How Big Is China's Counterfeit-Wine Problem? French Report Calls It An Industry

French trade advisors release findings, against the wishes of politicians, detailing how fake wines are hurting sales

Photo by: Imaginechina/Corbis

Chinese police destroy confiscated counterfeit wines in the Guangxi Zhuang region during a 2011 raid.

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Suzanne Mustacich
Posted: October 8, 2015

 
 

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China's thriving counterfeit wine sales have pushed advisors at the French Foreign Trade Advisory Board to quietly leak a controversial report on fake wines in the Asian nation, despite opposition by French government officials. The report details the depth of the counterfeits problem, showing that fake wines are not just the work of a few criminal rings but a sizable underground industry.

The Comité National des Conseillers du Commerce Extérieur de la France (CNCCEF) is a public organization of foreign trade advisors from various industries, appointed by the French foreign minister. As the group's website states, "For more than 115 years, on a voluntary basis, they have been placing their experience at the service of France's economic presence around the world." One of their subgroups is the Wine & Spirits Commission.

China is not the only source of counterfeit wines, but the country's rapid growth as a wine market and loose intellectual property laws have made it a boom market for fakes. France has been a prime wine exporter to China, hence the CNCCEF's investigation.

Sources tell Wine Spectator that the group's report was suppressed for two years by French political leaders, following a firestorm that erupted when the president of the Wine & Spirits Commission revealed the estimated volume of counterfeit French wines saturating the Chinese market.

"Counterfeiting is a touchy subject. Everyone knows more or less what is at stake, but for the brands it can be a very difficult subject to deal with," said Edouard Marienbach, an expert on track-and-trace technology and one of the authors of the report.

Concerned by the absence of a coherent national, and potentially international, strategy to fight wine counterfeiting, the advisors recently released the report, which includes ambitious proposals for using technology, communications, legal action and job training as countermeasures. "The CNCCEF believes it's their job to publish this study despite the opposition from an important wine council and the Minister of Agriculture," wrote the commission.

Their assessment of the problem is eye-opening. "For every real bottle of French wine in China, there is at least one counterfeit bottle of French wine, and the situation is only getting worse. It's enormous," said James de Roany, former president of the CNCCEF Wine & Spirits commission and a business consultant.

The advisors believe the problem has also contributed to a drop in sales. "The situation of imported French wine and spirits in China has deteriorated significantly since 2014," noted the report, blaming the drop on high tariffs, predatory pricing, the discovery of other wine regions, but mainly, Chinese consumers' distrust of wines "too often reputed to be counterfeit."

"We therefore feel [it is] all the more important to spread this study so that precise and operational measures can be quickly implemented to stem the scourge of counterfeiting."

Stories of abandoned chicken farms converted to illicit bottling lines make headlines, but the report reveals a more insidious business environment. In China, it alleges, the main counterfeiters are importers, distributors and subdistributors. Their goal is to reduce their purchase price, increase the available volume of a "brand," and avoid import duties and taxes, which can rise as high as 48 percent.

"This is where you see the industrialization of counterfeiting," said de Roany. "It's generally a very high quality, which makes it very difficult to tell the real from the fake."

Brand squatting—acquiring the Chinese rights to a foreign wine's name—is also on the rise, according to the commission. And no brand or region or grape is safe. "All of the Greek grape variety names were recently the object of a trademark request, which costs little for private individuals," says the report. Scotch, Cognac and wines from all countries are vulnerable. Chinese wines and spirits face the same battle. "It is widely acknowledged that some domestic wines are diluted to four times their volume."

Last month, the state-owned food conglomerate COFCO won a case in the Wujiang District People's Court in Suzhou against 27 local supermarkets for selling counterfeit bottles of COFCO's Great Wall wine. Several of the defendants settled, but others claimed they'd been given proper paperwork from the firms selling them the fakes.

There are signs that the Chinese authorities are beginning to listen to foreign brand owners. Last August, the owner of a wine company in Yantai, his wife and six partners were convicted of making and selling wine with counterfeit labels of well-known foreign wines. Their operation had started out as a legitimate company, importing bulk wine and bottling it under their own brands, but they soon realized they could make more money selling counterfeits of well-known brands. The accused received prison terms ranging from two years to four and a half years in prison and fines of up to $161,000.

"For me, the most important element is our proposal to penalize the distributor for receiving and dealing in stolen goods," said de Roany. "In China, they are likely to hand down severe sentences to make an example. Thus, there is an issue of political will and that is why my colleagues at the CNCCEF believe we should publish the study. Raising awareness of the reality of the damage of counterfeiting is for them—and for me—the best way to get things done."

De Roany lost his longstanding appointment at the CNCCEF two months after he gave his estimate of the volume of counterfeits at a wine trade conference in London. His revelation angered several Bordeaux winery owners and the region's trade group. "We have to stop giving numbers to counterfeits. Anyone who does is a liar," said Fabian Bova, director of the CIVB, arguing that an illicit trade is impossible to quantify with precision.

While the commission concedes that statistics on illegal trade are unavailable, evaluations within a certain range can be given just as they are for the drug trade.

The report and the decision to publish the findings had received unanimous approval during the CNCCEF plenary meeting held at Château Smith-Haut-Lafitte during Vinexpo 2013. The release of the updated report has the tacit support of the French Foreign Trade Minister and the CNCCEF, but not the French government.

"I am astonished that the CIVB and the minister of agriculture have done everything in order to block this study without even talking with the authors," said Gerard Deleens, honorary president of the China section of the CNCCEF. "I have the impression that they've fired on the ambulance."