China Consumer

Wine with bubbles

Why Chinese speculators love Lafite above all

Red China’s red wine of choice

The year 1982 might not count as one of the most eventful in history (although it did see Ozzie Osborne bite the head off a live bat). But the year is of more specific significance in the world of wine.

That’s because Chinese drinkers are now obsessed with a 1982 vintage. Not, of course, just any old bottle: Chateau Lafite is the darling of the market. A single case of 1982 Lafite cost $3,842 ten years ago. Now it’s priced at $38,500, providing investors a dizzying return of 857% or a compound annual return of 26%.

The first growth label is particularly popular because of its status. Chinese business tycoons and government officials now see gifts of Lafite as the ultimate way of “giving face” – to serve anything else is almost insulting.

As a result, virtually all vintages have surged in value. Even the more inferior Lafites, like the 2001, 2002 and 2004, have soared in price. It’s impossible to find any Lafite vintage for under $7,700 a case, reports the Financial Times.

“Wine produced from the top five Bordeaux chateaux (Lafite, Latour, Mouton, Haut Brion and Margaux) are all equally good in terms of quality and investment value but Chinese just want Lafite on the bottle,” an Australia-based wine merchant told 21CN Business Herald. “Lafite entered China early, and the name is easy to say, so brand recognition is particularly high.”

The surge in popularity for vintage wines has quickly attracted the attention of investors, especially those from Wenzhou, which has a reputation as the home of some of China’s most speculative businessmen. Local customs statistics show that between 2006 and 2009, the city’s average annual growth rate of imported red wine in dollar terms exceeded 200%. In the first quarter of this year alone, the dollar value of red wine Wenzhou imported was up by 208%.

“Now that the real estate and stockmarket are slumping, investment opportunities are limited. So Wenzhou businessmen have to find a new way out,” a wine dealer based in Wenzhou told 21CN. He said many speculators in the Zhejiang city now regard red wine as “liquid gold”.

More investors are now flooding into the market. Ding Lei, founder and chief executive of Netease.com, a Chinese web company, recently founded Wenzhou Huili Investment Corp, with several Wenzhou businessmen. The company will sell imported French wines around the country.

China’s impact on the luxury French wine market has been enormous. But it is not just the French that are benefitting: worldwide wine exports to China have grown more than tenfold to an expected ten million cases this year, says the UK newspaper The Times.

But for speculators, France remains key: witness how active Chinese buyers were in the en primeur market for the 2009 vintages available from next year.

As with luxury handbags and high-end watches, counterfeit products are always a big risk. Some estimate that 70% of the Lafite consumed in China could be fake, says Andy Xie, an independent China-based economist. Fortunately, many of Lafite’s new aficionados may fail to notice.

In fact, Xie told CIB magazine that there are now so few bottles of the real vintage left that stock is running dry. Those in the know in Hong Kong’s wine circles go further: if all those claiming to own 1982 Lafite in China really do, then the total supply far exceeds the original volume produced that year in France itself.

The big question for investors is how long the good times can last. For some time experts have been predicting that the pricing anomalies were unsustainable. But, so far, the market has more than held up. In fact, Xie reckons another bubble is inflating in Lafite’s second growth wine, Carruades de Lafite (known as ‘Little Lafite’ in Chinese). The Carruades is of inferior quality to first growth vintages as it is grown from younger vines. But because it carries the Lafite name, buyers are still crazy about it.

As a result, Xie says the price has increased tenfold over the last five years, a price distortion he compares to that of internet stocks in 2000.

Keeping Track: We have written before about the Chinese fondness for Chateau Lafite. Last Friday love was in the air again, when three bottles of the 1869 vintage each sold for a record price of HK$1.8 million ($230,000) at a sale in Hong Kong. All three were bought by the same telephone bidder (widely reckoned to be Chinese), said Sotheby’s. Lafite is the most prestigious red wine among China’s growing ranks of wine lovers (and speculators). One advantage: Chinese find it easy to pronounce. (5/11/2010)


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.