Consumers taste Australian wines at an exhibition in Southwest China's Chongqing Municipality. File photo: VCG

Graphics: GT

China's anti-dumping probe of Australia's A$1.1 billion ($796.25 million) worth of wine exports indicates deteriorating relations between the two countries, Chinese analysts said. China's Ministry of Commerce (MOFCOM) announced the probe into Australian wines sold in containers of two liters or less.

If China decides to slap tariffs on Australian wines after the investigation concludes in a year's time, imports of wine from Australia could be largely wiped out as most Chinese importers run on a low profit margin — and countries such as Chile could stand to benefit.

Chinese Foreign Ministry spokesman Zhao Lijian said during a press conference Tuesday that the probe is normal initiated at the request of domestic wine makers, and the investigation will be conducted in a fair and impartial manner.

"The investigation reflects a deteriorating political relationship between China and Australia, where trust has been destroyed by Australia's hostility," Liu Qing, director of the department for Asia-Pacific security and cooperation at the China Institute of International Studies, told the Global Times. 

Echoing the "trade baton" policy of the US Trump administration, Australia was the first Western country to shun Chinese telecommunication giant Huawei's 5G equipment, and the discrimination against Huawei has made Canberra a clear target for retaliation by Beijing, the analysts say.

Australia has relied heavily on the Chinese market in trade, but as a member of the Five Eyes intelligence alliance led by the US, it has supported the US' anti-China campaigns and is now driving its relationship with China to a freezing point.

The bilateral trade relationship was also upset by the Australian demand for a so-called independent investigation into the source of the COVID-19 pandemic, as well as claims of Chinese spying on Australia. 

China is the most important export market for Australian wine and other agricultural products, offering the country a zero tariff on wine as part of a free trade agreement. But the exports will be sharply curtailed if the MOFCOM imposes new tariffs after the anti-dumping investigation winds up. 

Chen Wei, manager of the Shishun International Trade Co, told the Global Times that any additional tariff on Australian wine might have a devastating effect on the business, given the relatively low profit margin of Australian wine. 

"Australian wines target mostly the mid-level consumer market in China, which has been battered by the COVID-19 pandemic," Chen said. 

The import cost of Australian wines has risen by more than 40 percent since 2017, Chen said, and if tariffs are imposed after the anti-dumping investigation, the country's wine exports to China would be largely wiped out.

Australia's Minister for Trade, Tourism and Investment Simon Birmingham said Tuesday that the Chinese decision was "disappointing and perplexing."

However, Liu said that by comparison, China has only launched two probes against Australian goods whereas the Australian side has launched three trade investigations against Chinese products since the beginning of this year. In addition, Australia launched 100 trade remedy investigations since the two countries set up diplomatic ties.

The investigation into Australian wine is the second anti-dumping probe after Australian barley, after which punitive duties of 80.5 percent were imposed in May. 

"China is the most important trade partner of Australia, and is the market for almost half of its total exports," Liu said. "By contrast, exports to Australia represent only around 3 percent of China's exports."

Australia's wine exports to China have been surging since 2019 after all tariffs were lifted on its exports earlier that year. 

In 2019, Australia's wine exports to China rose 12 percent year-on-year, becoming China's biggest wine provider with a 37-percent share of China's yearly wine imports. That was well ahead of France at 27 percent, Chile at 13 percent and Italy at 6 percent, according to data from Wine Australia. 

In 2019, China remained the top destination for Australian wine exports with a total of A$1.1 billion in trade sales, according to Wine Australia, more than exports to the US, the UK and Canada combined. 

"The global wine market is quite transparent," Yu Lei, chief research fellow at the Research Center for Pacific Island Countries at Liaocheng University said. 

"Given the large proportion of the Chinese market in Australian wine exports, and the speed at which it has been increasing, it is reasonable to attract an anti-dumping probe from the Chinese authority." 

However, despite intensifying China-Australia tensions, which come at an increasingly difficult time for global trade, Australian exporters will be increasingly reliant on the Chinese market, and the probe will be regarded as a "stern warning" to the Australian government, which has so far followed the US' lead in stirring up animosity toward China, Yu noted.