(Penfolds is among the wines imported into China by distributor ASC, which is now being investigated by Chinese authorities)

Don St. Pierre Jr. held as part of investigation into wine industry

One of the major figures in China's burgeoning wine industry—Don St Pierre Jr., managing partner of the import-distribution company ASC—has been detained and held without charge by customs authorities in Shanghai.

The detainment appears to be part of an extensive investigation of wine importers in the growing Chinese market. According to media reports, officials have been investigating several major importers such as ASC and Miguel Torres for weeks, looking for evidence that the importers are understating the value of wines they bring into the country in order to evade high customs duties.

St. Pierre Jr., the company's managing partner, and ASC vice president Carrie Xuan are being held in a customs department building, though neither is officially under arrest. Officials are taking St. Pierre Jr. and Xuan through the company books, painstakingly looking for irregularities.

"The way the system works here is that they detain you while figuring out what to do," said his father, Don St. Pierre Sr., a 20-year veteran of doing business in China who founded the company a decade ago with his son and currently serves as chairman. “There are 27 boxes of documents that have to be matched up with other pieces of paper to show that customs duty has been paid. They have been going through them for three weeks now and found there is nothing wrong."

"We expect a swift and mutually satisfactory resolution to this issue and note that ASC's business of importing and selling wine continues without interruption," he added.

News of the arrest spread quickly through the Chinese wine industry, which has seen a huge influx of importers and distributors in recent years, and there was widespread speculation on why the authorities picked this particular time to haul in St. Pierre Jr. Some took it as a warning of the arbitrary nature of the Chinese legal system.

Some industry observers believe it is a routine root-out-corruption drive, conveniently staged while the National People's Congress was in session. St. Pierre Sr. and others believe the investigations are connected to the recent decision by Hong Kong's local government to abolish the territory's 40 percent wine duty, leading to a massive drop in prices and big sales increases. In mainland China, the total tax on wine, including duty and consumption tax is 48 percent. The decision to go through ASC's books with a fine-toothed comb may be a warning that authorities will be looking very careful at any undervaluing of wine to avoid customs duty, and keeping a careful lookout for any cases improperly shipped in or hand-carried from Hong Kong.

But the industry believes the downside of doing business in China, with its opaque rules, regulations and reliance on guanxi, or connections, is outweighed by the potential rewards. China imported 4.5 million cases of wine last year—more than double the amount shipped in 2006, according to the China Wines Information website.

ASC's sales figures reflect that phenomenal rise, with some 80 wineries now on its books, including Beringer, Kendall-Jackson, Wolf Blass and Penfolds. In 2006, it recorded turnover of $40 million, compared to a paltry $5 million in 2001.

St. Pierre Sr. was confident that his son would be released from custody by mid-April and allowed to rejoin his wife, Monica (a Chinese citizen he met at a wine event), and their two young children.