Corporate Q&A

The spirit of China

A Hong Kong auction will test valuations for rare Kweichow Moutai


Moutai expert: Yan Peng, head of Lao Jiu Yi Gou

On June 15 Hong Kong-based Madison Fine Wine Auction hopes to take on a leadership role in a fast-growing niche: sales to collectors and wealthy drinkers of aged Kweichow Moutai.

The 63 lots that Madison is putting up for auction could fetch as much as HK$9.8 million at the upper end of estimates, with the headline item an extremely rare bottle from 1970.

Outside China the much-prized Guizhou liquor is little understood. Paradoxically its maker is the most valuable spirits company in the world by market capitalisation – and a favourite among international investors in the Chinese A-share market.

A distinction needs to be drawn between the various brands that Kweichow Moutai makes and distributes. In recent years most of its volume growth has come from less expensive sub-brands. Its original eponymous brand is made in limited volumes and it is this top-end variety which is the most prized of Chinese liquors – equivalent in baijiu terms to an old Macallan in the whisky world or a Lafite or Domaine de la Romanee-Conti in the wine market. This premium ‘Precious Line’ Kweichow Moutai is also served to foreign dignitaries at Beijing’s state banquets.

For a better understanding of the lots in the upcoming Kweichow Moutai sale, and insights into how the white spirit is made, WiC spoke to Madison Fine Wine Auction’s CEO Gabriel Suk, consignment manager Jessica Wu and Yan Peng, head of Lao Jiu Yi Gou, the firm that consigned the lots and specialises in authenticating aged Kweichow Moutai.

What’s the highest price a bottle of Kweichow Moutai has fetched at auction in the past?

Yan: On June 1 2014, Googut, a big and famous Chinese auction house from Beijing, auctioned a bottle of 1958 Moutai for Rmb2.99 million ($433,873).

Why was 1986 a key year for the distiller?

Yan: That year was very important to Kweichow Moutai because it was the first year they produced the Precious Line, which is the top product line of Kweichow Moutai. To me, it’s like Gran Reserva in Spanish wine. Also that’s the first year Kweichow Moutai had its screwcap series [these aluminium caps were only produced for a decade, giving them rarity value]. In 2014 the 1991 screwcap was marketed at HK$3,000 but now is worth about HK$30,000 ($3,827).

Does Moutai change in the bottle?

Yan: It evolves in the bottle. It’s less fragile than wines and it has greater longevity, but it does evolve over time.

The evolution is due to the special yeast called “Qu”. It’s made of wheat. You naturally ferment the wheat at a high temperature (60 degrees Celsius) which gives you special enzymes. You then make it into a brick shape and put it into a ‘cellar’ where you rotate the brick of Qu every eight days to ensure all its sides get exposed to the microbes in the surroundings. It takes at least 40 days to make Qu, and after it’s made it needs to be further stored for 40 days before it can be used.

Moutai is completely blended – it’s not aged in a barrel for decades like a whisky. It’s made using the solera method [a technique whereby smaller amounts of younger liquor in an upper tier of jars are systematically blended with more mature liquors in the jars below]. So, for example, in the 2019 Moutai there will be alcohol perhaps from 1980, although maybe less than 1% of the total volume.

But unlike wine it’s not vintage sensitive. In 2019 we can drink a lot of Moutai from the 1990s and that is fine because in 10 years time there will be Moutai from the early 2000s that will taste very similar.

The vintage is only of relevance for very, very old stuff like the 1970 bottle that’s being sold at this month’s auction.

In certain years there are things that happened that are politically sensitive and which give bottles more value for collectors. The 1970 is particularly valuable because of what happened in the period around that year – China went through a famine era from the mid-1950s to mid-60s. Within that decade there was so little food, meaning that grain was consumed as food rather than used to make much alcohol.

The only reason that the distillery still produced any at all was because the government wanted to maintain the famed Kweichow Moutai label. But the production levels were so low. To bottle the 1970 you had to use alcohol from 1965 – since the liquid must be stored in jars for at least five years – and blend it with earlier spirit – all from an era of famine. That’s what makes it so rare.

How did you go about pricing the 1970, given that it comes from a unique historical period – i.e. during the Cultural Revolution?

Wu: A wine like a Burgundy is very vintage sensitive. But as Mr Yan pointed out, for Moutai it is not like that. For example, a 1968 bottle will be very similar to a 1970 because they are in the same era and the production levels are very similar – about 200 tonnes which is 400,000 bottles.

So although a bottle of the 1970 hasn’t been auctioned within the past five years we were able to find bottles from 1969, 1971 and 1972 and could consider that price data.

