China's decision to eliminate anti-dumping duties on Australian wine has been met with optimism by the Australian wine sector, though the challenging economic landscape of 2024 might temper expectations for rapid growth. Over the last two decades, China's burgeoning middle class has significantly contributed to the global wine industry's expansion, showing a preference for wines from regions such as Australia, Chile, Italy, and France.
However, the Chinese market's recovery from a pre-pandemic downturn has been slow, exacerbated by the protracted impact of COVID-19 restrictions. According to Kym Anderson of the University of Adelaide's Wine Economics Research Centre, the enthusiasm for wine has significantly decreased, with no immediate signs of a rebound.
In 2023, China's wine consumption, including both imports and domestic production, was just a fraction of its peak in 2017, with imports reducing by two-thirds during this time. The competition has intensified with both local and international brands vying for market share, offering a wide array of alcoholic beverages beyond wine, noted Judy Chan, CEO of Grace Vineyards.
Grace Vineyards, a pioneer in China's wine industry, has expanded its product line to include gin, adapting to the diversifying tastes of consumers. Despite being the largest alcohol market globally, China's preference leans towards baijiu, a traditional spirit, making it challenging for foreign beverages to gain a significant foothold, especially in the wake of the pandemic's economic fallout.
Consumer confidence in China remains low, influenced by the economic slowdown and a lackluster property market, which in turn affects discretionary spending. Yan Yu, a wine seller utilizing WeChat for direct sales, observed a shift towards more price-sensitive purchasing behaviors among middle-class consumers.
The luxury segment of the market, however, shows resilience, with premium wines still in demand. Treasury Wine Estates' Penfold's, for instance, is anticipated to perform well as Australian wines re-enter the Chinese market. Despite the previous imposition of hefty tariffs, TWE has continued to invest in China, even producing a locally-made wine.
Yet, the return of Australian wines poses a challenge to other leading wine-exporting countries that had filled the gap left by Australia, potentially reshuffling market shares in China's $1.6-billion import market. Australia's free trade agreement with China offers it a competitive tariff advantage, but rebuilding export capacity will take time.
Despite the current market conditions, there is optimism for growth in China's wine market, albeit with caution that the peak consumption levels may have already been reached. Anderson highlighted the potential for growth, given the low per capita wine consumption and its minor share of the alcohol market in China, suggesting an anomaly in the expected growth trajectory based on income levels.
