B.C. Vintner Snared in Chinese Smuggling Bust

Chinese customs officials inspect ice wine from British Columbia that was seized in Shanghai.

Richmond, British Columbia—China’s crackdown on corruption and gray-market goods has nabbed a British Columbia vintner whose winery hosted Chinese athletes during the 2010 Winter Olympics in Vancouver.

Legal Daily, an online Chinese outlet for legal news, reported that customs officials in Shanghai had confiscated 300 million yuan ($45.2 million USD) worth of goods, including 200 million yuan ($30.1 million USD) worth of ice wine—a record seizure of the rare beverage in the annals of Chinese law enforcement.

An investigation into smuggling of ice wine that began in the spring eventually resulted in the arrest of four suspects, including an individual named Zhang—widely believed to be John Chang, the proprietor of Lulu Island Winery in Richmond, B.C., whose product was featured in images accompanying the story published on LegalDaily.com.cn.

According to the story, tour groups visiting Lulu Island would place orders for ice wine, and cases of the product would then be shipped to a distribution center in Shanghai, which would handle delivery within China.

The product, however, would enter China at a declared average value of 10 yuan (US$1.51), something much lower than the price tourists paid. Chinese customs officials took issue with the practice, and cracked down on the alleged smuggling.

“After appearing in court, Zhang confessed to smuggling ice wine,” Legal Daily reported (translation via Google Translate).

The other three parties arrested as part of the crackdown reportedly engaged in similar practices, allegedly importing wine at a low declared value and profiting from high margins on the sales.

But a statement from Lulu Island Winery following the Chinese news report, which quickly made its way to North America through South China Morning Post correspondent Ian Young, denied the reports, claiming that “properly licensed importing agencies” handle its shipments to China.

The statement, emailed to Wines & Vines, said the cases of ice wine complied with all applicable laws, rules and regulations.

“Lulu Island and Mr. Chang have been cooperating fully with customs authorities with their investigation, and we are confident that the investigation will confirm that Lulu Island has not done anything wrong,” the statement said, noting that the winery had retained legal counsel in China to address the matter. “We are disappointed with the unsubstantiated speculations that have been reported which are disruptive to our business.”

Lulu Island Winery, established in 2000 as Blossom Winery, originally produced an array of fruit wines, many of which were exported to Asia. It relocated to a $7 million facility on 15 acres of farmland east of Richmond’s downtown in 2007, renaming itself after the island on which the municipality sits (the island’s name pays tribute to San Francisco dance hall girl Lulu Sweet, a 19th century belle fancied by the area’s government surveyor).

Production includes a range of table and dessert wines made from Okanagan grapes and Fraser Valley fruit, and remains largely geared toward buyers from Asia. Thousands of guests pour from tour buses into the massive facility each year. On receiving an award for entrepreneurship last year, Chang claimed to account for half of B.C.’s ice wine production (or about 126,600 liters) and 20% of Canada’s wine exports to China. Canada exported $12.8 million (USD) worth of wine to China in 2015.

The reputation of the facility was such that Lulu Island served as “China House,” China’s hospitality center during the 2010 Winter Olympics. Billed “the pride of the Chinese people,” it was touted as the first hospitality center set up by the Chinese Olympic Committee in history with a special themed tasting room where athletes, officials, media and guests could celebrate China’s successes in the games.

Two years later, new Chinese president Xi Jinping initiated an aggressive crackdown on illicit activities in response to widespread reports of corruption among party leaders.

All manner of activities have been caught up in the crackdown, from real estate deals to meat shipments. B.C. berry growers contemplating exports to China were told at the Pacific Agriculture Show in 2015 that staying on the right side of the law was key to guaranteeing access to not only their own product, but that of the industry as a whole.

Illegal ice wine has been a recurring issue in trade relations with China for years. Over the past decade, reports have regularly alleged that as much as half the ice wine sold in China as a Canadian product was counterfeit. Ice wine production was down more than 50% in 2015.

Miles Prodan, president and CEO of the BC Wine Institute, declined to comment on how the charges against Chang might affect access to the Chinese market for B.C. ice wine.

“All I know is from media coverage and understand the charges are unproven,” he told Wines & Vines.