Thirst for wine grows in Hong Kong as import duties fall

Hong Kong is a city that relishes its reputation for anything being possible, but the story of Lysanne Tusar’s winery is more improbable than most.Photograph by: Bobby Yip, ReutersHONG KONG - This is a city that relishes its reputation for anything being possible, but the story of Lysanne Tusar’s winery is more improbable than most.

Every scrap of experience says that producing wine in the tropics is a non-starter and, anyway, Asians have a very limited interest in drinking or appreciating wine.

But here, a scant three years after the idea came to her over dinner with her parents in West Vancouver, Tusar is standing among 340 massive oak barrels in a dimly lit warehouse within hailing distance of the famous Aberdeen Harbour fishing fleet on the south side of Hong Kong island.

“And this is just the beginning,” she said in an interview last week. “It’s very exciting and where we take it from here, we don’t know yet.”

Each barrel contains the equivalent of 280 bottles of wine and when 100,000 of those bottles come on to the local market in coming months they will be snapped up at from $25 to $35 each. At the moment 60 per cent of the winery’s product is red wine — the Asian preference — 30 per cent is white wine, and the remainder the sweet, dessert ice wine.

Tusar’s 8th Estate Winery is the first and currently the only wine producer in Hong Kong. But it is part of an extraordinary revolution that has seen Hong Kong spring from being a wine-trade backwater only two years ago to being at the very hub of global commerce in wine now.

As with so many other commodities, Hong Kong is benefiting not only from developments in its own market of seven million people but in the exploding demand for the finer things of life — wine included — among the burgeoning middle class in China.

It has also overtaken London and is now second only to New York as the place where the most astute and wealthy connoisseurs and collectors attend auctions held by companies like Sotheby’s, Christie’s, and Acker Merrall and Condit to acquire the most unobtainable and sought-after additions to their cellars.

Last year there were 14 wine auctions in Hong Kong with sales totalling $64 million.

On March 26 and 27 Acker Merrall and Condit held its second auction of 2010 and over 98 per cent of the 1,108 lots on offer sold for a total of $7.4 million. Among the lots was a collection of 70 bottles of Chateau Lafite Rothschild spanning four centuries from 1799 to 2003. The lot sold for $330,000, a world record for a single lot from that Chateau.

Appreciation of the delights of fine wine both as a drink and an investment is not entirely new in Hong Kong. Europeans during the colonial period brought wine culture with them and many Chinese were beguiled by its charms. But it was a passion restricted to the very rich or the truly smitten as the Hong Kong government slapped an 80-per-cent tax on imported wine, an unusually draconian levy in this temple to free enterprise.

Simon Galpin, director general of investment promotion for the Hong Kong government, said that in the first years of this century there was a lot of lobbying by the wine industry, making the argument that high tariffs hobbled it from taking advantage of the rapidly growing market in China.

Galpin said the government looked at the tariffs in the context not only of the wine industry, but in terms of tourism, the hospitality industries and, more broadly, in the philosophical disconnect between the wine tax and Hong Kong’s reputation for uninhibited trade and business.

In 2007 the duty on wine was dropped to 40 per cent of its value and in 2008 the tax was dropped entirely.

There was a typhoon of activity in this newly-liberated sector.

Producers like Hong Kong-born Johnny Leung began tailoring the wines coming from his Twilight Vineyards in New Zealand to the Hong Kong market. Hong Kong, he said in a Skype interview from New Zealand, has become in two years the most sophisticated wine market in Asia.

Companies like Crown Wine Cellars turned munition storage tunnels carved into Hong Kong’s mountain sides by the British into wine storage.

The value of wine imports to Hong Kong jumped in 2008 by 80 per cent over 2007 to $370 million and last year bounded forward by another 41 per cent to $517 million. Much of that imported wine is going on to mainland China where some Hong Kong trade officials expect the market to be worth close to $1 billion a year by 2017, making it nearly 60 per cent of the Asian wine market excluding Japan.

That trade has been inhibited somewhat by a 40-per-cent tax on value for wine going in to China. But, said Cheryl Wilson, head of tourism and hospitality for InvestHK, the government’s investment promotion agency, the tariff has not been the main impediment. Delays in wine shipments crossing the border from Hong Kong into China for sometimes several weeks as formalities are concluded have risked damaging the quality of wines.

Tusar’s 8th Estate Winery project grew in part from a scheme to avoid the old 80-per-cent importation duties by making the wine in Hong Kong. But the prime drive stemmed from recognition that wine is frequently a fragile product that does not travel well.

Early in 2007 Tusar had been talking with her parents about new techniques of flash freezing grapes after harvesting so they can be transported.

“Once grapes are frozen, as long as they stay frozen, you can make wine anywhere in the world,” she said.

Within months of that discussion Tusar had developed a business plan, picked Hong Kong as the place to set up shop and found investors.

“I was expecting to have more of a fight,” she said. “What I was proposing hadn’t been done in Hong Kong before. But I was pleasantly surprised at how easy it was to get established.”

By October 2007 she had moved to Hong Kong and found a master vintner, Gianni Seminari, to join what is now a team of only five people running the operation.

Seminari spends a good deal of the year on the road assessing which grapes the company will use for the next year’s vintages. Grapes for the first year’s product came from Washington State; last year from Italy.

The grapes for this year’s vintage have already been frozen solid in 180 massive blue plastic drums and are in a container on a cargo vessel en route from Australia.

When they arrive around mid-April the grapes will be thawed, pressed and then put through the first step in the winemaking process in three 30,000- litre fermentation vats. From there, the wine spends a year or so in the oak barrels to mature and clear naturally before being bottled.

And, Tusar is careful to point out in light of some recent problems for B.C. wine makers, the labels proclaim the wine is a product of Hong Kong, but also describe in detail the source of the grapes from which it is made.