China took aim on Wednesday at exports of the European wines favored by its growing middle class, responding to an EU move to impose anti-dumping duties of Chinese solar panels as tensions rise between two of the world's biggest trade partners.
In a step targeting southern European states such as France and Italy that back duties but largely sparing northern countries such as Germany that oppose them, Beijing launched an anti-dumping and anti-subsidy inquiry into sales of European wine.
The European Union will impose duties on imports of Chinese solar panels from Thursday, but has dramatically reduced the initial rate after pressure from some large member states led by Berlin in the hope of negotiating a settlement with Beijing.
China's Commerce Ministry said the EU penalties were imposed despite Beijing making great efforts and showing enormous sincerity in trying to resolve the matter through talks.
“The European side still obstinately imposed unfair duties on Chinese imports of solar panels,” the ministry said in a statement on its website (www.mofcom.gov.cn).
China's newly well-to-do, whose ranks are growing as fast as the economy, have a seemingly unquenchable thirst for European wines, especially those from France which make up more than half the total. China is now the biggest importer of Bordeaux wines where consumption soared 110 percent in 2011 alone.
France's trade ministry condemned the Chinese move as “inappropriate and reprehensible”, accusing Beijing of opening a new front in an unrelated area. French President Francois Hollande called for a meeting of the 27 EU member states to show solidarity on trade issues, a government spokeswoman said.
In a more cautious reaction, German Economics Minister Philipp Roesler renewed Berlin's call for a negotiated solution and warned of the danger of wider trade confrontation.
Any action is unlikely to be popular with Chinese consumers. “We Chinese love the French wines. They're so sophisticated and go down so well,” said Niu Lanxiang, 23, a logistics worker out shopping for wine in a supermarket in Beijing's fashionable Sanlitun district.
“I know wine is more of a Western habit, but China is a modern country now too and we're learning how to enjoy wine,” she said. However, not all Chinese share her cultured palate; some still prefer to drink wine mixed with Coca-Cola or Sprite.
A European Commission spokesman told a briefing there was no dumping or subsidy of European wine exports to China and the EU authorities would defend their producers. He declined comment on talk of a trade war, saying Brussels did not use such terms.
The Chinese ministry said the government had begun the inquiry into EU wines at the request of Chinese wine makers.
“The Commerce Ministry has already received an application from the domestic wine industry, which accuses wines imported from Europe of entering China's market by use of unfair trade tactics such as dumping and subsidies,” it said in a statement.
“We have noted the quick rise in wine imports from the EU in recent years, and we will handle the investigation in accordance with the law.”
The move appeared largely symbolic and less severe than if China had targeted industrial exports such as Airbus aircraft, made by Toulouse-based European aerospace group EADS.
“It's a very calculated move. Wine is significant enough as a signal, yet it's not important enough to hurt industries in the European Union,” said Xu Bin, professor of economics and finance at the China Europe International Business School in Shanghai.
China's “underlying interests” were very much in favor of resolving the solar panel issue within the next two months without over-reacting, he said. “Neither side wants to see a trade war, but both sides have their own interests.”
France hit hardest
EU wine exports to China excluding Hong Kong, which EU officials said was not covered by the announcement, reached 257.3 million liters in 2012 for a value of nearly $1 billion. More than half - 139.5 million liters - came from France.
Diageo and Pernod are among the suppliers.
European wine-growers receive subsidies from the EU's Common Agricultural Policy, although not specifically for exports. For example, the biggest producer of Beaujolais wines, George Duboeuf, received 1.1 million euros ($1.4 million) in EU handouts in the 2011/12 season, according to the French Agriculture Ministry.
China is the third biggest export market for European wines and the fastest growing, as the rising middle class enjoys the pleasures and status of sipping fine Bordeaux or quaffing Rioja.
About 15 Chinese individuals or businesses have bought wine-growing properties in Bordeaux and investors also want to develop luxury tourism in the region, which they think will be the next fad as Chinese wealth pours into Europe.
Jim Boyce, who runs the wine blog grapewallofchina.com, said Chinese manufacturers have been upset about alleged dumping for a while. “The big issue was all this Spanish wine flowing in here at incredibly low prices,” he said.
In Madrid, a representative of the Spanish Wine Federation said the Chinese move was a potentially serious blow to one of the few bright spots in a country stuck in deep recession since a housing bubble burst in 2008, decimating its economy.
“The saddest thing about all this is that if proceedings are opened and anti-dumping measures such as import tariffs applied, it means a sector that is doing really well will be dragged into a trade war that has nothing to do with it,” she said.
Spain abstained on the solar panel duties. Under EU rules that is counted as a vote in favor.
The EU is China's most important trading partner, while for the EU, China is second only to the United States. Chinese exports of goods to the bloc totaled 290 billion euros ($376 billion) last year, with 144 billion euros going the other way.
Wine sales are only a fraction of overall exports to the rising Asian economic powerhouse but the move raises the risk of more tit-for-tat trade barriers.
The EU now has 31 trade investigations underway, 18 of them involving China. The largest to date is that into 21 billion euros of imports from China of solar panels, cells and wafers.
The EU says it has evidence that Chinese firms are selling solar panels below cost - a practice known as dumping. But the initial duty of 11.8 percent announced on Tuesday by European Trade Commissioner Karel De Gucht was far below the average 47 percent that had been planned.
The Chinese Commerce Ministry said it took note of the lower initial rate and called on the EU to “show more sincerity and flexibility to find a resolution both sides can accept through consultations.”