IS CHINA THE CAUSE OF HIGH WINE PRICES?

A University of Hawaii colleague, Bruce Liebert, lent me an Australian documentary produced in 2013 narrated by Russell Crowe, Red Obsession, which received an 86% Rotten Tomatoes reviewers rating.  The world has long blamed China for all those astronomical Bordeaux prices, and they are mostly right.  But how this happened is a whole different story.  While somewhat dated, with one curious omission, the film traces what happened to wine prices, particularly Bordeaux, from 2008 to 2012, and specifically Chateau Lafite Rothschild, a winery I visited earlier this year.

In 2007 Henry Tang (right), with a somewhat shady background (did he really graduate from Yale, and with a couple of sensational extra-marital affairs), became the new Chief Secretary for Administration of Hong Kong.  He orchestrated the elimination of wine tariffs in Hong Kong, dropping the percentage from 40% to zero in 2008.  High Bordeaux prices can directly be traced to him.

According to a Robb Report in 2015, he owns the world's largest wine collection.  He sold a small portion of his prized Burgundy for $6.22 million, not for profit, but to share with other burgundy lovers.

But Bordeaux is the ultimate in fine wines, and The Wall Street Journal in 2010 reported that China pushed the price of Chateau Lafite Rothschild to record highs.  This began in 2008, that fateful year when Tang in Hong Kong accomplished his dastardly deed.

In 2011 Fortune said that Chateau Lafite Rochschild (CLR from now on) sold for $83.99 in 1982 and only $49.50 in 1983.  In 2011, the value was 1982 =  $5,500, 1983 = $1,100 and 2008 = $1,800.  If the 1982 followed inflation, it should be $173, not $5.500.  The article never explained why.  For the record, in 1982, less than $10,000 worth of Bordeaux was sold to China.

Let me now add Robert M. Parker to this mix, who launched his career in 1982, and became the person who rated wines, and, incredibly enough, people believed him.  He is responsible for Wine Spectator, which also tracks wine prices.  In 2011, they were shocked that 2010 wines from the 15 leading chateaus had more than doubled in price from 2009.  Nowhere was there a mention of Hong Kong.  Incidentally, Parker just retired, placing the wine field in some flux.

Much of the following comes from The Wine Cellar Insider:

• In 1855 the France government gave classified status to 61 chateaux over the others in Bordeaux
• In 1982 Thomas Yip set up a trading company to supply the top Chinese hotels with wine.  He bought several hundred cases of the 1983 Lafite Rothschild.
• Soon thereafter, CLR became the official  prestige gift within the Communist Party.
• Cathay Pacific, the airline, bought over 20,000 cases of Chateau Lynch Bages for their First Class customers.

• Peter Kwok bought Haut Brisson in 1997 and Tour Saint Christophe in St. Emilion, while Pan Sutong purchased Le Bon Pasteur on the Right Bank (Chinese ownership is almost exclusively here) and Sloan Vineyards in Napa Valley. 
• Over time, more and more of the very rich in China selected Bordeaux as their wine of choice.
• In 2008, Bordeaux Index, known as BI Wines, opened their office in Hong Kong.

• Henry Tang and connected collaborators were able to reduce wine taxes in Hong Kong from 40% to nothing that year.  How this happened would be a most interesting film.
• Sales of Bordeaux in China skyrocketed, and that $100 bottle of wine, shot up to $300.  Supply and demand.  The rich in China had to spend money on something, and they were only enamored of Bordeaux.

• Hong Kong became the center of the wine universe, for in that time frame more wine was bought and sold there than any other market.
• It helped that the American stock market tumbled in 2008, allowing for the availability of other investment funds.
• In one year, wine  revenues jumped up 200%.

