THE taste for cognac is continuing to shift away from Hong Kong to China, according to a leading distiller. ''Although the market is going down in Hong Kong, it is coming up next door,'' says Martell & Co president Patrick Martell. Duty-paid sales - other than those in duty-free shops - of all brands of cognac in the territory had been declining in the past few years, he said. He said that was due to a transfer of activities from the territory to the mainland. In Hong Kong, cognac accounted for only about 30 per cent of total on-premises consumption, compared with 80 per cent 10 years ago. ''Now a lot of entertainment is done in mainland China,'' he said. He expected the growth of hospitality industry on the mainland would help expand the cognac market. On the mainland, the three cognac brands, including Martell, accounted for 95 per cent of the market, he said. Total duty-paid sales of cognac in Hong Kong this year are expected to be about 300,000 cases of 12 bottles each compared with 800,000 cases in China. Mr Martell predicted Hong Kong sales next year would remain at the same level while China's could reach more than one million cases. He estimated his company had about 35 per cent of the market in both the territory and China. Southern China and Shanghai had the greatest cognac consumption in China, he said, noting the mainland market had its own problems such as transport and education. ''Some Chinese from mainland China do not know cognac,'' he said. Martell distributes in China through the Seagram group, of which Martell is a member. Competition in Hong Kong was getting keener, with all brands having an organised distribution network and high-profile promotions, he said. Taiwan was another market with high potential since the Government ended a distribution monopoly last July, he said, adding that markets in Korea and Vietnam could also be exploited. Martell has one of the largest inventories, with more than 100 million bottles in stock. It sells about two million cases annually worldwide, with exports making up 98 per cent of total turnover. Mr Martell is in Hong Kong to promote its new product, L'Or de Martell.