(Bloomberg News) Fergus Fung swipes his card across a sensor and waits as his face is scanned by a computer to match his profile. A steel door opens and the Hong Kong entrepreneur enters a vault that holds his treasure of Bordeaux and Burgundy.

This is the Hong Kong Wine Vault, one of more than 15 repositories that have been set up in the past three years in the Chinese city as it overtook London and New York as the world's biggest auction market for top wine labels like Chateau Lafite, Domaine Romanée-Conti and Krug. The temperature is a constant 13 Celsius and humidity is 75%, protected by 4 inches of insulation on the walls, ceiling and floors.

"The facial recognition thing is a bit gimmicky," says 35-year-old Fung, founder of the WOM guide to Hong Kong restaurants. "But with any wine cellar, security is a key issue."

After Hong Kong axed wine duties in February 2008, imports surged to $858 million last year, from $185 million in 2007. Auction house Sotheby's hasn't had an unsold bottle in the city in its last 15 auctions and broke the world record in October with three bottles of 1869 Chateau Lafite that fetched HK$1.8 million ($230,930) each.

"It's exploded, and you need logistics to support that," says Robert Sleigh, who runs Sotheby's Asia wine business. "Now there are world-class wine storage facilities in Hong Kong."

The city needs them. Temperatures can soar to 35 degrees Celsius, with relative humidity near 100%, factors that could render a $75,000 bottle of Chateau d'Yquem undrinkable. Moreover, few collectors have room for cellars, with 99% of the population living in apartments.

Tax Break
Still, it wasn't until the government cut the wine duty to zero from 40% in February 2008 that storage took off.
"It's a free-trade zone for wine," says Anthony Mak, managing director of Modern Wine Cellar, which opened its doors in June in Hong Kong's New Territories.

The tax cut drew customers from the mainland, which has some of the biggest buyers among its 1.1 million millionaires.

"Half our customers are Chinese," according to Thomas Shum, manager of The Cave, which opened near the border with China last December. "This business is new in Hong Kong and now is a good time to catch the trend," he says.
Imported wine in China is taxed at 45% including customs duty, while the U.K. charges 41.7% in excise duty and VAT. Hong Kong wines have no sales tax.

Flowing East
"There's no question, a ton of wine came over to Hong Kong that was traditionally kept in London," says John Kapon, chief executive officer of New York-based Acker Merrall & Condit, the world's largest wine auction house. "Once the tax was removed, people wanted their wines at home."

Asians, particularly from Hong Kong and China, have dominated the fine wine market in recent years, while Americans have been net sellers, say auctioneers. For speculators, the climate-controlled vaults can mean a difference of thousands of dollars in the value of their bottles.

Provenance, or the history of how and where a bottle was kept, is important because it's impossible to know the quality of a wine without opening it. Visible inspections provide limited protection against counterfeits, and even bona fide labels may have been ruined by heat or humidity during handling.

Army Bunker
A 1982 Chateau Lafite Rothschild, which received a perfect score of 100 by wine critic Robert Parker, with good provenance sells for more than $12,000 per bottle, while one of dubious heritage may only fetch $500, according to Greg De'Eb, general manager of Crown Wine Cellars, which opened its first cellar in Hong Kong in 2003, 60 feet underground in a former World War II munitions bunker.

Crown now has three sites, including a 44,000-square-foot facility it built for more than $10 million that houses two of the three record bottles of Lafite. Their exact location is kept secret even from the bottles' owner, De'Eb says.
Part of the appeal of the new vaults is that they offer more than storage, with some selling wines or offering club facilities that members can use.

One recent Tuesday evening, 12 of Crown's members and their guests dined on foie gras, beef carpaccio and porcini mushroom risotto in the library at a blind tasting of 12 red wines contributed by the group, including a 1988 Chateau Beychevelle, a 1992 L'Avenir from South Africa, and Brazilian 2005 Miolo Lot 43 that stumped the entire gathering.

European View
Still, some collectors are keeping their bottles in Europe, says William Chan, senior wine consultant at the Hong Kong unit of London-based Berry Bros. & Rudd.

"There is still a perception that storage facilities in Europe are more developed or better than in Hong Kong and people feel the provenance is better," he says.

To compete, Hong Kong introduced the first government quality standards for the industry in 2009.

"Hong Kong needs to show we can offer quality storage," says Hubert Li, 34, general manager at Hong Kong Wine Vault, who advised on the standards. Formerly with PricewaterhouseCoopers LLP, Li started the vault in 2008 on two rented floors of a local warehouse with four partners, including V-Nee Yeh, co- founder of asset manager Value Partners Ltd. They now occupy seven floors and plan to open another unit in Kowloon this year.

The growth of the business also attracted Hong Kong-listed developer Hanison Construction Holding Co., which opened its Collezione Wine Cellars in October 2010 in Sha Tin, near Hong Kong's biggest horse-racing stadium. The 5,000-case site, which uses radio frequency identification tags, or RFID, to provide a record of handling, is close to capacity and there are plans to expand next year, says Marketing Manager Dick Chan.

For Fung, the reason for storing his wines locally is simple. "Storage here is three times the price of the U.K., so if you are buying wine purely for investment I would advise not to store it in Hong Kong," he says. "I chose accessibility over cost-I love to drink."