China - Storm in a wine glass?

A closer look at China’s recent investigation of EU wine Imports

Sir Isaac Newton was probably not thinking about trade talks when he put forward his Laws of Motion. However, his rule that “every action has an equal and opposite reaction” quite neatly describes the decision by China to launch an investigation of wine imports from the EU in response to the EU’s imposition of anti-dumping tariffs on Chinese-made solar panels.

Putting the wine industry in the crosshairs is no accident. As has been widely reported, France is one of the biggest exporters of wine to China – around 14 million cases last year, according to the IWSR – and one of the chief agitators behind the solar panel tariff. It’s an obvious move in the chess game that is international trade talks. It is also true to say that wine is one of the few consumer industries – along with luxury goods and cars – where the EU’s products have genuinely made inroads into the Chinese market.

On closer examination, investigating the wine industry for “dumping” looks like something out of a French farce. Imported wine already carries a heavy set of duties and taxes, which makes the average bottle of AOC Bordeaux almost twice as expensive in a Tesco supermarket in Shanghai as it does in its London equivalent, and several times the price of local wines. If the EU have been “dumping” cheap wine on the local market, it’s hard to see how.

Would it make any difference to sales if another 20 RMB a bottle was slapped on to the already high tariff for EU wines? Possibly not, at least in the short term. Recent scandals have undermined Chinese consumer confidence in locally-produced food and drink, and in any case wine quality remains largely poor among mainstream Chinese wines. French wine remains the pinnacle of respectability and desirability among the new, rapidly growing generation of aspiring, monied, Chinese consumers, and both Italy and Spain are starting to build followings among this group.

This situation should not invite complacency, as regular readers of Wine Intelligence’s published reports will know, the Chinese wine market is changing. The market for top Bordeaux wines has been muted ever since the new government’s clampdown on excessive corporate entertaining. Many newly-minted consumers are discovering that sweeter New World wines, especially from Chile and Australia, are perhaps better suited to their palates than the classic, austere flavours of Bordeaux – and often a lot cheaper. And a number of local producers are stepping up the quality of their production processes, and in some cases are starting to produce world-class wines.

Throwing an additional tariff into this mix may not affect expensive wines selling for RMB 300+ (about £32) in the off-trade, where the EU still dominates. However at off-trade prices of RMB 100-150 (about £11-16), where the market is expected to grow over the next few years, we are predicting a dogfight for share, with the winners being those wines that offer strong branding, pleasant taste, and above all good value. A distorting tariff here could do much greater harm to EU producers, and stunt their long-term prospects in what may one day be the world’s biggest market for imported wines. The sooner the EU makes this storm in a wine glass go away, the better.