China-Australia relations: made-in-China Penfolds wine to bypass Beijing’s tariffs

Treasury Wine Estates will release its first Penfolds wine made in China for the domestic Chinese market in the second half of 2022
China officially applied duties of between 116.2 per cent and 218.4 per cent on Australian wines in containers of up to two litres in March 2021, until 2026

China-Australia relations

Andrew Mullen

Published: 4:15pm, 19 May 2022

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Hard hit by China’s high import tariffs, an Australian wine company has found a novel way to bypass the added costs: made-in-China wine.

In the second half of this year, Treasury Wine Estates intends to release its first Penfolds wine made in China for the domestic Chinese market, the company confirmed on Wednesday.

The first trial wine will be made from grapes sourced in the northwest Ningxia Hui autonomous region and “will feature in the initial, modest-sized allocation for distribution to local consumers”.

China officially applied duties of between 116.2 per cent and 218.4 per cent on Australian wines in containers of up to two litres from March 2021 to 2026, following anti-dumping investigations – moves that have severely affected the once-lucrative market that had been so heavily tied to China.

We’re confident we can produce a premium Chinese Penfolds that maintains the distinctive Penfolds house style and uncompromising quality

Tim Ford

“China is an emerging fine winemaking region, and we’re confident we can produce a premium Chinese Penfolds that maintains the distinctive Penfolds house style and uncompromising quality,” Treasury Wine Estates CEO Tim Ford said.

“As a leading global wine producer, we have a responsibility to help build the wine category and industry in our different markets. The Penfolds brand continues to be strong among consumers in China, and sharing our global expertise is part of our ongoing investment in our local team, our brands, customers, consumers, partners and the broader industry: that’s what long-term commitment to a market really means.”

Australian wine exports decreased by 26 per cent in value to A$2.05 billion (US$1.4 billion) and 13 per cent in volume to 628 million litres in the year ended March, figures released by Wine Australia showed.

Exports, excluding mainland China, declined by 3 per cent in volume but increased by 7 per cent in value to A$2.03 billion, which was the highest since 2010, the government statutory body said.

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Treasury Wine Estates said it has been conducting trials using grapes from the winemaking regions of Ningxia and Shangri-La in southwestern Yunnan province.

The company said that its “recent exploratory work has revealed promising characteristics in fruit quality and flavour expression, infrastructure and vineyards”.

“Producing locally in China is a natural next step for a brand that’s been at the forefront of the global luxury wine movement for 178 years,” Ford added.

“Penfolds has continued to grow across our priority markets despite the Covid-19 pandemic, showing its appeal to a diverse range of quality-focused consumers.

“China has always been an important market for us, and we look forward to continuing to deepen our relationships and affinity with our consumers and the broader Chinese wine community.”

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Treasury Wine Estates said that it has “committed to a long-term, multifaceted strategic cooperation agreement” with the China Alcoholic Drinks Association, which is China’s primary alcohol industry body.

The China Alcoholic Drinks Association did not immediately respond to an emailed request for comment.

Canberra lodged a formal complaint over China’s wine tariffs with the World Trade Organization in June, and the Geneva-based body agreed to establish a dispute-settlement panel to address the complaint in October.