Xi Jinping escalated economic tensions with Europe by launching a tit-for-tat trade probe targeting luxury spirits producers that compete with China’s most valuable state-owned company.
The announcement by Beijing to examine price dumping among EU brandy vendors comes some three months after Brussels began investigating low-cost Chinese electric vehicle makers including BYD, which seized the sales crown from erstwhile leader Tesla in the fourth quarter for the first time.
“This investigation takes place in the context of a trade disagreement between the European Union and China on other industrial sectors, unrelated to our activity,” France’s cognac producer lobby group BNIC told trade publication Global Drinks Intel on Friday.
After Chinese EV manufacturers stole the headlines at Europe’s prestigious motor show in September with their wide range of affordable and modern EVs like the BYD Seal, the industry leaned on Brussels to protect it from what it views as China’s unfair advantages.
“No one can match BYD on price. Period,” warned Michael Dunne, CEO of car consultancy Dunne Insights. Speaking to the Financial Times, he said competitors in Europe, among others, are in a “state of shock”.
The boss of the continent’s best-selling car brand, Volkswagen, recently complained his carmaker was no longer competitive due to its higher cost structure.
The EU is the second largest market for EVs after China, with 1.4 million vehicles sold through November, the latest month for which there is data.
Demand soared by 48% over the previous year’s period, prompting new EV leader BYD to announce plans late last month for its first-ever European manufacturing plant in Hungary.
Xi’s government did not react well to news of Europe’s investigation, calling it a “blatant act of protectionism,” according to state-owned media.
But targeting Germany’s car industry, by comparison, is difficult because the overwhelming bulk are built in China in joint ventures with local partners like FAW and SAIC.
It now appears as if China has found a lucrative export sector where it can retaliate with its own anti-dumping probe: European luxury goods.
Cognac producers confident trade spat can be resolved
France dominates China’s import of alcoholic beverages with its prestigious brandies leading the list.
Already back in 2009, Cognac enjoyed the distinction of being the first foreign product whose geographical origin had been registered as protected in China.
Rémy Martin and Hennessy can sell bottles of extra old (“XO”) cognac for hundreds of dollars and above for more aged versions.
This puts it in the same price category as the spirit made by government-controlled Kweichow Moutai, the country’s second-largest corporation by market cap.
Its chief product—a brand of clear, colorless “white liquor” or baijiu—has been a staple of communist party banquets, with former leader Zhou Enlai offering it to Richard Nixon during his landmark trip to Beijing in 1972.
National security adviser Henry Kissinger famously said any dispute can be solved with enough Moutai, whose alcoholic content can easily exceed 100 proof.
The spirit’s rise to prominence is intimately intertwined with that of communist China and Chairman Mao.
Allegedly drinking baijiu from Moutai helped his forces triumph over rival Chang Kai-Shek’s nationalist army and turn the war at Chishui River, fought not far from the distillery.
It was chiefly produced for local farmers at the time, but due to its agrarian image and association with Mao’s victory, Moutai-style baijiu soon proved the alcohol of choice for party cadres.
It has since become a prized status symbol among the country’s elites and is a highly sought-after gift when sealing business deals.
Auction house Christie’s describes Moutai’s taste as savory due to the micronutrients in Chishui River water and advises drinking it in tulip-shaped brandy glasses to concentrate the aromas while not heating it with your palm.
Much like the imported luxury brandies from the Cognac region of France, the baijiu can command exorbitant prices since its production is only permitted in the city of Moutai in the province of Guizhou (once spelled “Kweichow” in the Roman alphabet, hence the name).
Its ability to appreciate in value also makes it a favorite of collectors and investors alike, who might otherwise pick up a bottle of luxury French brandy instead.
France’s cognac producers—several of whom are owned by major European brand groups like LVMH, Rémy Cointreau and Pernod Ricard—said they would comply fully with Beijing’s investigation.
“We are confident that our products and commercial practices fully comply with Chinese and international regulations and that the European Union and China will find a constructive way to resolve any bilateral disputes,” the BNIC told Global Drinks Intel.
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