Will Remy Cointreaus love affair with China go awry?

Will Remy Cointreau's love affair with China go awry?

Remy Cointreau has reaped the rewards of China's galloping thirst for pricey Cognac and the group's fortunes now appear inextricably linked to those of the Asian powerhouse.

Is it always best to hedge your bets? Remy Cointreau, presumably, would answer a definitive 'no' after seeing Remy Martin sales continue apace in its fiscal third quarter. Chinese consumers lapped up stocks ahead of Chinese New Year to help Remy forget about the nightmare that has unfolded for its business in Greece during the past 12 months.

Cognac will command a much bigger slice of Remy's time in 2011 if the company succeeds in selling its Champagne business, as it appears determined to do. Only a spirits and liqueurs portfolio, dominated by the elderly Cointreau and the promising-but-small Mount Gay rum, will remain alongside Remy Martin.

As long as China performs, then, Remy Cointreau will perform. In a small way, this was highlighted today when the company's share price slipped by 5% on the Paris stock exchange after it warned that sales in China would slow in the fourth quarter.

China's economic performance could provide a more serious headache for the company in the months ahead, however.

The country's economy increased by 10% in 2010, the biggest rise since the onset of the global financial crisis. That sort of increase in the US would make President Obama weep tears of joy. But, there is a problem.

China's figures have fuelled fears that its economy is in danger of over-heating, with consumer price inflation a particular cause for concern. Earlier this week, Goldman Sachs issued a short-term alert on both China and India. "Asia is not in the sweet part of the cycle," Goldman's chief strategist for Asia-Pacific, Tim Moe, was quoted as saying. "The longer-term picture of Asia outperforming the US is taking a breather."

Observers in recession-hit western nations will no doubt note the absurdity of China attempting to slow its economy down. Yet, many believe that is what needs to happen. "In 2011, we need to take the task of controlling prices very seriously," the commissioner of China's National Bureau of Statistics, Ma Jiantang, was quoted as telling journalists in the country this week.

Also this week, French bank Societe Generale said in a note: "If things go well, the authorities will bring things under control. If they don’t, the economy continues to overheat, inflation rises further/faster and the economy suffers a hard landing in late 2011/early 2012."

There is every reason to believe that China will find a way through the swamp. That said, emerging markets are notoriously bumpy terrain. Remy Cointreau's reliance on just one nation - albeit the biggest of the BRICs - remains a gamble.