SCED's speech at Wine Industry Conference of Hong Kong International Wine & Spirits Fair
Following is the speech "A Hong Kong Wine Story" by the Secretary for Commerce and Economic Development, Mr Gregory So, at the Wine Industry Conference of the Hong Kong International Wine & Spirits Fair today (November 8):
Benjamin (Chau), Debra (Meiburg), distinguished speakers, ladies and gentlemen,
Thank you for inviting me to this Wine Industry Conference. It gives me great pleasure to join so many distinguished speakers from all corners of the world.
I hope that you enjoyed watching the short video we just showed. It is newly produced to promote Hong Kong as the premier wine hub of the region. In movie language, it is a trailer of our success story in wine in the last five years since we did away with wine duty. We do have a good feature in store to show.
Achievements of the last five years
Hong Kong's wine story started long ago. While Hong Kong was founded as a free port, a few commodities would be subject to import duties, wine being one since 1907. As the script would unfold, we cut the hefty duty rate of 80 per cent by half in 2007 and completely abolished it in 2008, ushering in a totally new scene.
The Government has since played an active role of a producer, pulling together a range of supportive measures. Prime examples are the world's first accreditation scheme for wine storage facilities, as well as a collaborative customs facilitation scheme between Hong Kong and the Mainland for wine re-exports due north. Our Customs also reinvigorates enforcement efforts to make sure that villains selling counterfeits would never raise an ugly head.
The story is set against the backdrop of a world city thriving on commerce at the East-West crossroads, with a bilingual environment, a low and simple tax system, a clean and efficient government and all the other strengths of an international business and financial centre. Of course, this includes our world-class infrastructure and first-rate exhibition facilities and services that we are enjoying today.
More and more characters have come into play since the abolition of the wine duty. Nearly 700 new companies relating to wine have been established up to end 2011. Many find conventional roles as traders and logistics operators. Others pioneer new ventures, say, urban wineries, bottling, wine investment and consultancy.
The lively performance of all against the vibrant wine scene, with the market as the invisible director, has quickly pushed the story to a new climax. Total wine imports into Hong Kong increased from about US$370 million in 2008, to US$1.2 billion in 2011. This meant an increase of over 240 per cent. There could well be some twists in the plot depending on the global economic environment, but in any case Hong Kong has already secured a leading role on the stage of the wine world.
What is the box office then? Notionally, 80 per cent ad valorem duty otherwise charged against the huge wine import might mean hundreds of millions of dollars of revenue forgone. But any loss to the Government is translated into opportunities, benefits and gains of different sectors in the wine trading and distribution and related business.
For example, within a short span of time, Hong Kong has surpassed New York and London to claim the title of the largest wine auction centre in the world for the last two years, according to the industry. In 2011, the total auction sales amounted to as much as US$230 million.
We could not have achieved all these without the enthusiasm and sheer hard work of many of you here today, who see the advantages of Hong Kong in exploiting the many wine opportunities. You are part of our story!
It is now common for a successful movie to be followed by a sequel. Our wine story should be no exception. On perhaps a more serious note, I would like to share with you some of our observations on the trends and opportunities ahead for our story to continue.
In this largest fair of its kind in the region, you would appreciate more than anyone the growing trend in the wine market of Asia. Asia will account for over half of the growth in wine consumption in the world in the five-year period ending 2015, according to the most recent report of the International Wine and Spirit Research, or IWSR for short.
Where exactly do the opportunities lie in Asia? As diverse as the origins of exhibitors in this fair, the IWSR report points to the following places: Hong Kong, India, Japan, Mainland China, Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand, where we are seeing relentless growth of the middle class with a huge appetite for modern living following the Western lifestyle, wine drinking and appreciation included.
The leader of the league is no surprise to anyone. Just let me quote a few figures. Wine consumption in Mainland China grew by 140 per cent between 2006 and 2010. That has placed China, including Hong Kong, as the fifth largest consumption country in the world. There would be a further increase of some 54 per cent in Mainland China from 2011 to 2015. This growing trend is corroborated by the outlook of Euromonitor International published last December.
Growing opportunities: the Mainland market
Mainland China has its own National 12-5 Plan, which is the short term for the "Outline of the 12th Five-Year Plan for the National Economic and Social Development of the People's Republic of China" promulgated in 2011. As part of the implementation of this master plan, the Ministry of Industry and Information Technology published earlier this year the Plan for Mainland China's wine industry. This "Wine 12-5 Plan", as generally referred to, highlights a couple of points about wine opportunities on the Mainland.
