HK celebrates 10 duty-free years


Ten years ago today I landed at Hong Kong’s smart, then relatively new airport. As I travelled in to the city for the 2008 Room to Read fund-raising wine gala, several friends passed on some exciting news. See Hong Kong wine duty slashed to zero (note that the ex-British colony had not yet become so important in the world of wine that I felt I could use the abbreviation HK in a headline). 

The freeing up of the HK wine market was arguably the single most powerful development in the modern history of wine, with the possible exception of the unexpected turnaround of wine’s fortunes in the US as a direct result of CBS’s 60 Minutes programme on the benefits of a Mediterranean diet in the 1990s. As wine shipments to HK, and thence to mainland China, ballooned, so has the number of so-called wine merchants, and there are now no fewer than 44 wine storage companies registered with the HK Quality Assurance Association alone (although there are probably more that are unregistered). This is about 10 times as many specialist wine storage companies as there are in the whole of the UK, where natural wine storage conditions are so very much better. Hong Kong overtook London and New York as a centre for wine auctions, and never a month seems to go by without a major wine event or wine fair in Hong Kong, where the average quality of wine drunk seems so much higher than anywhere else in the world.

In honour of the anniversary, I thought it would be interesting to publish a collection of observations on how things have changed in HK over the last 10 years and wrote to a number of interested parties asking for anything from a sentence to an article. Below is the much-appreciated result.

Jeannie Cho Lee MW

Jeannie became the first ethnic Asian to qualify as a Master of Wine some months after the duty reduction was announced in 2008.

By Wednesday afternoon in Hong Kong on 27 February 2008, my inbox and mobile message box was full. I don’t remember who broke the news to me that Hong Kong had completely removed its wine duty – it was likely from several reliable sources – but I do vividly remember feeling mixed emotions. I was thrilled that Hong Kong was poised to become an important wine centre for Asia and I knew there would be many rocky points along the way. But I was equally frantic about the Master of Wine dissertation that I was trying to wrap up. I had finished interviewing over 50 professionals in the Hong Kong fine-wine trade and a dozen government officials exploring the topic: ‘The Potential of Hong Kong Becoming a Fine Wine Hub'.

I would have to re-interview and re-write the dissertation from the basis of Hong Kong having no wine duty. It was 40% from February 2007 to February 2008 and, prior to 2007, had been an incredible 80%! This changed all the assumptions and analyses I had made thus far, and it changed my conclusion to a much more positive one with a number of caveats. Among the weaknesses and the challenges that I thought Hong Kong would have to face, some have been overcome and others still remain.

In 2008 Hong Kong was sorely lacking in the understanding and availability of wine storage and appropriate temperature-controlled transportation for fine wines. These logistics have been addressed over the past 10 years and it is now easy to find very good storage services as well as reliable transportation for fine wines. Another weakness was the porous border into China and this was made weaker still when Macau moved to zero duty just one year after Hong Kong. The huge price difference between China and Hong Kong for top wines means the grey and black markets persist.

Another challenge I predicted was the growth of fake wines in Hong Kong and China. The extent of this problem is a big unknown at the moment with very little scholarly or rigorous research conducted in this field. But I am hoping that when I complete my PhD dissertation next year [Jeannie is measuring the prevalence of fake wine in Hong Kong and key cities in China] we may have some answers about the extent of this problem.

I remember the reactions of the trade just after the news broke and they were not all positive. David Webster was one who was against the zero wine duty. Webster is one of the established members of the Hong Kong wine trade who started out first with Watson’s Wine in 1971, then Remy, then Maxxium, and in 2008 was director at Fine Vintage. He told me that the competition would be fierce, which would lead to low margins for everyone and the rise of unprofessional wine brokers who would trade wine like any fast-moving consumer good. He predicted that professionalism would diminish and the industry overall may grow but would struggle with low margins. I remember speaking with Don St Pierre Jr of wine importers ASC in China who was happy about the zero duty and was keen to open in Hong Kong to establish a second base. Overall, the mood was cautiously jubilant and for wine lovers, well, we were frankly thrilled. Our main frustration was not seeing the price reductions at restaurants even six months post zero-duty, but from importers we saw wine prices being slashed by 20–30% within the first six months.

Some of what Webster predicted has become reality. Competition is ferocious as any Hong Kong wine business owner will tell you; smuggling and dodgy trades are a persistent problem and fake wines appear to be even more prevalent. Despite the drawbacks, as a wine lover and drinker, I am ecstatic about living in a city with no wine duty and no sales tax. I am also grateful for all the opportunities the growing market has brought for me and everyone else in the wine industry. The market has grown tremendously since 2008. Hong Kong is a wine hub for the region and it continues to lead the way in terms of education, expertise and professionalism. So tonight I will be drinking to Hong Kong’s continued growth and success.

