- The Washington Times - Monday, June 1, 2009

Hong Kong grows no grapes, but its abundance of hubris could make it the wine distribution hub of Asia.

The city has been ranked as the freest in the world by the conservative Heritage Foundation and prides itself as being the most dynamic, cosmopolitan place on Earth, but it has been searching for another way to burnish its image. What to do?

Even though Hong Kong lacks grape production, it embarked on a journey to become the wine distribution hub for the fast-growing Asian market. Its first major act was to cut its 80 percent tariff on imported wine in half in 2007, and then eliminate it altogether in February 2008.

Hong Kong may not have any vineyards, Financial Secretary John C. Tsang recently told a luncheon attended by California’s Napa Valley winemakers and grape growers, but “we do have a nose for opportunity.”

When Mr. Tsang eliminated wine duties early last year, Hong Kong instantaneously became “the first free wine port among major economies with unparalleled connectivity to Asia,” he told his audience.

“It’s a bit like New York City suddenly coming online overnight,” said wine entrepreneur Stephen Bachman, commenting on the impact of Hong Kong’s zero wine tariff. Mr. Bachman, who spent 17 years as a venture capitalist and investment banker, is the founder and chief executive officer of Vinfolio, a San Francisco-based wine-purchasing, advisory and storage firm.

In the 10 months that followed the tariff’s elimination, Hong Kong’s global wine imports increased more than 80 percent on a year-on-year basis, reaching $350 million, Mr. Tsang declared. U.S. wine exports to Hong Kong more than doubled, climbing to $18 million last year.

Most of the wine imported from the United States comes from Napa Valley, said Donald Tong, the Hong Kong Commissioner for Economic and Trade Affairs, USA. Always in the market for competitive products, Mr. Tong recently accompanied Sen. Jim Webb, Virginia Democrat, on a visit to wineries and vineyards in Virginia’s Shenandoah Valley.

“Senator Webb had a productive conversation with the Hong Kong commissioner about the prospects of introducing Virginia wine into the Asian market,” said Kimberly Hunter, Mr. Webb’s spokeswoman. “He looks forward to trying to facilitate a relationship between the two interests to benefit Virginia winemakers.”

Mr. Tong said he will soon begin making arrangements for Hong Kong wine connoisseurs to tour Virginia’s vineyards and wineries.

Hong Kong’s wine strategy has been emphasizing quality as much as quantity.

“Hong Kong is evolving into a world trade center for fine wine, especially in the last year since the tariff went to zero,” said John Kapon, president and chief auctioneer for Acker Merrall & Condit, a New York-based wine merchant that netted $15 million in sales from two auctions conducted in Hong Kong last year. Local wine collectors were the driving forces, but the auctions also attracted buyers from Europe, Japan and Singapore.

“Hong Kong proved in its first year with a zero tariff that it is no flash in the pan. The Hong Kong market is sustainable. It’s here to stay,” said Mr. Kapon, whose firm has conducted two more auctions this year, including one last week.

Sotheby’s and Christie’s are starting up their own auction operations in Hong Kong, Mr. Tong said.

A big part of Hong Kong’s long-term wine strategy is to use its port “as a springboard for wine exports to mainland China and the rest of Asia,” Mr. Tong said.

“Hong Kong’s location in the heart of Asia places the city within five hours flying time of half the world’s population,” Mr. Tsang, the financial secretary, told his Napa Valley audience in a speech that he hoped would “whet your appetite for our city’s wine aspirations.”

Hong Kong trade officials expect the Asian wine market, excluding Japan, to grow by 10 percent to 20 percent per year, reaching $17 billion by 2012 and $27 billion by 2017. The Chinese mainland and Hong Kong account for more than 60 percent of the Asian market and together will become the world’s eighth-largest market, the officials project.

Mainland China is expected to import $870 million in wine by 2017, Mr. Tong said.

Since the wine tariff was eliminated, Mr. Bachman, the wine entrepreneur, and his Vinfolio firm have set up wine-trading offices and wine-storage facilities in Hong Kong.

In August, coinciding with the first Hong Kong International Wine & Spirits Fair, Vinfolio offered discounted rates to wine investors to transport their wine from Britain and store their prized possessions in Hong Kong. Before wine duties were eliminated last year, many of Hong Kong’s collectors, among the most active and deep-pocketed in the world, kept their wine in London.

An estimated 40 percent of wines traded in New York and London, the biggest trading markets in the world, are owned by Chinese consumers, predominantly in Hong Kong, say promoters of the second annual Hong Kong International Wine & Spirits Fair, scheduled for the first week of November.

The inaugural wine fair attracted exhibitors from 25 countries and regions last year. Ten U.S. companies took part, most of them from the Napa Valley, said Mr. Tong, the Hong Kong commissioner.

“Many members are going to Hong Kong’s international wine festival this year,” said Terry Hall, spokesman for the Napa Valley Vintners, which export 10 percent to 12 percent of their output. Hong Kong is the third-largest export market for Napa Valley wineries, behind Britain and Japan, Mr. Hall said.

“Hong Kong is a very savvy market. It has been a longtime wine-drinking economy, largely because of its British influence. And it has a very sophisticated business climate,” Mr. Hall said. The Hong Kong palate, he added, is equally sophisticated.

Annette Boyd, director of the Virginia Wine Board Marketing Office, agrees.

As a major Asian financial center, “Hong Kong has many people who are well-off, well-traveled, highly educated and very adventurous in experimentation,” Ms. Boyd said. “When it comes to wine and food, it doesn’t get any better than Hong Kong. It is definitely on our radar.”

Christopher Parker, who just launched New Horizon Wines to facilitate the export of Virginia wines to his native Britain, also has his eye on Hong Kong. “Virginia wine is now truly world class,” Mr. Parker said. In 2007, for example, Travel and Leisure magazine named Virginia one of the top five new wine travel destinations in the world.

“What about Virginia wines will excite the market in Hong Kong? What I do is create the right channels to address the local market,” said Mr. Parker, who added that promoting Virginia wines anywhere in the world is his passion. “If I am drinking Virginia wine, I want to think about sitting in the Blue Ridge Mountains.”

He is convinced that the growing reputation of Virginia’s wine and the Blue Ridge visual one day will be able to crack Hong Kong’s sophisticated market.

Hong Kong has become so enthralled by the wine business that its first winery opened late last year. Grapes harvested around the world are frozen for transportation to Hong Kong, where they are made into wine at the 8th Estate Winery. The company plans to produce 100,000 bottles per year of unique wine for individual customers.

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