Vineyards in Mendoza, Argentina.

Many in the Australian wine industry are losing sleep over the investigations by the Chinese Government into Australian wine. In a nutshell, the China Alcoholic Drinks Association has appealed to its relevant authority to investigate claims it’s been losing market share and sales as Australian wine producers dump their products at unreasonably low prices and receive unfair levels of government assistance.

What’s at stake? On 18 October, China could announce a new wine tariff payable by exporters of Australian wine. The association is requesting the imposition of duties in the order of a staggering 290%. That would snuff out China completely as an export destination for Australian wine. But is that likely?

The Ministry of Commerce of the People’s Republic of China (MOFCOM) alleges that from 2015 to 2019, the domestic wine industry lost 24% market share, around 321 billion yuan
(around A$67 billion) in sales revenue, and saw a reduction in profit, from 52.1 billion yuan (around A$10 billion) to 10.6 billion yuan (A$2 billion).

MOFCOM claims that wine consumption in China declined by 41% from 2016 to 2019, while simultaneously acknowledging that the International Organisation of Vine and Wine rates China as “one of the countries with the fastest growth in global wine consumption”. It also claims that Australian wine is sold in China for around one-third of its usual price and that while from 2015 to 2019 the price per litre of Australian wine in China declined by 13.4%, wine from “other countries” apparently declined by just 2.9%.

MOFCOM claims that via a range of financial measures, Australian state and federal governments provide unfair advantage to producers selling wine in China. The list of these measures, numbering some 40 in total, includes land conservation projects, research and development tax incentives, sustainable water and drought-related grant and loan projects, energy investment and employment projects, sustainability funds and irrigation projects.

Export market development grants, the recent $50 million wine industry marketing grant and the National Landcare Program are also identified – along with the rebate from the so-called Wine Equalisation Tax. Add all these incentives up and they still pale into insignificance compared with what China spends developing its own rural industries.

The real question is why would China submit a report with so many holes? In my view, it’s not about the detail, it’s about the politics. China knows that for Australia, wine is a raw nerve. This is a message to the Australian Government to focus on the quality of its relationship with China.

The success of Australian wine in China – where it dominates imports – is a trophy held dearly by those of us who have worked for 20 years towards this outcome. The ability of brands like Penfolds to take leading positions in the country has resulted in huge increases in the prices of their wine and even enabled them to exclusively release to China key labels, such as Bin 707. Thanks to China, Penfolds has been able to massively increase its profits across its entire range.

China knows there is no alternative global market for the Australian wine it imports and it knows we know that. That equates to leverage at government level since wine is inextricably bound to regional tourism and sustainability.

However, having registered the more moderate recent tone from Beijing towards Australia, I don’t perceive an intention to inflict long-term damage to either Australia or its wine industry. On 26 August, The Australian’s Glenda Korporaal reported the speech delivered by Wang Xining, China’s Deputy Head of Mission to Australia, to the National Press Club. He said: “We could serve as a classic case of comparative advantages that, if working well, would make Adam Smith chuckle in his grave. We could and should make it work the best.” Then, using a woodworking analogy, he said, “The two economies fit each other like tenon and mortice.”

These are not fighting words. It’s too early to say for sure, but here’s a possible scenario: China could impose a tariff on Australian wine on 18 October. An amount of, say, 20% would enable MOFCOM to demonstrate to its domestic wine industry that it has been heard and its claims have been taken seriously. A tariff like that would hurt, but not cripple, Australian wine. After a period of time, this could be reduced or eliminated.

China has already chosen not to implement a significant tariff without warning but with immediate effect. It could have done this easily. For the time being at least, China has left the door well and truly open.