In February 2008 Hong Kong’s Government changed the international wine map. Its then Chief Secretary, Henry Tang, removed all duties on wine. Results were immediate and dramatic. According to its Commerce and Economic Development Bureau, the SAR’s wine imports increased by 80% in the first year and around 850 new HK-based wine-related companies opened their doors in 2008 and 2009. Wine imports to HK have increased from 2.86 billion HKD in 2008 to 10.76 billion in 2015, of which 4.76 billion is officially recognised as subject to re-export, largely to mainland China. It is safe to assume that the genuine value of re-exports is significantly higher than this.
Henry Tang observes that that ever since the removal of the wine duty, the wine market in Hong Kong and across Asia has undergone a sea change. ‘It’s not only to do with wine, but it’s the wine and wine related activities that have really taken a huge leap forward’, he says. ‘And associated with wine is of course dining, trade, trade fairs, wine themed events and also the logistics of wine – auctions, distribution and storage – each of which have taken off in a big way.’
In recent years the Chinese economy has been substantially reshaped by two separate happenings –the Central Government’s austerity measures and more recently, the collapse of the Shanghai share market. Introduced in 2012, the austerity measures had an immediate dampening effect on China’s wine market and therefore on Hong Kong as government officials and state-owned enterprises were given a raft of powerful incentives to reduce their expenditure on entertainment and indulgence of an ‘ostentatious’ kind.
There remains however an air of inevitability about the growth of the wine market in China, and it took just two years for wine sales in China to eclipse pre-austerity levels. The share market collapse has certainly reduced the amount of cash available for expenditure on wine and the effects on Hong Kong are readily apparent in a reduced number of high net worth Chinese visitors and wine buyers. The Hong Kong market is facing some interesting challenges.
Henry Tang believes that some good has come out of the cooling off of wine in Hong Kong. ‘Bordeaux prices in Hong Kong had gone through the roof recently, especially a few major brands. But it’s not a cooling off across the board.’
David Andrews, St Michelle Wine Estates’ Asia Pacific Division Manager, knows the Asian wine market as well as anyone in the trade. He talks of a move against super-premium wines. ‘Over-pricing and the deflated mainland China market have killed Bordeaux sales, he says, ‘but there’s been a strong refocus on more mainstream iconic brands such as Giacosa (Langhe)’.
Peter Dixon, Treasury Wine Estates’ General Manager for North Asia, is seeing more sales in Hong Kong from brands like Wolf Blass, Lindemans and Rawsons Retreat and is finding less appetite for his premium wines than 18 months ago. ‘For us, Hong Kong is becoming more like Australia – more of an everyday wine market than a luxury showcase market’, he says. A significant factor behind this observation is the fact that TWE has done a huge amount of work to take more control of the distribution of its premium brands, Penfolds especially, in mainland China. ‘We are still seeing a lot of commercial wines being paralleled (parallel exported) into China’, says Dixon. ‘But TWE is trying to avoid this movement by making it easier to access our brands on the mainland and by protecting price in the PRC.’
Wine should be subject to a 14-20% tariff (unless offset by a Free Trade Agreement) as it enters mainland China, but mainland Chinese buyers have never been happy that the Hong Kong price is typically less than theirs, so they habitually demand a discount to HK levels. ‘We’re managing prices to make our wines more competitive in China’ says Dixon. ‘So the demand in China for Penfolds hasn’t dried up (far from it!), but the wines are now found more easily at the right price.’
Henry Tang observes that the Hong Kong market is steadily becoming more diverse and that Australia is one of the biggest winners. ‘While French wine growth is diminishing – despite a rise in the popularity of Burgundy – Australian wines are growing strongly. Many of its less expensive wines are very consistent and easy to drink, but there’s still not a significant presence of higher end Australian wines here. Sure, brands like Penfolds are doing well across all of Asia, but I’m not sure the small-production elite wines are making headway – they might be so small and so niche that not so many people are familiar with them.’
David Andrews still considers Hong Kong to be an important positioning market where top listings can grow a brand’s prestige and share. He is seeing a more consistent pattern of consumption in Hong Kong, which increased by 11% last calendar year. ‘There’s a new high end New World premium mid tier segment in Hong Kong and mainland China as well, and our business hasn’t been better there in the last five or six years’, he says.
Henry Tang remains confident that Hong Kong will retain its status as the epicentre of wine, especially in Asia. ‘It’s a very convenient base for the market, with no duty and simple customs clearance for wine. Many wine producers continue to participate in and organise wine related events in Hong Kong because of the ease of organisation, the world-class logistics base, the quality of the facilities and the sophistication of the market. It should continue to be in the vanguard of China’s wine market, especially now that the Chinese palate is becoming more diversified and looking towards Hong Kong for leads with different grapes like pinot noir. Chinese still turn to Hong Kong for leads of what to drink, how to appreciate them and how to find the gems.’