• The 2008 CLR smartly placed the number 8 (very good luck in China) in Chinese embossed on the bottle, and the $200 price shot up to $1600.
• By 2010 the amount of Bordeaux sold in Hong Kong (and Macau) dominated.
• The 2009 crop sold in 2010 was extraordinary, with Robert Parker giving 100 points to 29 Bordeaux wines.  The 2010 wines were also exceptional, on the level of 1989 and 1990 vintage years.
• Bordeaux purchases grew from 2,000 hectoliters (100 liters or 133 bottles of wine) to 538,000 hl in 2012, the peak.
• In 2013 China bought 532,000 hl of this wine, compared to the USA with 159,000 hl.

• However, in 2014, sales to China of Bordeaux began dropping, and this was primarily because of a crackdown on corruption.  President Xi Jinping became the anti-Tang.  Can't give expensive wines to officials anymore.

• China does grow a lot of grapes (not sure why the USA missed this list, for we till 1.1 million acres, and should be #6--but you can see that we are peanuts to the world):

1. Spain, 975,000 ha, (2.4 million acres)
2. China, 847,000 ha, (2.1 M acres)
3. France, 785,000 ha, (1.9 M acres)
4. Italy, 690,000 ha, (1.7 M acres)
5. Turkey, 480,000 ha, (1.2 M acres)
6. Argentina, 224,000 ha, (554,000 acres)
7. Chile, 214,000 ha, (529,000 acres)
8. Portugal, 195,000 ha, (482,000 acres)
9. Rumania, 191,000 ha, (472,000 acres)
10. Australia, 148,000 ha, (366,000 acres)

• But much of China's grape crop goes for direct consumption as a fruit or into raisin.  
• Interestingly enough, domestic wine production, and these are not so expensive, began dropping from 2014, and in 2018 showed the sharpest decline, falling by 37% from 2017, so  China's world ranking fell from #7 to #9.
• As of 2016, Asian investors have bought 140 chateaux in Bordeaux.  But, keep in mind that there are 7,000 vineyards.

• There are 1,000 certified wineries in China.
• However, the Chinese don't like middlemen and indexing, so they went to Bordeaux to purchase wines and chateaus.
• Basically $2 wines could be repackaged and sold in China for $20.  I might add that you can still purchase a variety of Bordeaux in French markets today from $2 to $3 per bottle, for 26% of all Bordeaux sell for 3 Euro and less.  Every one we tasted was worthy, and, in fact, made me wonder why I should in the future pay more than a few bucks a bottle for wine.  

• Another interesting statistic is that ONLY 3% of the entire production of Bordeaux/year sell for more than 15 Euros ($17 dollars)/bottle.
• Today, these three grapes dominate Bordeaux (right bank is primarily Merlot, while the left bank, like CLR, uses Cabernet Sauvignon--many are wedded to Burgundy, for this is almost all pinot noir):

                Merlot 66% – 74,550 hectares
                Cabernet Sauvignon 22.5% – 25,500 hectares
                Cabernet Franc 9.5% – 11,000 hectares

After all that, you might want to try some wine from China, and maybe not when you see the price.  The two prominent ones are Changyu Moser XV from Ningxia and Ao Yun (LVMH--Louis Vuitton--Moet Hennessey) from Yunnan.  Checked them out and Ao Yun, a Cabernet Sauvignon blend, can be had for between $200 and $300/bottle.  But it comes from Shangri-la.

A 2013 Chateau Changyu Moser XV Grand Vin, a Cabernet Sauvignon, sells for $77/bottle.  Lenz Moser became a partner 12 years ago.

So looking at the 1.4 billion people of China (17 times that of France), you would think the numbers would in time swallow up a lot of wine.  Apparently, that will take longer than initially thought.  There are still not enough rich people there. And sure, you can blame China, or, really Hong Kong, for creating the 2008 bubble that deflated a few years later.

However, at nearly $1000/bottle (which I am holding), Chateau Lafite Rothschild is not exactly cheap.  Again blame China for that.  And I still swear that the average imbiber would not be able to differentiate this prominent elixir from those $2-$3 Bordeaux bottles you can find in any French market.  The reality, though, is that China is a bit player in the production and purchase of wines.  One person (Tang) caused the bubble and another (Xi) burst it.

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