Australian tariffs aside, the Chinese government has reduced VAT on imported wines twice in the past three years, from 17% in 2018 to 13% in 2019. For domestic wine producers, it was a different story. Years of lobbying the government to cut excise taxes on domestic wines advocated by the country’s biggest wine producer Changyu and officials from China’s premier wine region Ningxia went unheeded. This is part of the reason imported wines – particularly from Australia and Chile, which both enjoyed zero import tariffs – are often more competitive compared with Chinese wines.

The import tariff remains at 14% and excise tax at 10%. These three taxes combined result in an effective tax rate of 43% for bottled wines and 50% for bulk wine.

In the first five months of 2021, as a result of the crippling 218% tariff levied on Australian wines for a five-year period, Australian wine exports to China dropped 81% in value and 84% in volume, bringing its overall market share down to 7% from close to 40%. France has already overtaken Australia to become the country’s biggest supplier, followed by Chile, Italy and Spain, according to the latest Chinese customs data.

Up to this point Treasury Wine Estates (TWE), the parent company of Penfolds and Wolf Blass, had been the biggest Australian wine exporter to China, with AU$1.15bn worth of wines shipped to China in 2020. China represented 30% of TWE’s Group earnings in its fiscal year 2020.

If you look at its star performer Penfolds, the percentage was even higher, with China contributing 39% of Penfolds’ annual global allocation revenue.