The news of China dropping anti-dumping tariffs on Australian wine imports has been welcomed by Australia's wine industry.
However, the outlook for significant growth in this market appears subdued due to several factors influenced by the tougher economic conditions of 2024.
For the past two decades, China has been a major driver of growth in the global wine industry, particularly for countries like Australia, Chile, Italy, and France. However, industry executives in China indicate that the market has been struggling even before the onset of the COVID-19 pandemic.
Factors such as a prolonged economic downturn, exacerbated by the pandemic-related restrictions, have contributed to a significant shrinkage in consumer interest in wine. Kym Anderson, from the University of Adelaide, highlights that China's wine consumption, including both imports and domestic production, was merely a quarter of its peak in 2017 by 2023.
Additionally, the wine market in China has become increasingly competitive, with numerous domestic and global players entering the fray. Beyond wine, other alcoholic beverages like cocktails and craft beers have gained popularity, providing consumers with a wider array of choices. Judy Chan, CEO of Grace Vineyards, notes that wine has somewhat lost its appeal of international sophistication, which has prompted diversification efforts such as producing gin alongside wine.
Despite China having the world's largest alcohol market, dominated by the domestic spirit baijiu, efforts to increase the market share for foreign beverages have faced challenges. Consumer confidence remains low due to economic slowdown, property market sluggishness, and high youth unemployment, limiting discretionary spending. This environment has made consumers more price-sensitive, with a preference for wines priced below 200 yuan (USD 28).
However, there are winners amidst the challenging landscape. High-end wines, particularly recognizable brands like Penfold's, are expected to fare well. Treasury Wine Estates (TWE) has continued to invest in the market despite punitive tariffs, banking on the strength of such brands. Yet, the re-entry of Australian wines into China will intensify competition and likely impact the market shares of other wine-producing nations.
Although Australia enjoys a tariff advantage over many nations due to its free trade deal with China, rebuilding export capacity and recovering market share will take time. While there is hope for the Chinese wine market to stabilize and grow, the peak growth period might have passed. Despite the confounding nature of China's deviation from the typical trajectory of wine consumption growth in developing markets, there is still potential for expansion given the low per capita consumption and modest share of wine in the overall alcohol market.