Nick Pegna of Berry Bros & Rudd

For many years, Nick was Berry Bros & Rudd's Man in HK and now, as Asia Director, commutes between Hong Kong, Singapore and Tokyo.

I can’t believe it was ten years ago that Boris de Vroomen of Moët Hennessy Diageo and I sat with a lobbyist and gave our estimates of the growth of the market and, a week later, these were used in the Finance Secretary’s budget speech and announcement of the zeroing of the duties.

I remember, not too long after duties were changed, sitting at a dining room table in Bordeaux next to a key US West Coast importer. We discussed his market, which was stagnant at that time, and his appetite for the Bordeaux 2008 vintage that we were tasting. He told me that he would take all his allocation, not for his home market but to sell to China via Hong Kong, where he understood there was huge demand. This optimism drove the HK market in the initial days and saw the growth from what I estimated in 2008 was 250 key merchants in the territory, to the current total of over 1,500. In the early part of the zero-duty fuelled decade we saw businesses that were selling used aircraft parts transform themselves into expert fine-wine traders.

Meanwhile fine-wine auctions became a new stage for the collector who wanted everyone to see what he or she was collecting. At one early auction, bids for Carruades de Lafite 2000 in a Hong Kong hotel were 30% higher than the equivalent retail price just five minutes around the corner, without the buyer’s premium or lot requirements.

Then, as ever, the market settled. Those merchants who had a solid base of customers and bought well continued to prosper and those who, in Bitcoin style, had arrived late to the party in the hope it would never end, fared less well. Elements of the hangover persist, in the form of poorly bought or even fraudulent bottles, but it is heartening to see, for example, the long-established auctioneers returning to business as usual and the others not returning.

The consumer has been the long-term winner, without any doubt. Keen to find a niche, specialised players have set up shop in Hong Kong selling more unusual wines that were unsellable a decade earlier, and demand for wine education has flourished. We have a lively, competitive and effective market, in which educated consumers expect well-sourced and well-priced wines. The mad rush to buy what everyone else was chasing is over and we have a settled and, at times, tough market.

From the perspective of Berry Bros. & Rudd in Hong Kong, I have looked at our results then and now and I’m reassured to see many of the same names but many more. We sell more wines, from a far broader range, to many more keen drinkers. The decision, which I was lucky enough to be close to, was courageous and far-sighted and has resulted in a stable, dynamic and very efficient marketplace.

In the decade since duties were lowered to zero in Hong Kong, we have seen very rapid market changes and more recently, the stabilising of a competitive landscape driven by the realities of the market, not by sheer optimism.

Jo Purcell of Farr Vintners Hong Kong

Jo moved to Hong Kong in 1994 and set up a wine shop, one of only four wine retailers there at the time. In 1997 she joined Farr Vintners and set up a HK branch of the UK-based fine-wine trader, the first of its kind.

There are certain significant moments in life when you can remember exactly where you were when they occurred. Hong Kong budget day 10 years ago was one such moment for me. I was on a business trip to Seoul, standing in the Grand Hyatt Hotel, when I received a very excited call from our Hong Kong office telling me: ‘the duty has gone down to zero per cent'. Zero per cent!!!! I couldn’t believe it! In fact, so much so, I frantically booted up the laptop praying for an internet connection so I could double check. And there it was, in black and white on the government website.

What a difference a year had made – we were facing duties of 80% of invoice value in early 2007, then 40% from March 2007, and then the budget of 2008 reduced it to 0%.

I returned to the office the following Monday to multiple requests from excited HK customers asking us to ship wines from their customer reserves at Octavian Vaults in the UK. Up until that point our office had been assisting our customers by operating a monthly air freight consignment to Hong Kong. With the phones ringing, emails pinging and even the odd fax churning, this was the start of the weekly air freight consolidation service which we have operated ever since.

As a result of the duty rate change, the Hong Kong wine trade has changed tremendously. Hong Kong is now effectively a duty-free city for wine and has become the wine hub for Asia and an important market for most of the world’s fine wines. It contributes over 40% of Farr Vintners’ total turnover by value. Thousands of new wine companies have been established, merchants now have the choice of an array of professional wine forwarders and storage facilities. Few in the trade today have any memory of the incredibly bureaucratic, frustrating and lengthy process involved in applying for an import permit, an antiquated system which I think both the Hong Kong government and Hong Kong Customs and Excise would have agreed was cracking at the seams. Not to mention the difficulty of finding a 24-hour temperature-controlled warehouse, let alone trying to hire a refrigerated delivery truck.

