Chinese buyers, including mainland billionaires, are juicing up Hong Kong wine auctions. There is disagreement, however, over mainland auction prospects. Ruby Gao pops the cork on the controversy.

Chinese billionaires are increasingly turning to rare fine wines as investments, affecting that market much as they have those for other luxury goods.

From 2008 to 2012, the number of Chinese wine bidders of Christie’s auction house has increased 1,550 percent.

Wine sales in China made global headlines in 2010 by setting a world record in price that still stands at a Sotheby’s wine auction held in the Mandarin Oriental Hong Kong.

Three bottles of Chateau Lafite Rothschild 1869 with an estimated value of HK$40,000 (US$5,159) a bottle sold for HK$1.8 million each.

Sotheby’s declines to reveal details of bidders. But the winning bid is “peanuts to a Chinese billionaire, obviously,” said Jancis Robinson, a top wine critic, on her website.

Sotheby’s latest Hong Kong wine auction brought in HK$94 million, surpassing the pre-sale high estimate of HK$76 million early this month as part of two wine sales, lasting two days. Both were 100-percent sold.

“Asian collectors continue to be the world’s most important wine buyers, as shown by the fact that this was our largest series of sales this year,” says Jamie Ritchie, president and CEO, Americas and Asia, of Sotheby’s Wine Department.

International auction houses represented by Sotheby’s and Christie’s cannot wait to step into the fine wine market in China’s mainland, industry sources say. Auction houses on the mainland, however, express reservations about the strength of the market for mainland auctions.

Robert Sleigh, head of Sotheby’s Wine, Asia, attributes the strong wine sales to demanding Chinese wine buyers. “We normally sell 80-90 percent of our HK wine auctions to China. The success of these sales was also a result of a series of events held in Shanghai, Beijing and Hong Kong,” Sleigh says.

Vivian Tian, formerly the fine wine manager at a China-based wine company mainly involved in wine auctions, attributes the vibrant auction market to the strong value of wine investments.

“Wine, due to its distinctive aging character, is a long-term investment, yet with great potential to increase in value. But only 1 percent of world’s wine deserves to be bought as an investment,” Tian says.

A report by Liv-ex Fine Wine Index, the fine wine industry’s benchmark, shows that Bordeaux wines are recession-proof despite the uncertain economy.

During the past five years, annual returns on an investment in top vintages are from 7 to 12 percent on average. Tian defines the “1 percent” as “grand vin wine with great vintage, rare production and good provenance.”

Sleigh from Sotheby’s has noticed the changing taste of Chinese wine collectors.

“They (Chinese wine buyers) enjoy investment-grade wines for their high quality and blue-chip status. Wine knowledge is growing rapidly and collectors are broadening their tastes from top Bordeaux to Burgundy, Champagne, Rhone as well as top California, Spanish and Italian wines,” he says.

Auction houses, especially those that are big and influential, have the advantage of carefully sourcing rare wine and ensuring its authenticity and provenance due to their professional wine specialist teams, many of which are led by Masters of Wines.

Diverse and complex

Maureen Downey, owner of San Francisco-based Chai Consulting, a company advising collectors of fine wine, considers that it’s not the overall market force driving prices but the participants — Asian buyers dominated by Chinese.

“Many Asian collectors want what they want and are not price sensitive. We see many price spikes that are the result of these face-offs and they unfairly move prices beyond what the real market will bear,” Downey said in her column at wine-searcher.com.

However, Chinese industry sources called Downey’s comments too much of a generalization. Chinese wine buyers are diverse and complex.

“As far as I know, most of the buyers are collectors, who buy wine half for drinking and half for the investment. The few speculative buyers are an exception,” Tian says.

Chinese wine collectors from China’s mainland and Hong Kong are also slightly different. According to Tian, there are many more collectors from the mainland participating in the auction. But Hong Kong collectors seem more determined when buying wine.

Fake wine is always a hot topic lurking behind the success of wine auctions although few people are willing to discuss it publicly.

Downey is also an expert of fraudulent wine due to her past experience in an auction house. She worries that many fake wines may have been dumped on the Asian market through auction.

“The good news is that most of the fakes we are aware of come from just a few sources and the US government is working to choke them off, as shown by the FBI’s arrest and indictment of Kurniawan (Rudy Kurniawan, arrested for allegedly faking rare Burgundy and Bordeaux wine),” she says.

“Unfortunately, Asia is attractive to fraudsters because American investigators are less likely to investigate incidents there or to prosecute, and buyers are less informed,” Downey adds.

That may help explain Christie’s and Sotheby’s, two leading auction houses, this year both emphasizing “perfect provenance” which was highlight by being “direct from winery’s cellar.”

Christie’s held its first wine auction on China’s mainland in Shanghai last month. Only four lots were offered and all sold. Shanghai government also set up the first international wine exchange center in China in 2011.

Some wine lovers say that it was just Christie’s testing the water and Shanghai may follow Hong Kong to become a new wine auction center.

Simon Tam, Christie’s wine head, China, attributes the offering of just few lots a result of seeking the best possible provenance for the auction.

However, Fan Ganping, general manager of Shanghai International Commodity Auction, the leading auction house in East China, doesn’t agree.

“Christie’s launch of a Shanghai wine auction is not for sake of the wine but to show the variety of its auctions. So far, and over the next 10 years, it will be hard for China’s mainland to be as competitive as Hong Kong. The wine duty, the spread of fake wine and a wine culture that’s not widespread enough all count,” Fan says.

Leading mainland auction houses, including Beijing Poly International Auction, Shanghai International Commodity Auction and Xiling Yingshe Auction, rushed to launch wine auctions in Shanghai, Beijing and Hangzhou between 2009 and 2012, expecting to copy Hong Kong’s success with the help of the consumption power of the increasing number of billionaires on China’s mainland.

But the results were not nearly as good as expected, according to Fan and Lu Jingqing, general manager of Xiling Yingshe Auction. Three auction houses, excluding Poly, halted their wine sales this year.

Tax is the main reason, according to industry sources. Wine buyers will pay at least 40 percent more buying wine at a mainland auction than in Hong Kong because of the duties, according to Fan.

However, Tian still feels optimistic toward mainland wine auction. She thinks that buying wine at the cellar’s door helps avoid the risk of wine taint from travel caused by shipping and storage conditions. No matter how reputable the auction house is, a case of wine will have traveled far from its production area, Europe or America, to auction venues, then to a buyer, Downey says.

“For Chinese wine collectors buying wine to drink, tasting wine at its best is the priority,” says Tian.

Local auction house such as ASC conduct “duty unpaid” wine auctions for Chinese wine lovers willing to consume wine outside the mainland.

Still, buyer’s demand will be the biggest force driving the market on China’s mainland, Tian says.

“Sotheby’s will review and explore any potential business opportunity,” says Sleigh.