(Wines&Vines) - In recent years the United States was named the No. 1 country for wine imports, but some domestic wineries still yearn to diversify their consumer base beyond U.S. borders—and for many of them, overseas markets are the final frontier.

For West Coast wineries—and a surprising number of Midwest and East Coast wineries—the logical first place to look overseas is Asia. And with 1.3 billion inhabitants rushing headlong into the middle-class, China commands the most attention.

To take a look at the potential as well as the pitfalls, Wines & Vines attended the Hong Kong International Wine & Spirits Fair this past November and spoke with representatives from a number of North American wineries about their experiences and expectations of marketing in Asia.

What recession?
While China is looking at its slowest rate of economic growth since 2009, the country is still experiencing 7% growth. The decline led by housing and infrastructure is also taking a toll on luxury goods—including higher priced wines.

In early 2013 China launched an austerity campaign to crack down on government waste. Among the casualties have been government-sponsored conferences with “empty speeches” serving as the pretext for extravagant dinners. This effort hit luxury hotels hard (some 50 hotels have asked to be downgraded from five stars to four stars, as the government frowns at holding meetings in the best hotels) and high-end wine sales.

Wine inventories were high at the end of 2013, and the subsequent working down of inventories has suppressed sales. Luxury goods in general are taking it on the chin, which may explain why Chile has leapfrogged over Australia and Italy become the second-largest foreign exporter of wines to China (France continues to be a very dominant No. 1 with a 42% market share).

Why Hong Kong?
Duty-free imports, excellent handling and storage facilities, an English heritage that feels comfortable to North Americans, and regulatory systems that inspire confidence are all reasons wineries looking at exporting to China and elsewhere in Asia first look at Hong Kong.

The Hong Kong International Wine & Spirits Fair first started in 2008 with a couple hundred exhibitors and a definite tilt toward European wineries. But the fair, which despite having “spirits” in its title is overwhelmingly wine-oriented, has grown to include more than 1,000 exhibitors from 38 countries and draws more than 20,000 wine buyers.

In his opening remarks, Hong Kong financial secretary John-Tsang Chun-wah pointed out that “mainland China consumers simply trust the wine coming in from Hong Kong” and added that customs agreements signed in late 2013 will ensure international wine shipments sent via Hong Kong to the mainland reach consumers more quickly.

But the big attraction of the Hong Kong International Wine & Spirits Fair is the ability to meet distributors. Everett de Jong of Pelee Island Winery has been coming to the fair since its inception and found his distributor, Kenneth Chu of Hong Kong-based MBA Global Management, at the show. Everett said MBA has “made a huge difference” in Pelee Island’s efforts in China, and he strongly advised wineries looking to move into Asia to “use Hong Kong as your hub.”

Everett added that westerners should expect to make some mistakes while they get their footing in the Far East. One frequent error is to give a distributor the exclusive rights to all of China. Most distributors specialize in fairly narrow regions, so he suggested bringing a map and only agreeing to a tightly defined territory. Everett also advised, “Get your price points right and follow up.”