International Trade

China launches anti-dumping investigation against European spirits

The main loser is French cognac. Analysts: response to Macron's demands for EU duties on Chinese electric cars

5 January 2024

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China is launching an anti-dumping investigation into EU spirits. The investigation, which Beijing says was initiated after a request from a national liquor association, is targeting French cognac, a niche but lucrative product in China for producers such as Pernod Ricard and Remy Cointreau, and has caused their stocks to plummet. France has been the main supporter of the Brussels investigation into Chinese electric vehicles, with French carmakers Renault SA and Stellantis NV particularly exposed to the import threat.

The brandy industry's exports to the Celestial Empire are relatively modest but nonetheless significant: China imported $1.57 billion worth of distilled grape wine spirits in 2023 through November, while it exported some $12.7 billion worth of electric vehicles to the EU in the same period.

"France is the most exposed to the brandy investigation," commented Bruce Pang, chief economist at Jones Lang LaSalle Inc. According to LaSalle, 'China is trying to increase the pressure on the EU's biggest supporter of the Chinese electric vehicle investigation'.

As of 1045 GMT on Friday 5, Remy Cointreau shares were down 12% at €95.74 and Pernod Ricard shares were down 5.2% at €144.50. These companies sell cognac in China under brands such as Remy Martin, Martell and Hennessy.

Analysts: measure for political purposes

Beijing has a long history of using trade to achieve its political goals. It had previously placed foreign liquor imports under scrutiny when geopolitical tensions with Australia erupted, resulting in the imposition of anti-dumping tariffs on Australian wines, decimating what had been one of the country's major foreign markets. As ties improved, China began to review the limits.

"China is showing Europe what retaliation could look like if it imposed tariffs on Chinese electric vehicles," said Noah Barkin, senior consultant at Rhodium Group. "This move would hit wine-producing countries like France the hardest - and that's probably not a coincidence. The Macron government has been the strongest supporter of the EU's anti-subsidy investigation into electric vehicle imports from China."

While China is an important market for European liquor brands, which have faced a sharp drop in US demand, it is a small slice of the trade in a country that largely drinks the local alcohol, called baijiu.

The Chinese investigation will focus on brandies arriving from the EU in containers of less than 200 litres, the Chinese Ministry of Commerce said on Friday.

Since cognac is considered a premium product in China and is sold at much higher prices than local spirits, the dumping tax is "quite extensive", said Gilles Guibout, portfolio manager at Axa Investment Managers in Paris. "This is purely a retaliation for EU actions on electric vehicles."

The EU's recent trade actions against China have extended beyond electric vehicles. Last month, the EU opened anti-dumping investigations into Chinese exports of biodiesel and melamine. In November, the EU imposed provisional anti-dumping duties on imports of certain plastic products from China.

Zhao Yongsheng, a professor at Beijing University of International Economics and Trade, said he did not think the new brandy investigation was a sign of a trade war started between China and the EU. "It is a retaliation, but reasonable," he said. "China has chosen a product with little impact on the EU, but the message is that in the future it may target much more important European goods" such as wine, luxury goods and cars.

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