In a sure sign that the US-China trade war is beginning to bite elsewhere, the Australian wine sector grew at its slowest pace since 2014, according to data released last week. Worries that China is now seeing the effects of embarking on retaliatory protectionist rhetoric with the US and that its economy will suffer as a result appear to be credible.
Part of the issue for other exporters from various nations is that much of their sales come from the Chinese middle classes, particularly those based in the Asia Pacific region. As the Chinese economy finds itself no longer growing at the same rate that it once did, the buying power of the average household is decreasing.
This may spell trouble for companies whose export processes are not hugely diverse, although the issue has been somewhat of a slow burner in that most economists have been speculating about it for at least the last few months. It ought to give many businesses an opportunity to seek out additional avenues of export.
There is now reason for analysts to believe that businesses of all kinds are set to be in the firing line. The Australian wine sector’s impressive speed of growth in 2017 has now dropped by over a third and seems more like an outlier with every passing month.
As even Apple is issuing potential profit warnings over a lack of exports to China as its flagship iPhones drop in sales numbers, it appears that no company is currently safe from any market fallout.
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Australian wine companies in particular have found their growth boosted by sales to China in recent years and, now that this is slowing, dropping profit margins could well be not far away. Australia’s top export market for wine is China, and from 2017 to 2018, it rose by only 18% to a value of $818m. A much stronger period of growth occurred the year before, when Australian wine exports to China climbed by 63%. This high figure was never likely to be matched year-on-year, but there were not any obvious signs that the market would fall so dramatically.
The last stall in growth came back in 2014, when measures to curb corruption in China led to a crackdown in excess spending. After that issue resolved, the market started growing again, but now it looks set to experience difficulties once more.
According to Andreas Clark, CEO of Wine Australia, the current slowdown in exports to China is no surprise. He said: ‘That was always going to taper off.’ The market had ballooned in the last three years as a bumper crop of grapes helped increase the production of wine, which therefore boosted exports as well.
However, this growth appears to intertwine with Chinese investments, which may be difficult to extricate from easily. Vineyards are in high demand, and specific vintages are ready for production to suit Chinese tastes. How well that attempts to sell such vintages elsewhere will work remains unknown, and the Australian wine industry may well struggle to stave off the imminent threat of a looming Chinese economic slowdown.