China-Australia relations
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Royal Star Wine has had six or seven orders from China cancelled, resulting in a financial hit of A$200,000 (US$146,000) to A$300,000, says owner Alex Xu. Photo: Bloomberg

China-Australia relations: wine piling up keeping Sydney exporter awake at night ahead of peak season

  • China announced two trade probes into Australia’s wine industry earlier this year before Beijing also ordered traders to halt purchases last month
  • Royal Star Wine’s Alex Xu has suffered a financial hit of A$200,000 (US$146,000) to A$300,000 due to cancelled orders

Australian wine exporters should be preparing for their peak selling season, the months preceding Christmas and Lunar New Year celebrations in China. They are instead watching stockpiles of product mount in warehouses as its biggest market clamps down on shipments from the country.

Already on edge after China announced two trade probes into the country’s wine industry earlier this year, people familiar with the situation said this month Beijing had also ordered traders to stop purchasing at least seven categories of Australian commodities – including wine, rock lobsters, barley, and copper ore – in its most sweeping trade move against Canberra yet.

The prospect of indefinite bans would be a worst-case scenario for Australian exporters, who have already been hit this year by coronavirus lockdowns.

The issue is keeping Alex Xu awake at night as he tries to keep his business afloat. The Sydney exporter sells his own brands of wine from vineyards located in South Australia’s Coonawarra, McLaren Vale and Barossa wine regions, as well as custom products. About 80 per cent of its clients are in China.

This is a very serious matter because we don’t know how long we’ll be banned
Alex Xu

Lately, his company Royal Star Wine has had six or seven orders from China cancelled, resulting in a financial hit of A$200,000 (US$146,000) to A$300,000. The importers had been recently ordered not to buy Australian wine, he said. By whom, it is unclear.

“This is a very serious matter because we don’t know how long we’ll be banned,” Chinese-born Australian Xu said. “Every night I’m still thinking about ‘what should I do tomorrow?’”

The orders not cancelled are being delayed at customs in China, Xu said. He currently has two containers, holding about 14,000 bottles of wine apiece, waiting on ships to clear customs in China. He has been told they will be processed next week but is not confident that will happen, given reports of ongoing hold-ups from other exporters.

China has not officially confirmed whether the bans are a government directive. Still, last week a spokesman for China’s Ministry of Foreign Affairs said Australia is to blame for worsening relations between the two nations, after Canberra called for an international investigation into the way China handled the coronavirus outbreak.


China-Australia trade: Beijing set to ban nearly US$400 million worth of Australian wheat imports

China-Australia trade: Beijing set to ban nearly US$400 million worth of Australian wheat imports

Still, the wine trade to China appears to have effectively stopped, according to Tony Battaglene, chief executive of industry group Australian Grape and Wine. Product set for export is down by as much as 60 per cent and shipments that do reach customs in the country face intense scrutiny.

About 40 per cent of Australian wine exports would typically be shipped in the final four months of the year, he said.

“This is the peak export period,” Battaglene said. It’s “not good at all.”

Taylors Wines has also expressed concern about the increased inspections faced at the border. The company considered whether to withhold product from export to China after it had wine delayed by Chinese customs a month ago but now has four containers en route to the country, The Australian reported.

Australia’s agriculture sector is watching the situation closely, with industry shipments to China comprising about A$16 billion (US$11.7 billion) in 2018-19. The Asian country accounted for about 39 per cent of all exported goods in the most recent financial year, according to Bloomberg Economics.

China is the biggest buyer of Australian wine, importing A$1.2 billion (US$877 million) in the year through September, according to government marketing body Wine Australia. That is 167 per cent more than the value of exports to its next biggest market, the United States.

Xu typically makes about six business trips to China each year. Accompanied by a glitzy showroom refrigerator – one complete with a diamante-encrusted handle and built-in cigar storage – and boxes of thick, glossy brochures, he sells his product to Chinese consumers at some of the biggest trade shows. Not so this year, with coronavirus travel restrictions keeping him in Australia.

He had hoped trade in the lead-up to Lunar New Year and Christmas would make up for pandemic-related trade disruptions earlier in the year.

Now, he is not sure his business will make it beyond three or four months if things continue as they are. Although his Chinese customer base has grown as much as 40 per cent every year since he started the business in 2010, and he had planned to expand into more cities, he is thinking of leaving the business, recently investing in a Sydney childcare centre.

“Because of the trade issue, we have to put our investment into a different basket,” he added.