Developed in the 1980s in Hong Kong for Cantonese cuisine, XO sauce is made of roughly-chopped dried seafood, including dried scallops (conpoy), fish, and shrimp, which are cooked with chilli peppers, onions, and garlic. This dried seafood-based sauce resembles the Fujianese shacha sauce. Spring Moon, the Chinese restaurant of the Peninsula Hong Kong hotel, is often credited with the invention of XO sauce, although some claim it came from other nearby restaurants in the Tsim Sha Tsui area of Kowloon.
The name XO sauce comes from fine XO (extra-old) cognac, which is a popular Western liquor in Hong Kong, and considered by many to be a chic product at the time. The name is a misnomer since the condiment contains no cognac, and it is not really a sauce in the traditional, smooth sense, but more chunky, like a relish. The term XO is often used in Hong Kong to denote high quality, prestige and luxury. Indeed, XO sauce has been marketed in the same manner as French liquor, using packaging of similar colour schemes.