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The wine industry estimates that total spending on table wine in Asian economies, excluding Japan, is around HK$55 billion (US$7 billion), which accounts for about 7 percent of the global market. The forecast for growth in Asia is 10-20 percent per annum in the next five years, with China -- including Hong Kong -- Singapore, Korea and Taiwan leading the way.
The government believes that Hong Kong's advantageous geographical location, advanced transport and logistics infrastructure, and rich experience in international promotions are favorable to the development of trading, storage and distribution of quality table wine.
"After taking into account the development potential and the job opportunities that can be created, I believe that we should support the further development of these businesses in Hong Kong," Financial Secretary John Tsang said in announcing the tax cut.
The government had been studying proposals from a strong wine lobby to abolish duties and related administrative costs, which the lobby claimed were among the highest in the world. The cuts will cost the government about HK$560 million (US$72 million) a year in lost revenue.
Boris de Vroomen, co-chairman of the Hong Kong Wines and Spirits Industry Coalition, said, "While there are undoubtedly direct benefits for local and international wine businesses, there will also be indirect spill-over effects to a wider economy." Vroomen said that industries such as transportation, logistics, hotels, hospitality and entertainment would all benefit with the growth of the wine industry.
The council estimates that through three key businesses, Hong Kong is set to be a US$5 billion market place. These include sales, auctions, storage and cellaring of fine wines. According to Vroomen, although London and New York are the world's top wine centers, 40 percent of the demand for wines originates from buyers with strong ties to Hong Kong and the Chinese mainland.
The wine import value of Asia -- excluding Japan -- is expected to reach US$1.1 billion by 2012 and hit US$1.5 billion by 2017. Within Asia, China is the biggest importer in volume, and forecast to import US$870 million worth of wines by 2017.
The wine boom is so explosive that retail value in Asia is expected to double the current amount and reach US$17 billion in 2012, and jump to US$27 billion by 2017.
For Gregory Deeb of Crown Wine Cellars, a premier wine cellaring facility headquartered in Hong Kong, the zero tax announcement is the most significant development in the region's fine wine industry in the last 100 years. "Conservatively estimated, Hong Kong already owns around 1 million cases of fine wines stored in other countries," Deeb said. "Within a few days of the tax announcement, our company alone had 10 container loads full of fine wines on back orders. This goes to show how significant the tax cuts have been and the orders have not peaked nor stopped. They continue to come on a daily basis."
With reduced prices, consumers will be tempted to indulge in the world's best wines. Industry analysts believe investors will also be tempted to seriously consider investing in wine, given the accelerated growth in consumer spending on wines. En primeur, or wine futures, offered by merchants and investment funds available through private banks in Hong Kong are attractive to even the most conservative investor looking for niche and novel financial products.
Although the wine investment market in Asia is a tiny fraction of what London and New York offer, the projected demand by Asian investors is expected to be US$500 million by 2012 and close to US$1 billion by 2017.
After losing its manufacturing base to mainland China, Hong Kong is in need of new industries. The wine idea is one attempt to fill the gap, but the city lacks a real wine culture and expertise, connoisseurs say. "Knowledge of wines, in Hong Kong, is a serious handicap especially in front-line workers, sommeliers, viticulturists and evaluation experts," said Edward Leung, chief economist at the Hong Kong Trade and Development Council.
Cellaring and storage are excellent revenue streams for a developing industry. However, they incur additional storage and transportation costs with customs regulations that require dutiable wine to be stored in Open Bonded Warehouses. Current storage costs are on par with those in London. Besides, Duty Not Paid documentation and processes for transit shipments and ad valorem taxation creates immense delays in re-export and import shipments.
Interestingly, wine analysts do not see the tax benefits and the creation of a wine hub in Hong Kong as encouraging alcohol consumption in the region. "Even with the 600 million liters of wine that will flow into China by 2017, the average per capita consumption of wine in China will be much lower than the present level of wine consumption in Europe," said Leung.
Although the wine center idea looks viable financially, vagaries in weather patterns and the ecological repercussions of wine production limit the scope of this industry, where a favorable climate is a prerequisite for top-quality vineyards and cellaring. Deebs acknowledged the weather element as being crucial, but defended the industry. "It is not as bad as building golf courses," he said.
While the wine industry in Asia has developed and expanded dramatically in the last decade with new wine growing areas in China, India and elsewhere, it will reach a peak, according to Deeb, as there are only limited places where grapes can grow. "At a stage where demand -- with increasing population and increasing drinking population -- versus limited quantity of wines occurs, arguably, nobody knows what the solution is going to be."
In simple economics, limited supply and increasing demand will only make wine more expensive, drunk by those who can afford it. Riding on the high of financial success is the only way the average investor can look to beat the royal connoisseur.
