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How smuggling crackdown and new Chinese government will affect wine prices: Don St Pierre interview

Fine wine prices will be driven down with the Chinese government's crackdown on smuggling, Don St Pierre has told Decanter.

In a wide-ranging interview as he takes up his position of executive chairman of ASC Fine Wines, co-founder Don St Pierre says if smuggling routes are closed, and buyers have to pay full duty on their wines, the prices will have to realign.

Many high-end wines are passed through the zero tax zones of Hong Kong and Macau into China, to avoid the mainland’s punitive tax and duty rate of 41%.

‘Ironically, recent attempts to crack down on smuggling may have the long-term effect of driving down wine prices,’ says St Pierre.

‘If the two main smuggling routes of Hong Kong to Shenzen, and Macau to Zhuhai, are closed off, classified wine prices will need to realign. It seems clear that if consumers are going to pay the full tax on their wines, the initial cost of that wine will have to be brought down, as they will not be willing to bear a huge rise.’

Counterfeit issues have also affected wines, and there is a growing sense of unease with Chinese consumers about whether wine is authentic.

St Pierre estimates that around 15-20% of wine in circulation in China is fake, with that figure rising to 30% if mis-labelling is included, where an inferior wine is passed off for a higher-quality one.

While the recent tightening of distribution – as a response to forgeries and smuggling – may have an effect on Bordeaux fine wine prices, St Pierre also says the advent of a new government may have a stabilising effect.

Prices for classified Bordeaux in China, which have dropped around 30% over the past year, should see a reprieve as the transition to the new government continues between now and March 2013.

In October 2012, China’s fourth generation of leaders will begin to hand over to the fifth generation, with a new president and premier, and the retirement of several key figures in the Politburo and the military.

‘Bordeaux’s high end has been suffering because of the political situation,’ St Pierre said, pointing out that a ‘key channel’ for fine wine buying has been corporate and government-related spending on wine as gifts, and ‘that has recently slowed down dramatically’.

But, he pointed out, the new generation of politicians will be looking to cement new relationships and the whole round of governmental gift-giving would start up again. This would certainly involve wine as ‘the younger generation are known to be more interested in wine.’

Read the full Don St Pierre interview on DecanterChina.com

Written by Jane Anson in Bordeaux

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