The EU is likely to backtrack rapidly on sanctions to stop cheap Chinese solar panel ‘dumping’ in the bloc, given alarms that possible tariffs on wine exports would hurt a ‘terminally stagnant’ French economy.
That’s the position of Euromonitor International alcoholic drinks analyst Spiros Malandrakis, who told BeverageDaily.com yesterday: “Slapping a bit of tax on overpriced Bordeaux that Chinese elites are willing to pay thousands of pounds for won’t make any difference.”
“I don’t think that will make any difference in consumption habits, despite reports that it will in various news outlets. But that’s the wrong side of the problem.”
Last Tuesday’s move by the European Commission to impose tariffs on Chinese solar met with a fierce riposte – namely Beijing’s announcement it would investigate European wine imports suspected of benefiting from illegal subsidies, with the implication that it could levy tariffs.
Shrewd Chinese move
The Chinese made a shrewd move – since 17 EU member states (including the UK, Netherlands, Sweden and Germany) opposed the Commission’s action – targeting France, Spain and Italy, which in addition to being major wine producers, also support anti-dumping action on solar panels.
2012 figures from Global Trade Information Services, GTIS) show that around 35% of the 400m liters of wine shipped to China came from France, with 18% from Spain and 8% from Italy.
(Total sales of still light grape wine in China totaled $23.6bn by value in 2012, Euromonitor data shows; Data from China Alcoholic Drinks Association states that EU wines held a 14% market share in China in 2011, with their share increasing each year since 2008.)
And although Malandrakis said that any tariffs on EU wine would not affect the upper end of the Chinese wine market, he said it would impact the mass market, with EU winemakers targeting sales to aspirational middle-class, mainly young urbanites, Malandrakis explained.
Underlining China’s “insatiable momentum” in light grape wine sales (18% volume growth in 2012), Malandrakis noted that per capita consumption was just 1.5 liters, versus a Western European average of 22.
“The Chinese elite will always have enough money to buy the high-end wines, but the masses, where the winemakers are focusing, can easily switch to a different country of origin, because people are not really brand loyal to French wine at the lower end,” he said.
And French president Francois Hollande’s urgent request for a meeting of the G27 underlined the urgency of the situation for the French, Malandrakis said, given the nation’s macroeconomic problems.
‘Aspirational’ wine drinkers more fickle
He added that he said he doubted whether any trade war would leak into other alcoholic beverage categories – Scotch whisky, for instance, which is incredibly popular in China.
“The Chinese are flexing their muscles, proving they know exactly what to target, not targeting the UK and Scotch Whisky, for example, who has the upper hand.”
“In this case they’ve signalled out the specific nations that they have the problem with, and they’ve targeted them. But I think the EU is likely to backtrack on this very, very soon.”
Last week, one commentator argued that any sanctions would most likely not impact EU wines in the mass market, since Chinese wine was improving constantly, and would soon overtake EU imports in this space.
But Malandrakis was unconvinced this would happen in the short-term: “The problem with that argument is that it is not something that will happen within the next one to two years, or even the next five or even longer than that. So we’re talking medium- to long-term projections here.”
He added that Australian, US and Chilean wines (for example) would find it much easier to capitalize on the desires of aspirational Chinese wine drinkers rather than very low end wines in China.