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 From Hong Kong's Information Services Department
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June 26, 2008
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HK: Fine wine trading capital of Asia
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Wine is an important area for us as we look for new avenues to create jobs, wealth and opportunities that will help sustain our economic growth.

 

Scrapping wine duties in my first Budget in February has inspired headline writers near and far to come up with eye-catching phrases. I will give you just a few of them: "Hong Kong looks to uncork the Chinese market", "Buyers uncork millions at Hong Kong auction", "Hong Kong woos the wine industry."

 

But does Hong Kong have what it takes to become the fine wine trading capital of Asia? The answer is a definitive "yes", and I will tell you why.

 

Within an hour of the Budget announcement, wine merchants were sending out new revised price lists; within a fortnight, container loads of fine wine were said to be heading for the city. And less than two months after the Budget, Bonhams held the first wine auction in Hong Kong in a decade.

 

That is what I call quick work. And that is the sort of efficiency that Hong Kong thrives on, and is famous for.

 

Even before the Bonhams auction, Frank Martell of Bonhams spoke about our zero wine duties. He said, and I quote: "This could prove to be the most significant event in the history of wine as a commodity�K".

 

1,200 overseas companies set up in HK

Last year, Bonhams joined more than 1,200 overseas companies in setting up their Asian headquarters in Hong Kong. Bonhams is scheduled to hold two more auctions in the near future.

 

Other wine-related companies have shown interest in targeting Hong Kong in recent months. They include a London-based company which provides an electronic information, trading and settlement platform for fine wine.

 

Another company looking to Hong Kong is a San Francisco-based firm that provides online services for wine retailers and collectors. It plans to relocate its head office staff to Hong Kong and start business here in the third quarter of this year.

 

Two British wine storage companies are also considering setting up storage facilities here. They, together with the other wine merchants from St. James Street, joined me at a reception at the restaurant Sake No Hana a couple of weeks ago in London. The excitement generated at that gathering was impressive, to say the least.

 

More jobs, wealth creation

It is also worth noting that by the end of this month, local firm Crown Wine Cellars will have more than doubled its original storage space. It has already expanded its workforce with the establishment of new premises in Tuen Mun. More jobs, and that is exactly the underlying intention of this initiative.

 

It is about new jobs, new opportunities and wealth creation for our community. I would say that we have a fairly good start so far, but will Hong Kong achieve its goal of becoming a centre for the fine wine trade in Asia?

 

Together with the wine storage firms I have just mentioned, several overseas distribution companies appear confident that we can achieve this goal.

 

A US wine trader registered a new company here last month. And two British firms are looking to expand their business in Hong Kong.

 

Auctions set records

There has been much said and written about the success of recent wine auctions in the city. The Bonhams auction in April achieved total sales of $11.5 million. And last month, an auction by Acker Merrall & Condit fetched $64 million, which was a record for Asia.

 

Apart from the publicity, these auctions - with their record-breaking bids - show that re-sale prices of fine wine in Hong Kong may be equal to or even above those in London or New York.

 

These are important factors in establishing Hong Kong as a fine wine trading and storage centre.

 

Here's what John Kapon, the president of US auction house Acker Merrall & Condit said after their sale on May 31, and I quote: "We are thrilled with the result, which is testament to the strength of the wine market in Asia, and Hong Kong's leading role as a regional hub of fine and rare wines." End quote.

 

A single case of Burgundy wine fetched a world record $1.89 million at the auction. No wonder Acker Merrall & Condit is looking forward to its second sale here in November.

 

Combination of factors for success

But zero duties on wine alone are no guarantee for success.

 

As with any industry, especially one as global and competitive as the wine trade, it takes a combination of factors including good timing and a slice of luck to succeed.

 

For luck, we will just have to keep our fingers crossed and look to the wine gods. As for the other factors, we can rely on our well-established strengths. These include world-class infrastructure, first-rate logistics and a comprehensive financial services sector.

