Wednesday, July 16, 2008

(Pre) Olympic trials and tribulations

After the near euphoria of the Hong Kong Vinexpo in May and, given the steady flow of news about growing wine consumption in China, it would have been reasonable to expect the run-up to the Olympics to have been a boom period for the Chinese wine market. Little could be further from the truth. With just one month to go before the first fireworks would be lit at the opening ceremony, hotels and restaurants in the major cities were far quieter than usual. Some major hotels were admitting occupancy rates of under 60%, at a time when Beijing was about to see the opening of over 5,000 new hotel rooms in time for the Olympics.

The explanation for the empty restaurants was simple. The authorities' fear of terrorism (supposedly from Tibetans or Falun Gong) has fueled one of the heaviest clamp-downs on internal movement and the allocation of visas to foreigners. Anyone seeking a business visa in June and July discovered that they were almost unobtainable and most people with work-related reasons for traveling to China over this period did so with tourist visas, though even these were often provided slowly or sometimes not at all. Officially, from April 30 would-be tourists could be required to provide a letter from their employer stating that they were taking holiday leave between the arrival and departure dates shown on their airline ticket. There is no evidence of this rule being enforced, but tourists could also be asked to offer up a bank statement confirming a minimum of US $3,000, or showing (but not giving) US$700 in cash to the official in the visa office. These moves led to many Chinese-based businesses canceling meetings that involved overseas colleagues – or relocating those meetings to Hong Kong.

The low-key pre-Olympic mood was also attributable to widespread anti-Chinese sentiment in the west, in the wake of suppressed protests in Tibet and China's apparent support for a Sudanese regime that is widely blamed for the crisis in Darfur. This is also thought to have contributed to slower than expected sales of tickets for Olympic events. While it is unlikely that there will be many empty seats in the dazzling new stadiums, there are questions over how many will be filled with wine drinking foreigners.

The wine market is still coming to terms with the three-week imprisonment of a number of importers including Don St Pierre, managing partner of ASC Fine Wines, China's biggest and most prominent wine company. St Pierre, whose sales have grown from $5m in 2001 to $40m in 2006. was accused of falsifying prices to avoid customs duty. The case was finally settled with the payment of a $250,000 which Don St Pierre Senior, co-founder of the firm said represented just over 1% percent of the $22 million ASC had paid in import duties over the relevant period.

ASC and other firms accused by the authorities, deny any wrongdoing, but there are expectations within China that wine prices may rise over the coming months. This is, in any case, highly likely in the light of the increase in the value of imports over the first quarter of 2008. According to the Chinese website, the volume of wine that passed through customs was actually 4.9% lower during the first quarter of 2008 than in 2007 (a year when, according to China Wines Information, China imported 4.5 million cases of wine, over twice amount shipped in 2006). The average value of the 43.490 litres, however rose to $2.1 per litre, 71% above the figure recorded 12 months earlier.

Most members of the Chinese wine trade are waiting for the dust to settle after the Olympics, but optimism for the short term future remains high. Retail distribution is growing fast, with the arrival of new players such as Tesco and the reportedly planned opening of chains of wine shops by several Chinese wineries. As Ethan Perk of dynamic importers Jebsen International pointed out, the market is evolving very rapidly. By his estimate, only 40% of the current imports are being handled by long-established companies such as ASC, Torres, Somergate and his own, which would, a few years ago, have imported almost all of the wine that came into China.