Chinese investors get into the Bordeaux business

On a glass coffee table in his Hong Kong high-rise, Peter Kwok eagerly unrolls an aerial photograph of the wine estate he bought in November. His Chateau Tour Saint-Christophe grows merlot and cabernet franc grapes in the St.-Emilion appellation of Bordeaux. With his finger, he traces the outline of its 17 hectares of old vines, then points out a dark-green slope.

“Those vines may produce the best wine,” says Kwok, managing director of USI Partners, a Hong Kong holding company whose investments include hotels in China and Tibet.

Kwok, 63, is one of at least 12 Chinese investors who have recently bought a chateau in Bordeaux, France's world-famous wine region noted for great reds such as Ch. Petrus and Ch. Mouton Rothschild. Since 2008, these investors have purchased mostly small, little-known and sometimes distressed wineries, and at least 10 more deals are in the pipeline, according to the chateaux and local real-estate firms.

Kwok, who bought Tour Saint-Christophe from French wine, beer and soft drinks company Castel Group, declined to reveal the price. A Bordeaux estate similar to Kwok's but with one-third the vineyard area was being offered in January for 3.5 million euros ($4.5 million).

During the past two centuries, Bordeaux's grand stone chateaux have attracted buyers from Belgium, Germany, Japan, the Netherlands, Britain and the United States. In 1997, Kwok bought his first estate, Ch. Haut-Brisson, also in St.-Emilion, where the Romans planted grapes in the second century.

On a sunny morning in June, Kwok walks through his vineyard at Haut-Brisson, taking in the landscape that attracted him to wine country. Bees buzz above the leafy vines behind his chateau, a cream-colored building with a tile roof and a stone terrace edged with purple lavender.

“I like to feel the beauty of these surroundings,” Kwok says. He adds that he's giving this chateau to his elder daughter, Elaine, 31, who helped tend these vines when she was a teenager.

Kwok and other investors are buying chateaux as demand for expensive Bordeaux wines soars in China. Consumers on the mainland swallowed almost 20 percent of Bordeaux's exports in the year ended Oct. 31, a 122 percent jump over the previous year, according to the Bordeaux Wine Council. With that increase, China became the biggest importer of Bordeaux wines by volume.

The Chinese proprietors are spending to improve their wines before selling some or all of their production directly, without a distributor, through their own hotels and wine stores in China.

“For an individual, having your own wine is a symbol of power, achievement and good taste,” says Jean-Luc Coupet, managing partner of Paris's Wine Bankers, a mergers-and- acquisitions advisory firm. “And in China, Bordeaux is the most famous wine region.”

For Kwok, making wine in Bordeaux is part of his long love affair with French culture. His Chinese parents raised him in Saigon, Vietnam, where he says he learned to admire French architecture, dark-roast coffee and crunchy baguettes. He later served as chairman of Citic Resources Holdings, the energy subsidiary of China's biggest state-owned investment company, Citic Group, from 2002 to 2007.

Kwok, who bought Haut-Brisson as a family vacation spot so his three children could learn French, began taking wine production more seriously a few years later. He added vineyards with better terroir after realizing that soil was all-important for quality and hired Michel Rolland, the region's most influential wine consultant, to make more improvements.

“The wine business isn't easy; you need to have passion,” Kwok says. “The wines absolutely have to be good. Achieving that took me nearly 10 years.”

Kwok — who in January bought his third chateau, in the much-sought-after appellation of Pomerol and neighboring Lalande de Pomerol — now sends 30 percent of Haut-Brisson's annual production of 90,000 bottles to the hotels he owns in China and Tibet. His 2006 Haut-Brisson La Reserve fetches 1,050 yuan ($166) a bottle at his Four Points by Sheraton and St. Regis hotels in Lhasa.

He plans to sell the wine at his new Westin hotel in Xian, central China. On an iPad, he flips through photos of the St. Regis's 24- karat-gold-mosaic-lined pool and its lively wine bar named Decanter by Haut-Brisson.

“People are worried about fakes now,” he says. “They know our wine isn't one.”

Newly rich and status-conscious Chinese consumers are splurging on luxury products in the world's second-biggest economy, keeping the global luxury market afloat. Sales of luxury goods surged more than 25 percent on the mainland in 2011 and rose 8 percent in the Americas and 7 percent in Europe, according to estimates by Boston-based Bain & Co.

“The high demand for luxury from emerging markets like China is sustaining the industry's growth,” says Uche Okonkwo, executive director of Paris-based consulting firm Luxe Corp.

In France, per capita wine consumption has fallen for more than three decades, according to FranceAgriMer, a government organization that oversees the food and wine industries. The decline has hurt smaller chateaux in less prominent Bordeaux appellations and has provided a foothold in the region for Chinese buyers.

Properties in less fashionable Fronsac, northwest of St.-Emilion, sold in 2010 for an average of only 30,000 euros per hectare, less than half the price in 1991, according to Safer Aquitaine-Atlantique, which gathers statistics on vineyard sales in Bordeaux.

Haiyan Cheng decided to buy run-down Ch. Latour-Laguens in 2008 after viewing the green vineyards and blooming cherry trees from atop one of its 15th-century gray stone towers. Cheng, who goes by the name Daisy in France, heads the wine division of Qingdao-based Longhai International Trading, which her father owns.

She's renovating her 60-hectare (148-acre) estate, adding an elaborate tasting room, a grand French-style kitchen and accommodations for Chinese tourists and wedding parties.

“My father loves to drink wine, and because of that, I became very fascinated by wine ,” Cheng, 33, says. “To work in that world became a passion and aspiration for me.”

Jean-Baptiste Soula, Cheng's estate manager and technical director, and winemaking consultant Stephane Toutoundji are making the chateau's wines smoother and less tannic, in the style Chinese drinkers prefer. Cheng sells her bottles, from $41 to $476, in a chain of 10 Latour-Laguens shops in Jiangsu and Shandong provinces.

While Chinese investors own only a tiny fraction of Bordeaux's 8,650 winegrowing estates, their arrival has spurred concern among some locals. A few owners have expressed vague fears about the Chinese gaining too much control over Bordeaux's wine economy, says real-estate agent Noelle Digieaud of Libourne-based Immobilier des Coteaux.

Daniel Carmagnat, owner of Sainte-Foy-la-Longue-based A2Z Agency, which had a contract to sell Latour-Laguens, says that Chinese buyers could help revitalize regions such as Entre-Deux- Mers, where Cheng's chateau is located, and make Bordeaux wine better known in China. The Chinese are much like the earlier investors from Europe, Asia and North America who have given Bordeaux a financial boost.

“We see our role as participation, to respect the French tradition,” says Cheng, who plans to introduce Chinese visitors to local culture through tastings and cooking and wine classes.

So far, no Chinese buyer has purchased a famous chateau listed in the all-important 1855 classification that ranked Bordeaux's top properties from first growths, makers of the best and most-expensive wines, to fifth growths. But it's only a matter of time, Wine Bankers' Coupet says. Ch. Lascombes, a second growth in Margaux, sold in July for almost 200 million euros. The losing bidder was Chinese.