Fine Wine, recycled paper and the problem with customs in China - 9th February 2012
By Thomas Gearing (Director) - Cult Wines Ltd - http://www.cultwinesltd.com

Despite China becoming one of the world’s biggest importers of wine, problems with the importation of fine wines, which have become the latest focus for the Chinese super-rich, continue to exist. Hong Kong, the Special Administrative Region of China, has usurped New York and London in recent times to become the world’s largest fine wine hub as a result of the abolition of import duties. However, with a punitive import tax of 50% applied on fine wine in mainland China, importers and merchants in Hong Kong have looked to alternative methods in order to satisfy demand.

As the Far East has become the big focus of the wine world, stories of Premier Grand Cru Classés being smuggled into mainland China have been as common as consumers drinking Lafite with Coca-Cola and Petrus with Lemonade. It seems despite the many stories importers have favoured smuggling fine wine, predominantly through Shenzhen, which not only is immediately north of Hong Kong but is the third busiest container port in China (after Shanghai and Hong Kong). It has been suggested that the favoured option for smugglers is to conceal expensive wine within containers of recycled paper, something that isn’t liable to tax and which at a larger container port may easily pass through undetected.

Shenzhen has become a hot bed for fine wine smuggling

Avoidance of the 50% import tax is not the only motivation for the wine merchants and importers. Import licenses are notoriously difficult to obtain from the Chinese Tax Bureau and in many cases different licenses are required for specific products, regions etc. Furthermore, even when wine is imported in the correct manner it doesn’t always go as smoothly as anticipated. Stephen Chun, a wine consultant based in Shanghai explained that sometimes ‘wine can be held for 30 days then 60 days, with some containments being held indefinitely or destroyed’.

Despite being China’s Southern economic powerhouse the minimum monthly wage in Shenzhen is just 200$ per month – far less than the price of a single bottle of some of the wines which are being imported. Chun hinted that this might well be the problem, as Custom officials may be tempted to subsidise their annual wage. In order to ensure the ease of movement of wine stocks, Chun admits ‘it has been necessary for importers to take the customs guys out to dinner’.

Shenzhen Customs Officials inspect ‘contraband’ wine

Anna Tam, a wine trainer for ASC fine wines (one of the biggest fine wine importers in China) concludes the same, ‘if you [want to] have transaction more quickly, it is better for you to know some government officials’. Considering China maintains a unitary government centralizing the state, media and military it is of no great surprise that this control filters through to all levels of social function. Therefore at local level government officials have the control and authority, in this scenario they’re the necessary contacts required by wine importers and merchants to ensure the safe passage of shipments. Anna confirms that ‘most of the business trade is done by 'friendship'…it really takes time to make the government officials (become) your friends’.
 

In 2011, Chinese authorities increased their efforts to restrict the illegal importation of fine wine. Decanter recently reported that the Chinese authorities had sentenced a businessman to life in jail for ‘illegally importing millions of dollars of fine wine into China’. In this case the man was found guilty of ‘forging invoices and import contracts to evade import duties’ but the businessman argued that his actions were necessary as ‘it would (have been) difficult to stay in business if (he) went through the official channels’.

The authorities in China have also recently installed new technology in order to combat the problem. New infrared scanners, used extensively in the Western world, have been implemented at Shenzhen container port. The new technology can quickly examine entire containers in order to identify any contraband items. This is especially useful in trying to detect fine wine being passed through in containers of recycled paper, which had been rife. This news will serve as a deterrent to those involved with the wine trade in China; that the authorities are better equipped and willing to mete severe punishments to guilty parties.

The evidence supports recent suggestions that the slowdown in the fine wine market can be in part attributed to problems with transporting the backlog of stock currently in Hong Kong and satisfying mainland Chinese demand. The solution doesn’t seem obvious at this stage but the number of those willing to take the risk and smuggle fine wine into China will certainly have reduced. A more efficient and transparent system needs to be established in the long-term. With the proliferation of fine wine consumption being partly accredited to Chinese Government officials, it seems that it is within their interests to find the solution.