To my fellow vintners of yesteryear I raise a glass and say ‘Cheers’ and ‘Thank goodness those days are yesterdays!’

Jim Thompson, Crown Wine Cellars wine storage

This picture shows the atmospheric entrance to the ex-munitions depot in the Deep Water Bay Drive bunkers that house Crown Wine Cellars, HK's first wine storage specialist. Jim Thompson and Gregory De'eb opened wine cellars and a private members club here in 2004, five years after the HK government actively sought partners in preserving the bunkers.

For Crown Wine Cellars the reduction of the wine (and beer) tax to zero was quite an incredible move inasmuch as most countries and territories tend to do their best to raise taxes rather than remove them. The Hong Kong government acted in a very entrepreneurial fashion and they were very successful. By effectively investing the lost tax revenue into the wine industry they created a huge interest in wine and with it created many new wine and wine-related businesses here – and, of course, employment. What foresight!! Today, 10 years later, Hong Kong is the undisputed wine centre of Asia because we're a duty-free port and wine can be imported in unlimited quantities tax-free. Of course, being a region of China, where there is significant tax on wine, helped enormously. 

For many of the clients who stored their wine with us at Crown Wine Cellars it was a bonanza because a large quantity of the wine was stored in our bonded bunkers waiting to be taxed on release. When the tax came off wine in 2008 it was like opening the doors to the prison and letting all this wine in bond be released tax-free. The saving to those clients was huge.

Of course, the major benefit to Hong Kongers is that we can now drink some of the very best wines in the world at reasonable prices – a joy that still eludes most people in this part of the world.

Sarah Heller MW

In 2017 Sarah became the world's youngest Master of Wine and won a slew of prizes to boot. A wine communicator and designer, she worked with Hong Kong's third Master of Wine Debra Meiberg MW (who qualified at the same time as Jeannie Cho Lee) for several years.

Hong Kong’s wine market has certainly been on a crazy ride, from the initial tidal wave of enthusiasm – particularly in the auction market – to the dramatic market readjustment at the start of China's anti-corruption drive, when the formerly lucrative official gifting channel effectively disappeared. But 10 years on what is fundamentally different is the quality of wine available in what you might call the upper-premium market. Not the fine-dining restaurants, which have had impressive lists for a long time, but the trendy places that might pour Godello, Grüner Veltliner or Etna Rosso by the glass. Those were basically non-existent in 2008, and it’s the part of the market I find the most exciting.

David Elswood, head of Christie’s Wine Department

Christie’s was the first major international house to hold fine-wine sales across Greater Asia – our sales in Hong Kong, Tokyo and Singapore date back to the late 1980s. Despite that early start, the ‘new’ market since 2008 has been quite a rollercoaster ride – for clients and the auction houses themselves. In those early, post-import-tax days, demand and prices soon spiralled as auctioneers, merchants, fine-wine dealers and all manner of traders piled into the market, grateful to find enthusiastic new clients – in contrast to the moribund market of a post-financial-crash Europe and US.

Without doubt this caused the formation of the major Asia price bubble – which was to burst with dramatic impact in 2012. Since then, prices have gradually recovered to the present day where we now see a far more sedate and predictable market with the more savvy buyers quickly learning that not every ‘unique sale offering’ is worthy of their attention... There has also been something of a shakedown in number of participants and general sales activity as the more serious players consolidate to supply a discerning and well-heeled client base.

The typical fine-wine consumer in HK (if such a person exists) now has access to probably the widest range of the finest and rarest wines on the planet and at prices broadly similar to those in other markets. Long may it continue.

Simon Tam of Christie's, Hong Kong

In just 30 years, HK drinkers time-warped through Cognac, Liebfraumilch and today have arrived at Romanée -Conti. What an amazing transformation. I remember fondly Michael Hill-Smith MW saying in the late 1990s just after the British handed back their colony Hong Kong to the Chinese: ‘one day the finest vintages will be drunk in HK not in the West'. Perhaps he knew long ago but we thank Mr Henry Tang, the wine-loving Financial Secretary believed to have played a part in abolishing wine-related tax altogether.

