Why China's latest target is France's Emmanuel Macron
Australia's experience shows the price French brandymakers could pay as Beijing retaliates against the EU's electric car probe.
On Christmas Day, China’s Ministry of Commerce raised its annual quota for Australian wool imports by five per cent for 2024.
In one respect, it was an unremarkable announcement as it was in line with the 2015 free trade agreement that stipulated China would raise its tariff-free quota on Australian wool imports by five per cent each year until 2024.
But in Chinese state media, it was reported as a further sign of improving bilateral ties underpinning the growing trade relationship between Australia and China.
It has been a core mission of the Labor government since its election in May 2022, to stabilise the bilateral relationship, which reached a nadir under the former centre-right government after it called for an inquiry into the origins of Covid.
China cut off all communication with Australia and imposed stunning tariffs, as high as 212 per cent on wine and 80.5 per cent on barley.
Grain growers were able to find other markets, but for winemakers China’s economic coercion took an immediate and heavy toll.
Between 2017 and 2021 China was the country that purchased the most Australian wine but in 2022 fell off the top ten list of overseas customers as a result of the enormous duties.
In the 12 months ending September 2020, the value of Australia’s wine exports to China was $1.2 billion. For the same period of time ending last September that figure shrivelled to a paltry $7 million.
While some wine producers managed to grow their exports to AUKUS allies - the United States and the UK - the industry as a whole was not able to recover the total losses incurred by the Australian government-of-the-day provoking China’s wrath.
The total value of Australia’s wine exports was $1.8 billion in the 12 months to September 2023. By contrast, sales in 2019 reached a record high valued at $2.9 billion.
Australia launched cases against China in the World Trade Organisation and just before preliminary findings that were widely expected to come down in Australia’s favour were due, Beijing agreed to cut a deal that would give it several months to review the sanctions.
Last year the first of many breakthroughs came when the duties on barley were lifted. Other blockages on Australian goods were removed in the months that followed.
And early this year, it is expected that the remaining duties on wine will finally be dropped. Prime Minister Anthony Albanese pointed to this likelihood in his first press conference of 2024 meaning three years on, wine producers can finally glimpse the light at the end of a dark and long tunnel.
The final breakthrough will be welcomed, athough notably, Wine Australia said while it would not prejudge China’s imminent decision on lifting the trade sanctions: “Regardless of the outcome, we remain committed to diversifying our market presence and cultivating opportunities in markets across the world.”
Beijing’s most recent behaviour shows why they are right to remain wary and others should take note.
Last year, European Commission President Ursula von der Leyen said in her State of the Union address that global markets were being flooded by cheap Chinese cars that had been made with the benefit of state subsidies.
In September, the EU opened an investigation into any ‘illegal subsidisation’. On Friday, Beijing retaliated.
China’s Ministry of Commerce announced it was opening an anti-dumping investigation into imported spirits made from distilled wine from the European Union. In shorthand - French brandy.
France is the top alcohol exporter to China, comprising nearly one-third of imported alcohol value in the first half of 2022.
And brandy dominates spirit imports, making up more than two-thirds of the total imported spirits market in 2021. According to Dauxe Consulting, France holds a near monopoly on brandy imports with 99 per cent market share in 2021.
So why is Beijing drawing a link between brandy and electric cars?
It is no accident, according to Noah Barkin, a long-time China watcher who focuses on Europe-China relations and transatlantic China policy for Rhodium Group.
“This move would hit France the hardest and that’s no coincidence,” Barkin said.
“Macron’s government has been the strongest supporter of EU trade action against China in the electric vehicle space.”
As Barkin sees it, China is flexing its muscle and showing Brussels and wider Europe what it can do if the European Commission’s investigation finds cause to target China’s electric car exports.
It is not just the traditional auto-makers in Germany who could be ‘eaten alive’ by BYD’s dominance, cheaper Chinese EVs could also play havoc with Macron’s France 2030 plan to produce 2 million hybrid and electric, or zero-emission vehicles by the end of the decade.
Beijing has long deployed divide-and-conquer tactics. In Australia it ignores the more hawkish side of politics and reestablishes bilateral ties with the dovish.
In Europe, the CCP hopes to pit industry against politicians who worry about overdependence, the ability of their supply chains to stand up in the event of another great shock and the continued bleeding of their manufacturing industries to China.
Asked about the investigation into French brandy, Von der Leyen, who has overseen a greater alignment of EU foreign policy with that of the Biden Administration’s, stressed cooperation.
“We have agreed with the Chinese leadership that we will go point-by-point through all the complaints we have, and our companies in China for example, experience and have, and work through them systematically,” the President told reporters in Belgium on Friday.
“So that we do not only have the complaint on a superficial level, but step-by-step we go through all the difficulties, for example, European companies face when they want to access the Chinese market.”
Barkin believes neither side wants the trade tensions to escalate until the outcome of the US election in November is known but the episode is yet another reminder of Beijing’s ongoing willingness to use its trading dominance as a weapon to punish and intimidate its political critics