China targets Australian wine in escalation of trade dispute

China's Ministry of Commerce has launched an investigation into the Australian wine industry, escalating an increasingly tense diplomatic dispute and putting $1.2 billion worth of exports at risk.

The year-long investigation will examine whether Australian winemakers dumped bottles containing less than two litres in China at reduced prices over a five-year period, crowding out local producers and causing industrial damage.

China is investigating claims that Australian exporters have dumped wine in China. Credit:iStock

China is Australia's largest market for the $3 billion wine export industry, accounting for more than 37 per cent of exports last financial year. At $1.2 billion China was almost three times bigger than the number two export market, the US, which took $430 million of Australian wine in 2019-20.

Victorian and South Australian winemakers are particularly vulnerable. Both states send almost half their export stock to China each year, four times the level of NSW.

"The Ministry of Commerce has decided to initiate an anti-dumping investigation on imported wines originating in Australia," China’s Trade Remedy and Investigation Bureau said in a statement on Tuesday morning.

Trade Minister Simon Birmingham said the move was unjustified.

"This is a very disappointing and perplexing development," Mr Birmingham said on Tuesday. "Australian wine is not sold at below market prices and exports are not subsidised. Australia will engage fully with the Chinese processes to strongly argue the case that there are no grounds to uphold the claims being made."

Chinese authorities notified the Australian government of the decision ahead of the public announcement on Tuesday. China is also considering launching a countervailing duties investigation into whether Australian wine exports are receiving and benefiting from government subsidies.

The relationship between Australia and its largest trading partner has grown increasingly tense this year over the coronavirus, Beijing's crackdown on Hong Kong, territorial disputes in the South China Sea and the rejection of China's flagship 5G provider Huawei by western mobile networks.

China's ambassador to Australia, Cheng Jingye, warned in April that beef, students, tourists and wine could be vulnerable to trade strikes, leading the Australian government to accuse him of economic coercion. All four sectors have now been hit.

Despite particular industries being targeted, overall trade with China is now almost 4 per cent higher than it was this time last year, with significant increases in the iron ore, grain and wool sectors.

Shares in Treasury Wine fell sharply on the news, and shortly after 1pm were down 13.5 per cent to $10.68. Earlier they had fallen 20 per cent to $9.90.

In a statement to the ASX just before midday on Tuesday Treasury said it had been advised of the investigation and would co-operate with any requests for information from Chinese and Australian authorities.

“TWE has had a long and respectful relationship with China over many years through its team, partners, customers and consumers,” it said.

Tony Battaglene, chief executive of industry group Australian Grape and Wine, said the Australian industry would co-operate with the investigation, but believed it did not have a case to answer. “We know it’s come around because the China industry has been struggling,” he said.

“China actually produces probably more wine grapes than we do in Australia. It’s quite a large domestically-focused industry and it’s been around for quite a long time,” he said.

The vast majority of the value of Australian wine exports to China is through 750ml bottles, a size subject to the Chinese investigation.

Asked if he believed the investigation was political payback by Chinese authorities against Australia, Mr Battaglene said the investigation was in response to concerns raised by the Chinese wine industry.

“It’s definitely come from industry, we know that. Whether the extent and degree of it has some political overtones, that’s not for me to judge,” he said.

China started an anti-dumping investigation into European wine in 2013. The investigation was subsequently dropped.

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