First, China has the world's largest potential market.
The "Wine 12-5 Plan" quoted the per capita wine consumption for the Mainland at less than half a litre in 2010, compared with the world average of 7 litres. It meant that a person on the Mainland only consumed 6 per cent of what an average person drinks. Mainlanders drank particularly less wine than people in the United States and Argentina, for example, where the average consumption volume was 45 and 38 litres respectively.
For the current planning period, the Plan sees that the Mainland would have a growing appetite for wines as income and the craving for wines are rising.
Second, imported wines have become more and more popular on the Mainland in the last five-year period. Compared with the opening year of 2006, the volume of wines imported by the Mainland rose by 2.5 times to over 28 million litres in 2010. The proportion of imports to the Mainland's production grew to about 1:4. The Plan believes that, generally, imported wines enjoy competitive advantages over the Mainland's domestic produce.
Last but not least, the Plan also refers to calls for better quality from Mainland consumers who are getting affluent - and developing a palate for finer wines. The rising attention of the public to nutrition and health may also be relevant.
This is an important, soft side of things that Hong Kong can have a major positive influence on, being the trendsetter bridging the East and the West.
Between 2006 and 2010, the per capita consumption of wine of Hong Kong has grown by some 90 per cent to 4.6 litres, and to 5 litres in 2011. While this is still some distance to the sophistication enjoyed overseas, we do have good experience to share with our motherland along the same path we have trodden.
Many of you in the Conference do wine trading, distribution and retail business in Mainland China, Hong Kong and places around. Surely you have your own wine stories of sorts to tell. We would no doubt continue with our various promotional and supportive measures to help you tap the vast opportunities ahead. Your business is our business.
New opportunities: the Mainland's wine industry
Any good sequel of movies may need more meat. I hope to find that for you. As a blueprint prepared by the industrial ministry together with the agricultural ministry, the "Wine 12-5 Plan" in fact focuses on developing the Mainland's wine-producing industry and related sectors.
The Plan reviews developments in the last five-year cycle ending 2010. While the Mainland's wine industry was gaining some momentum, the Plan identified areas for attention for the current cycle ending 2015. These cover viniculture, technology, quality assurance and wine knowledge.
Reading between the lines, we notice that the quest for product quality is a recurring theme. The Plan sets out various targets for the Mainland's industry, including enhancement of product safety and quality and the nurturing of two conglomerates for competition in the international market, to be supported by brands characterised by regional flavours.
All these pave the way for the Mainland's wines to "go international".
New opportunities therefore abound. Very initially we see potential for Hong Kong to take some part in the Plan as appropriate. An immediate role we can possibly play is to ride on our international wine trading network to help export the Mainland's produce to other places.
This could be supported by our quality wine storage and transportation operators. The quality of the wines being handled would be better assured with services offered by players in our testing and accreditation industry, which follows international standards.
Hong Kong's advantages in other areas could also contribute. When it comes to the promotion of the Mainland's products, we have branding, marketing and other business services to offer for the international market. Hong Kong's experience in handling fine wines would be particularly relevant to promote the Mainland's mega-brands in due course.
And Hong Kong's advantages as a global financial centre are naturally important to any plans for capitalisation.
All in all, our role as a wine hub could well be broadened and deepened by bringing the Mainland's wines to other parts of the region and beyond. Hong Kong and the Mainland could make a winning team for wine promotion and distribution.
The extent to which Hong Kong could take in a share remains to be seen. We have started to invite Hong Kong stakeholders to watch developments together. The first-mover advantage does exist in the real world beyond textbooks.
I hope that my sharing just now is more than anecdotal to kick off insightful deliberations by our expert speakers here today. We would listen and take forward Hong Kong's own "five-year plan" for wine - whereby the new Administration, serving since July, pledges for its five-year term support for Hong Kong's wine business and will remain vigilant about changes in the market to do a better job.
I would like to thank the Hong Kong Trade Development Council once again for the opportunity today. We will continue to work closely with it, other partners and you all. Keep yourself posted through our newly launched website at www.wine.gov.hk.
Thank you. I wish you all good business.
Thursday, November 8, 2012