, only clouds, and certainly no rain.” Despite the economic downturn, China said that it was targeting economic growth of 8% in 2010. Its economy is likely to grow by more than 9% this year, in contrast to the sub-par economic recovery of the USA and Europe.  

An article in the South China Morning Post on 24 June 2010 reported that Hong Kong saw the largest increase in millionaires in the world in 2009, up 104.4% from 2008, when there was a 61 per cent drop. The net worth of Asian millionaires surpassed that of European ones for the first time last year, at US$9.7 trillion compared to US$9.5 trillion.

The Chinese are becoming rich but fine wine merchants and auctioneers should not presume that they will always spend money. An Indonesian auction in early May of treasures recovered from a tenth century Chinese shipwreck failed to attract a single bidder – though perhaps potential buyers were deterred by the US$16 million deposit required to bid.

Genuine fakes

The surge in demand for fine wine in Asia has motivated fraudsters. To all those fake shoes, clothes and bags can now be added wine. In Europe and the USA, many merchants and auctioneers are worried about fake wines.

Like expensive watches, fine wines are relatively inexpensive to make. Their value comes largely from their status as a Veblen good, coveted for their high price. The gulf between production costs and retail costs and between supply and demand can be exploited.

It is relatively easy to fake wine. All one needs are a bottle, a label and some wine, all of which can be readily and inexpensively obtained. Fakes vary in their ingenuity. Some are very crude – with photocopied labels, for example – but others are much more sophisticated.

There is no way to date old wine scientifically. An old bottle cannot be x-rayed like an old painting. The traditional, and still most reliable, way of judging if a wine is fake or not is to taste it. But very few people – especially in a new and young market like China – have the experience and ability to declare that a bottle of, say, Chateau Lafite 1982 is the real thing. Even then, bottles vary tremendously according to storage conditions. And by opening a bottle the evidence is destroyed.

There is an apocryphal story about somebody from Chateau Beychevelle, which has a strong following in China because of its striking “dragon boat” label, finding a source of fake wines. The forger was confronted but remained nonplussed, offering to work with Beychevelle rather than confessing to fraudulent behaviour. Intellectual copyright is very important in the West but it is very difficult to assert in China.

As for the long-term prospects for fine wine in China and elsewhere, as Zhou Enlai, Premier of the People's Republic of China from 1949 until 1976, replied when asked about the impact of the French Revolution of 1789: “It is too soon to say.”