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Penfolds may face bumpy road in getting back into China market

www.globaltimes.cn by GT staff reporters22/12/2021  

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The decision by Treasury Wines Estates, one of the leading wine companies in Australia, to seek local production of its Penfolds brand in China is viewed in a cold light as bilateral ties remain frayed, Chinese analysts and industry insiders said on Monday.

Treasury Wines Estates chief executive officer Tim Ford said he is convinced that the company will eventually make Penfolds wine using Chinese grapes in a bid to rebuild sales in China, the Australian Financial Review reported.

China in March imposed anti-dumping measures that raised tariffs, with the maximum rate of 218.4 percent levied on Australian wines.

Such tariff-avoiding tactics by substituting trade with investment underline the attractiveness of the Chinese market to the Australian wine industry, Song Wei, a research fellow at the Chinese Academy of International Trade and Economic Cooperation, told the Global Times on Monday. 

Because New Zealand is also highly substitutable, Australian wine merchants are hoping to stall the pace with which they are losing market share in China by such measures, Song said. 

However, in view of the special nature of wine production, such as the required raw materials, it is unrealistic for Australian wine companies to move their production chains to China on a large scale, and the idea should be treated with caution, Song noted. 

Industry insiders reached by the Global Times also highlighted their concerns, with some even flagging the danger of policy risks.

A Guangzhou-based wine trader surnamed Lin said he was aware that some Australian winemakers are coming to China to produce wine, in a bid to avoid high import tariffs imposed on their products while sustaining their share in China, their most promising market.

However, Lin said that it is not very advantageous for them to build production facilities in China, especially for high-end wine. "The production level of domestic wine is generally not high, while the production cost is relatively higher than the international level," Lin said.

An anonymous official from the wine industry region in Northwest China's Ningxia Hui Autonomous Region told the Global Times on Monday that he has heard some wine companies from Australia had visited Ningxia and contacted some local wine makers.

"Their communication might be restricted to the field of business cooperation, and we cannot pay too much attention to it or make any interference," said the official.

With bilateral ties in a downward spiral, a number of Australian goods, including timber, coal and lobsters, have run into trouble in China. China also placed duties on barley. 

The two countries are also disputing the wine tariffs at the WTO. Meanwhile, Australian wines are losing share in the Chinese market.

China was formerly Australia's largest market in value and second-largest in volume, with a 40 percent share of exports by value and a 24 percent share of exports by volume, according to an Australian government report published in July.

Song said that it is difficult to predict if any other Australian industries affected by the trade row will follow the attempts by the wine sector.

There are particular factors in each industry, and it will require a case-by-case analysis to see whether other industries will follow the example of the wine industry and transfer their production chains to China, Song said.

Tom King, managing director at Penfolds, said in a statement sent to the Global Times on Monday that the company treats China as a very important market and the company is looking at different ways to continue to bring high-quality wine to China.

"We continue to look at opportunities including possibilities aligned to the Penfolds' quality and winemaking style. We're excited to see how the China wine continues to evolve and how Penfolds can continue to have a meaningful presence in China," King said, noting China is home to many internationally recognized wine-producing regions and a number of global winemakers are already producing wines in the region.