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China has launched a new anti-dumping investigation into French brandy imports, escalating a trade dispute between Beijing and Brussels.
Officials at the Chinese commerce ministry said its probe into brandy imported from the EU was prompted by complaints from domestic manufacturers. Brandy is the most-imported spirit into China, and comes primarily from France.
The investigation comes four months after European Commission president Ursula von der Leyen announced an anti-subsidy probe into imports of Chinese electric vehicles, supported by French car executives and officials.
“Global markets are now flooded with cheaper Chinese electric cars,” she said in September. At the time, Brussels warned of likely Chinese retaliation.
Shares in major producers of the liquor fell on Friday, with Rémy Cointreau down more than 8 per cent and Pernod Ricard down by 5 per cent. Shares in Diageo and luxury group LVMH, which owns Hennessy cognac, also traded down by 2.6 per cent and 1.6 per cent respectively.
Brussels has in recent months launched several other investigations into allegedly unfair Chinese trade practices, imposing punitive tariffs on imports of plastic for bottles and opening a probe into suspected dumping of biofuel.
Von der Leyen has complained of the bloc’s record trade deficit with China and led calls to de-risk relations, finding alternative sources of supply for critical products. The commission is also proposing tighter national controls on investments and exports.
Beijing has blasted the EU over the probes, saying late last month that it “firmly opposes protectionist practices” and the “abuse of trade remedies”.
The commerce ministry said on Friday that the brandy investigation should be completed within one year, but could be extended for a further six months.
China imported alcoholic drinks worth about $4.5bn in 2022, according to Daxue Consulting, a China-based market research group. Brandy was the most-imported spirit, consisting almost entirely of French products.
Around 37.5mn litres of French brandy was imported into China in 2022.
Premium liquor sales — particularly for cognac, a type of French brandy — were already under pressure this year as pandemic-era drinking habits and the effervescence of bars reopening post-lockdown faded.
LVMH, Rémy Cointreau and Pernod Ricard all reported declining cognac sales in their third-quarter earnings largely because of weaker US demand.
China is the other major market for cognac, where the ongoing recovery from the end of last year’s strict zero-Covid lockdowns was expected to help balance slower sales in the US.
Trevor Stirling, spirits analyst at Bernstein, said cognac producers would be adversely affected by any tariffs imposed on exports to China. He pointed to a similar crackdown on Australian barley and wine, which hammered the local industry when China imposed tariffs in 2020.
“This is unlikely to be resolved quickly,” said Stirling. “It will hang over the industry for at least six months.”
Export volumes of cognac fell 18.9 per cent between August 2022 and the end of July 2023, according to the cognac producer’s association UGVC. The US is by far the largest consumer of cognac, importing more than half of bottles produced, according to the Bureau National Interprofessionnel du Cognac, with China in second.
Alongside the EU probes, France has also taken its own steps to promote European-made products. In a decree to be published this month it is restricting electric vehicle purchasing subsidies so that they cannot apply to most cars made in China based on their environmental record.
Additional reporting by Wenjie Ding in Beijing, Andy Bounds in Brussels and Sarah White in Paris
Source: Economy - ft.com
