China's high-end wine market is maturing

With China's unprecedented huge investment in its wine industry, let's look at the current high-end wine market in mainland China. China's high-end wine market is maturing and is expanding at an alarming rate.

Following a sharp increase of 65% in the first eight months of 2011, Hong Kong's wine imports this year exceeded the one billion US dollars (equivalent to approximately 6.35 billion yuan) mark. This figure has not yet taken into consideration the growing Chinese mainland wine market. In 2009, the value of China's wine market reached 75 billion yuan (US$10 billion in contracts).

In mainland China, the local wine industry occupies two thirds of its local market; as more and more middle class travel abroad, the gradual understanding of western traditions and wine culture leads to an increasing demand for imported wines in China. This is not due to a momentary interest. In 2008, when the global financial crisis led to a decline in wine sales, Chinese wine buyers played a significant role in restoring the high-end wine industry. Now, mainland China surpasses Germany as the largest importer of French Bordeaux wine, and imports of French wine have soared. According to Luxuo, during the period from July 2010 to June 2011, the value of wine imported from mainland China to famous French regions increased by 34% in value and increased by 23% in volume.

According to sources, the current situation in the wine market is complicated. Recently, there have been reports that in the third quarter of 2011, the prices of five types of wines fell by 7.5%; the market's demand for high-end wines, especially Lafite wines, has a downward trend. In the past three years, the high selling prices of fake wines and high-end wines including Lafite have contributed to the decrease in demand.

Due to the above reasons, at the Sotheby's upscale wine and rare wine auction held in Hong Kong last week, several major high-end wine brands including Lafite, Latour, Mouton, and Margo were not. Successfully auctioned out all the wine. This is the first time since 2009 that all auctioned goods have not been auctioned. However, at the Christie's auction in September this year, a Chinese wealthy businessman, who did not wish to reveal his name, snapped 300 bottles of Lafite wine worth US$539,280 (equivalent to approximately RMB 3.42 million) in one breath; this year’s single auction was made. Reach the highest price.

Simon Tam, Christie's wine sales director in China, said that should not be too pessimistic; he believes that the wine market is gradually recovering. According to the general manager of CVBGGrandsCrus, “The first generation of wine lovers discovered Rafi after his collection; they do not need to collect more high-end wine anymore.” He pointed out that the temporary downturn in the high-end wine market is inevitable. He also claimed that "the sale price of high-end wine has maintained a sustained growth trend for a certain period of time, but prices cannot always rise; therefore, the current situation is expected."

At the same time, China's first red wine option private equity fund, Dinghong Fund, was approved by the government regulatory authority; the total size of the fund is RMB 1.1 billion. Chairman of Pacific Asset Management, wine lovers Ling Zhijun is a partner of Dinghong Fund. For companies, the minimum investment must not be less than 1 million pounds (equivalent to about 9.83 million yuan); for individuals, the minimum investment must not be less than 10 million pounds (equivalent to about 983,000 yuan). Dinghong Fund mainly invests in the top wines of two wine producing regions in Bordeaux and Bollard in France, of which 60% is spot and 40% is futures. After the expiration of five years, cash will be withdrawn at the liquidation price; at the same time, investors can also convert 30% of the liquidation price into wine. Buying is the responsibility of Bordeauxnegociant Vintex & Les Vignobles Grégoire.

The partner of negociant Vintex and the consultant and wine supplier of Dinghong Fund, Philip Rachi, revealed that more than one-third of the bought wine will be put into the fund's wine cellar.

He also said that “Dinghong Fund not only engages in the sale of high-end wines, but also introduces and popularizes the knowledge about Bordeaux wines in France. We hope that every investor can discover the vineyards of Bordeaux wines and hope to establish a master class in China. Wine lovers, wine buyers and manufacturers can participate."

Rachi was very calm about Sotheby's auction. He said that the results of the auction show that the market will experience a natural evolution due to the increasing understanding of the wine and wine trade by the bidders. Both he and Sosby’s global wine director, Serena Surev, said that there are indications that the second boom in the wine industry will definitely occur in Asia.