China has initiated an anti-dumping investigation into European Union brandy, a move widely interpreted as a response to the EU's probe into the influx of inexpensive Chinese electric cars. The Chinese Ministry of Commerce announced the investigation following requests from local liquor producers, citing concerns about the practice of exporting goods at unfairly low prices.
This development has significant implications for European brandy producers, particularly French cognac brands, which have become increasingly reliant on the Chinese market. Agatha Kratz, director at Rhodium Group, noted the critical importance of China as a market for these spirits.
“In 10 years, (China has) become one of their key revenue drivers and growth drivers,” she explained.
Impact on the Spirits Industry and Wider Implications
The news of the probe has already sent ripples through the financial world, with shares of luxury consumer goods groups experiencing a notable downturn.
Pernod Ricard, owner of the 300-year-old Martell cognac, saw its shares fall nearly 4% in Paris. Similarly, Rémy Cointreau’s stock plummeted over 11%, while Bernard Arnault's LVMH, which owns Hennessy cognac, dropped 1%.
Jessica Whyte, a spokesperson for Pernod Ricard, expressed confidence in the company's compliance with Chinese and international regulations. However, the industry remains on edge, recalling China's imposition of tariffs on Australian wine in 2020 following a similar investigation, which severely impacted many Australian exporters.
The broader context of this investigation relates to ongoing tensions between China and the EU. Kratz suggested that the probe could be seen as retaliation for France's vocal support for the EU's investigation into China's trade practices, specifically the alleged use of state subsidies to undercut prices in the electric vehicle market.
In September, the European Commission launched an inquiry into Beijing's potential distortion of the market with its electric car exports, as stated by European Commission President Ursula von der Leyen.