Fast forwarding 10 years. Mr Tang’s crystal ball has shaped HK as one of the most significant global wine hubs, inducing slight envy in other Asian neighbours perhaps? The solid spokes of the hub include wine trading, auctions, education, storage and tourism – all of which are flourishing. One may have predicted that resilient HK would bounce back from two stock-market crashes in the 1990s and a SARS epidemic, but what is really great to see is how the ‘Thirsty East really embraces the Delicious West'. It is perhaps inevitable but it is here, and here to stay!

The wine auction market continues to rocket here, fuelled by the insatiable thirst for not just great wines but wines with a story to tell. Stories of ‘Super Provenance’ – this is my mission at Christie’s! I have been privileged to grow with HK’s wine-loving community for almost 30 years. My Christie’s team and I are in the best position to support the continued growth of this unstoppable fine-wine centre.

Thank you, Mr Tang. Cheers, Michael, for your vision. Well realised! 

Linden Wilkie, Managing Director of The Fine Wine Experience

Linden is a New Zealander who organised fine-wine tastings in London for many years before uprooting himself and his business in search of better-heeled wine lovers. 

As a dynamic business city, Hong Kong adapts rapidly to change. When I moved here from London in mid 2010, the party was in full swing. It was hard to imagine that the world was still reeling from the Global Financial Crisis. The effect of the removal of wine duty was obvious: a full-scale boom was underway. Initially some local importers were caught a little, holding duty-paid stock in competition with duty-free fresh imports. However, such was the growth that dynamic merchants survived.

One local importer, with a blue-chip portfolio, remarked to me one day that a leading auction house had just offered in one sale more of a particular wine than he – as agent – was allocated in several years.

Within a short time, every leading wine merchant and auction house worth its salt had an office or at least a presence in Hong Kong. For some, the centre of gravity moved irrevocably east.

The crash in the Bordeaux futures market and President Xi’s anti-graft programme produced a brief hangover – welcome in my view because some rationalisation seemed necessary and the atmosphere needed, at some point, to switch from bonanza to something a bit more earnest.

I think we have seen that in three ways: the growth in demand for wine education among consumers; growth in demand for wine training for the trade and the establishment of professional development organisations such as Debra Meiberg MW’s WineSPIT; and a path to deliver end-to-end quality to consumers, such as the HK trade and HK government’s HKQAA scheme to offer accreditation of those storage facilities that meet their specific (high) standards. I am far more confident of being able to deliver a bottle to a customer in Hong Kong in perfect condition than I ever was in the UK, simply because the service provided here is superior.

As a specialist in fine wines, I have seen a reassuring broadening of the market. For example, fine burgundy was a much smaller category in 2008 than it is today. Every year we see new customers for it. Initially, it was for the cream of the top domaines, but it is now a very long list, and if quality has risen at a domaine (change of ownership or generation, for example), Hong Kong enthusiasts are quick to know it and are among the first to demand the wines. That knowledge and demand is driven by a clientele eager to learn and fast to react.

What we see too is a culture of wine drinkers rather than wine collectors. Perhaps storage statistics tell a different tale. But what I see are customers wanting wines to their taste and to their budget so that they can drink them. They are not looking for trophies to ‘own’. The corks that are routinely pulled in Hong Kong, Shanghai and elsewhere here can be mind-boggling. Perhaps European sensibilities demand some sense of conserving rare wines, or drinking proportionately – drinking up and down the quality pyramid a little more, and not drinking certain labels to extinction. I’ve not observed that sense here. There’s less inhibition.

I think that has worked out for The Fine Wine Experience, the brand I established in London, moved to Hong Kong in 2010, and lead with my Hong Kong partner Michael Wu. At a point of expansion in 2013, we chose to make Hong Kong the physical base for our inventory of over 3,000 different fine wines. That option was more expensive than using a European storage base, but it meant being able to deliver to Hong Kong customers the next day. For us, it’s proved to be the right approach.

As producers of highly sought-after wines have seen how much of it is re-exported to Hong Kong via the secondary market, we are now seeing much higher primary allocations coming direct to Hong Kong at the expense of traditional markets. Prestigious family-owned estates naturally make changes with some caution, so I think it is telling that this is now happening. There is confidence in the depth and future of this market.

Would all of this have happened anyway, without the drop in duty? Duty was initially dropped to 40%, not far from the 48.2% it is currently in mainland China. There is no doubt that the wine market is growing there and that it enjoys a vastly larger market base. However, tax and regulation provide a headwind for the mainland compared with the combination of industry-friendly regulation and zero tax in Hong Kong. The growth and maturing of the Hong Kong wine market over the past 10 years has been remarkable – a resounding success for a forward-thinking policy.