I personally think our estimate is very reasonable because the 1970 bottle was a special edition – making it even more rare than the 1969 or 1971. But we treated it as a normal edition and priced it off the 1969 and 1971 sales averages. Our estimate for this ‘The Great Revolution’ bottle is between HK$380,000 and HK$550,000.

Suk: We have a proprietary system that collects every auction result going back to 2013 and if you have enough data the market will tell you what people are willing to buy it for.

There is a lot of data like this for a wine like a Chateau Margaux. For Moutai it is much harder, because for the rare items we are selling there isn’t a lot of sales history. We took about two months to price this Moutai group and there was a lot of back and forth and a lot of research. It’s very important to do it right because you don’t want to out-price the market and say it is worth this and the market thinks it is worth 20% less.

But you also want to take into account the scarcity value – often bidders will know they are never going to see some of these bottles ever again. So I would say we have priced the Moutai in the same way we price other wines, it just took a lot more time and digging into as much raw data as we could find.

What we’ll find at the auction is certain things will take off and go crazy because the demand was much greater than we anticipated.

Will most of the buyers be from China?

Yan: Yes, but some of the bottles will also go overseas. Not so much to the ‘foreigner-foreigner’ but rather to those second or third generation of Chinese living overseas. They appreciate Kweichow Moutai and the history and culture associated with it.

How much will be bought to collect and how much will be bought to be drunk on a special occasion?

Yan: It is very normal for Chinese to buy to consume. Part will be consumed, but some will be kept. It’s like how a lot of wine collectors buy 100 bottles, consume 40 and save 60 for future.

As for the 1970, I don’t think anyone will drink it. It will be kept because the value just keeps going up. That bottle is so rare.

There are some Moutais on our lot list from 2008 which are not as highly valued as 1990 or 1980. The 2008 will likely be consumed.

What about the problem of counterfeiting and ensuring that older Moutai is legitimate?

Yan: First, with the old Moutai you have to know where you are sourcing from. That is the most important thing. A lot of Kweichow Moutai was produced for government purposes, so there are special channels and you can source direct from them. It is a little politically sensitive, but if you get it from those sources, you know it is real – it’s impossible for them to have fake stuff.

The second thing is we have focused on old Moutai for 10 years and it is just like wine authenticating. There are Moutai-specific authenticators, such as from the Baijiu Association, that can verify if it is real. Also almost every year Moutai changed their label just a little bit: maybe the character’s font. The Moutai factory also makes a small mark on the bottle which they keep a record of, so they can verify if a bottle is real.

Are production levels going up?

Yan: Kweichow Moutai’s company revenue in 2016 was Rmb2.5 billion, which doubled that of 2015. What happened that year was that the Moutai factory decided to produce more baijiu – not Kweichow Moutai but the other labels. In 2017 the sales went up to Rmb6.5 billion. There’s no data on the percentage of the Kweichow Moutai produced versus the other products, as it’s probably an industry secret. But the majority of the production increase is on the other labels, not Kweichow Moutai.

And overall the prices keep rising?

Yan: Every year the company will set a price for its new Kweichow Moutai – the 2019, for example, is Rmb2,200 per bottle, which is 20% higher than 2018.

Do you hope to do an annual Hong Kong sale of rare Moutai?

Suk: I would hope so. It’s an important product and an area we’d like to stake our claim to as the only truly native Hong Kong auction house.

I think our Moutai auction this month is a first for Hong Kong. I know Christie’s held a sale last year in Shanghai and Poly Auction does a little here and there. But it’s a first in Hong Kong to include a sizeable portion of Moutai: 63 rare lots. Some of the items I have never seen before and the market has only seen a very few times.

I’ve worked in the wine auction industry for 10 years [previously running the Asian operations of Chicago firm Hart Davis Hart] and we set up Madison Fine Wine Auction last year. Our first auction in December had very strong results – that sale raised HK$23 million.

What differentiates your firm in such a crowded market?

Suk: Hong Kong is truly the most important wine market in the world right now and we are the first locally-based Hong Kong auction house.

We have invested heavily in technology which has helped us to reduce our costs. We charge an industry-low buyers premium of 16.5% (versus 24.5%-25% levied by rivals) and there’s no commission for sellers.

Finally, we have a commitment to inspecting and reinspecting all of the wines we are selling. There have been some very sad moments where we could not guarantee the authenticity of wines we were really looking forward to selling. We contract three to four outside experts to check them: as a new company we need to show an iron clad commitment that we know the wine’s history and that we have had it inspected.





Keeping track, Jun 14, 2019: Our Q&A in WiC455 previewed Madison Fine Wine Auction’s 63-lot sale of rare aged Kweichow Moutai and said it would test valuations. The amount raised was just over HK$7.2 million (excluding buyers’ commission), at the lower end of Hong Kong-based Madison’s estimates. The top item – a 1970 bottle – fetched HK$380,000.

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