 

Earlier this month, a report by the World Economic Forum named Hong Kong as the city with the world's best environment for trade. The study focused mainly on the following four factors: market access, border administration,transport and communications infrastructure, and business environment.

 

Hong Kong came out on top of 118 economies in the report.

 

Deep talent pool

Add our overall competitiveness and deep pool of local and overseas talents to the list of criteria, and you have the main elements used in the City of London Corporation's Global Financial Centres Index.

 

In the latest Index, published in February, Hong Kong retained third place behind London and New York in the league of international financial centres.

 

So, at least according to these international studies, Hong Kong is already a leading global financial centre with the world's best trading environment. Not a bad recipe for anyone considering a business venture here, and that includes wine merchants.

 

Of course, we can, and we will do better. The fine-wine sector is a good example of our work in strengthening Hong Kong as a platform for trade in Asia.

 

Let's look at logistics. Cases of fine wine are shipped in specialised containers, loaded onto air-conditioned trucks in Hong Kong and delivered promptly to the customers or to state-of-the-art storage facilities.

 

Customs clearance aligns with needs

From next month, customs clearance for wine will be more closely aligned with the industry's needs. From July 1, wine importers importing their wines with temperature-controlled containers will be able to choose their preferred location for customs clearance. This could be at storage sites with all the temperature and humidity controls to ensure that the quality of the wine will not be affected.

 

This clearance procedure will be available to air and maritime cargoes, and will be provided free of charge by the Customs & Excise Department. That was the department that I headed about a decade ago, and I can tell you that colleagues there appreciate the need to handle these delicate goods properly, and they will do all they can to facilitate their clearance.

 

Providing more top-class storage facilities is another important area. We are identifying heritage sites that may be used for storage as well as many other wine-related activities, such as a wine school, a wine museum and venues for wine appreciation events.

 

Storage facilities meet global standards

The conversion by Crown Wine Cellars of an old munitions depot at Shouson Hill into wine storage facilities and a private club is a good working example of this model.

 

Earlier, I mentioned that Crown was expanding its facilities, and other storage companies are considering setting up operations in Hong Kong.

 

To ensure new storage facilities meet international standards we are developing a certification system. This will involve a panel of overseas experts from various wine-related fields setting accreditation standards for facilities. This we hope would accelerate our migration to international fine wine storage benchmarks. This will also serve to make sure that the merchandise have been properly handled, thereby maintaining,in turn, its value.

 

The industry estimates that Hong Kong investors own about a million cases of fine wine overseas. Roughly half of this is currently stored in Britain and the rest in countries such as France, Spain, Germany and the US.

 

As our fine wine sector grows, some predict conservatively that at least some 100,000 or a tenth of these cases will be brought to Hong Kong for storage or trading.

 

Important credentials

Hong Kong enjoys a well-earned reputation as a sophisticated and reliable place to do business. Our international partners have a high degree of trust in what we do. And when we are talking about  expensive cases of fine wine, trust, reliability and sophistication are important credentials.

 

Since eliminating wine duties in February, the relevant legislative amendments to the Dutiable Commodities Ordinance have been enacted. From June 6, all the duty-related administrative controls for wine were dispensed with. In other words, traders are no longer required to obtain a licence or permit for the import, export, storage, manufacturing or movement of wine.

 

Not only does this reduce business costs on top of the duty reductions, it also shortens the time required for imports and exports, improving our efficiency as a wine trading and distribution centre.

 

This is an addition to the well-established attributes that help to make Hong Kong a great place to do business. These include open markets, low and simple tax regime, the rule of law, tried and trusted common law legal system, a free flow of information and ideas, and, of course, a free and probing media.

 

Strategic location

Add this to our strategic location in the heart of East Asia and well-defined role as a gateway to the Mainland of China, and it brings me back to an issue I touched on a little earlier. That issue is timing.

