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(Updates with Oldenburg comment in 21st paragraph.)

July 1 (Bloomberg) -- When 45 alumni of Tsinghua University, the alma mater of China’s last two leaders, stopped for lunch at La Motte vineyard in South Africa two years ago, they ordered 1.5 million rand ($141,000) of wine to take away.

That spurred La Motte Chief Executive Officer Hein Koegelenberg, 53, to tap the Franschhoek valley’s Huguenot heritage to challenge the dominance of French vintners in China. Koegelenberg, brother-in-law of Cie. Financiere Richemont SA Chairman Johann Rupert, who heads South Africa’s richest family with a net worth of $8.9 billion, plans to boost exports to China by 25 percent this year after last August luring the first Chinese investors to the country’s wine industry.

“China has the biggest market potential by far,” Koegelenberg said in an interview at La Motte, owned by his wife, Hanneli, 77 kilometers (48 miles) east of Cape Town. “We planted vineyards at the same time as those in Bordeaux and South Africa is producing some of the best wine in the world.”

South Africa’s first vines were planted in the gardens of the Dutch East India Co. several years after Jan van Riebeeck founded a station for sailors to replenish supplies at the Cape of Good Hope in 1652. Stellenbosch, the country’s main wine- growing center, was established later in the century, before Huguenots fleeing religious persecution in France planted vineyards in the neighboring Franschhoek valley.

Asian Opportunity

Koegelenberg turned to Asia after the credit crisis derailed his plans to work in the U.S. While a crackdown by President Xi Jinping on corruption and the practice of gift giving hurt Chinese wine sales last year, the nation’s consumers overtook the French to become the biggest drinkers of red wine in the world, according to Vinexpo, an exhibition organized by the Bordeaux Chamber of Commerce and Industry.

“Gifting is still huge, but you have to identify the right people,” said Koegelenberg. His biggest clients are two Chinese entrepreneurs living in Malaysia, who each buy 500 bottles of Hanneli R, which costs $100 before loading at Cape Town port. “It can only be expensive if it’s exclusive.”

La Motte and neighboring Leopard’s Leap vineyard, which Koegelenberg owns jointly with his wife, are drawing on Franschhoek’s Huguenot history to break into China’s premium wine market, he said. Billionaire Richard Branson said in April he was buying a 39-hectare (96-acre) wine estate in the valley.

Presidential Wine

Koegelenberg also uses former South African President and Nobel prize winner FW de Klerk, who negotiated an end to apartheid with Nelson Mandela, to market wine, selling 10,000 magnums of Presidential Reserve for $35 each to his Chinese distributors.

“It’s a win-win arrangement,” he said. “People like to have pictures taken with the president.”

French producers account for about 45 percent of China’s $1.5 billion wine import market, triple the share of second- ranked Australia, according to the Paris-based International Organisation of Vine and Wine. South African winemakers, with 2 percent of the market, have a lot of ground to make up, said Koegelenberg.

“We are nowhere in China,” said Koegelenberg, a former provincial rugby player who plans to increase shipments by a quarter to 1.75 million bottles this year. La Motte, Leopards Leap and the latter’s L’Huguenot brand joint-venture with Yangzhou Perfect of China account for more than 25 percent of South African wine sales to China, he said.

Restoring Discipline

Although wine has been produced in South Africa for more than 300 years, the country was cut off during the 46-year apartheid era that ended in 1994. Today the country is the world’s 11th biggest exporter by value in a ranking led by France and Italy, according to the International Organisation of Vine and Wine.

The U.K., Sweden and Germany were South Africa’s biggest export markets for bottled wine in the 12 months through May, with China ranked just ahead of Angola in 10th place.

The Chinese Communist Party’s quest to restore discipline among its ranks has led to a campaign to stamp out gift giving and extravagant official spending, hitting Swiss watchmakers, expensive restaurants and premium wine. South African wine sales in China fell 29 percent to 5.5 million liters in the 12 months through April from a year earlier, according to industry association figures.

Designer Labels

South African winemakers don’t have a high profile in China, where the focus has been on marquee French products, said Fongyee Walker, co-founder of Beijing-based Dragon Phoenix Wine Consulting, which educates Chinese consumers and advises wine associations from Napa Valley in California to Hawkes Bay in New Zealand.

“They traditionally went for wines that are the equivalent of Channel and Gucci,” said Walker, adding that Chinese consumers are asking for mid-range products as they become more educated. “There are South African wines that will appeal, including Pinotage, which is one of the few that Chinese people can describe because it smells of coffee.”

The new Chinese focus on price and quality over status may help, according to Stellenbosch-based Wines of South Africa, which is planning to open an office in Hong Kong to better access the Asian market.

Oldenburg Vineyards, a boutique producer near Stellenbosch owned by former hedge-fund manager Adrian Vanderspuy, is also targeting China with wine made from its Bordeaux and Rhone varietals, said Regional Sales Manager Raymond Noppe.

New Napa

“France was and is the number one, but Chinese consumers are looking for alternatives,” said Noppe, after returning from Vinexpo in Hong Kong last month. “More and more affluent people are becoming educated about wine.”

Oldenburg sells its premium Rhodium blend for 350 rand at its farm in the Banghoek Valley. Banghoek means scary corner in Afrikaans and was given the name because of the leopards that used to roam the area. The vineyard, which supplies British Airways business class on routes from South Africa to London, is looking for a distributor to provide access to retail and restaurant outlets in China, said Vanderspuy.

“One of biggest things that will lift the South African boat is the whole tourism angle,” said Switzerland-based Vanderspuy, who’s also looking to expand into the U.S., beyond Oldenburg’s biggest markets in the U.K. and Europe. “The quality of wine will continue to improve. People are seeing Cape Town as the new San Francisco and Stellenbosch as the new Napa.”

Wine Emotion

Tourists from China climbed 15 percent to 151,847 last year, making them South Africa’s fourth-biggest group of foreign visitors after the British, Germans and Americans, according to official statistics.

“Heritage, history and family are very important in China,” said Koegelenberg, who spends a week in France’s Rhone Valley each year making a blend of Syrah with the cellar-masters from La Motte and Leopard’s Leap. “And South Africa has some of the oldest soils in the world.”

To build the L’Huguenot brand, Koegelenberg has offered incentives to its network of distributors in China, flying more than 1,000 of them to South Africa for vacations. The distributor, Perfect China, bought 51 percent of a cellar and vineyard on the Val de Vie estate near Franschhoek last August.

Koegelenberg found inspiration in two entrepreneurs, his father-in-law Anton Rupert, and California wine pioneer Robert Mondavi, who helped bring European winemaking techniques to the U.S. He also stresses the importance of wine tourism and has added a restaurant, and flower and organic vegetable businesses to the La Motte estate. Leopard’s Leap has a cooking school and hosts a literary fair.

“Tourism is really important to us and getting Chinese people here will help us build up the brand,” said Koegelenberg. “We create stories because wine is an emotion.”

To contact the reporter on this story: Dylan Griffiths in Cape Town at dgriffiths1@bloomberg.net To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net Antony Sguazzin, Karl Maier

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