 

Global demand for wine is shifting from the traditional markets in Europe and the US to Asia. Strong economic growth, increased prosperity and lifestyle changes are just some of the reasons for this trend. Asia currently represents only a small proportion of total wine consumption, actually about 7% in a region that covers about half of the world's population.

 

Therefore, given the current interest, we do anticipate significant growth. In fact, according to a Trade Development Council consultancy report, the industry predicts total consumption value of wine in Asia - excluding Japan - to double to US$17 billion by 2012 and increase further to US$27 billion by 2017.

 

Given our strong cross-boundary business relations and our in-depth understanding of the Mainland market, I am confident Hong Kong is well positioned to take full advantage of this growth.

 

Wine appreciation

In the past few months, I have spent a good deal of time listening to people in the industry as we develop the fine wine sector. I have already touched on some of the issues that are on the minds of our wine merchants.

 

Another topic is knowledge and appreciation of wine. No doubt, many of you will know more than I do about the subject. I just drink the stuff.

 

But imagine trying to sell a product you know little about, or attempting to discuss even the basics about wine without learning the vocabulary of "wine speak". The wine world seems to have a language all of its own. Some quaint. Some rather exotic. And some seemingly rude.

 

Discussing "noble rot" or something that is "fruity or full-bodied with plenty of character, long legs and a big nose" could get a well-meaning novice into trouble.

 

Education to expand

Wine appreciation is nothing new to Hong Kong. There are already a variety of courses on the subject and a number of training institutions have been running wine training courses with professional qualifications.

 

Our intention is to build on this.

 

We are discussing ways to enhance wine training with local training institutions such as the Vocational Training Council and Hong Kong University's SPACE programme. This could cover wine training programme for personnel ranging from sommeliers to frontline staff involved in logistics and storage of fine wine. What we have in mind is how we can build these trainings into quality jobs for our community.

 

We are also exploring possible collaboration with overseas training institutions to organise exchange programmes as well as wine-related education and appreciation courses.

 

During Chief Secretary Henry Tang's visit to Paris last month - and he is someone who really knows something about wine - the French Government proposed signing a Memorandum of Understanding to strengthen bilateral co-operation with us. Areas of this MoU would include wine-related trade and tourism as well as training on wine tasting.

 

The current high profile of wine in Hong Kong is an opportunity not to be missed with auctions, exhibitions and tasting events continuing to generate local interest in the sector.

 

Vigilance against counterfeiting

At the same time, we should remember that even the most experienced wine enthusiast could be duped by sophisticated counterfeits. It can be, in some cases, an expensive mistake even in developed markets. Here in Hong Kong, we have a clean record.

 

The Customs & Excise Department will continue to be vigilant against counterfeit fine wine. The department is working closely with the industry and will strengthen liaison with overseas enforcement agencies to exchange information and intelligence. Additional precautions will no doubt be taken to ensure that we stay counterfeit free.

 

Last month we hosted the biennial French Vinexpo Asia-Pacific, which broke previous records in terms of attendance and exhibitors. In mid-August, the Trade Development Council will hold its inaugural Hong Kong International Wine Fair.

 

Making contacts

In Government, we are taking every opportunity to promote Hong Kong overseas as a wine hub in Asia. Last month, Henry Tang and I embarked on separate trips to Europe. Between us, we covered France, Italy, Belgium, Britain, Slovenia, Austria and the Czech Republic.

 

The focus of my trip was on emerging markets in Central and Eastern Europe. The response was extremely positive. There was a genuine interest in Hong Kong and the potential of doing deals together in various business sectors - not least the wine trade.

 

Remember, that Bacchus, the Roman god of wine originates from Eastern Europe, and - as Hong Kong emerges as a centre for the wine trade in Asia - it won't do any harm to have contacts in high places.

 

Financial Secretary John Tsang gave this address at the Foreign Correspondents Club.

Financial Secretary John Tsang