Seeing red: China wine hiccup deepens political strain

Relations with China have taken another backward step after one of Australia’s biggest exporters, Treasury Wine Estates, was among several companies whose products were being stalled because of new customs rules targeting Australian companies and industries.

Australian diplomats in China have been mobilised to assist Treasury as the worsening relationship sparked a warning from respected business leader Graham Kraehe that Prime Minister Malcolm Turnbull would need to personally intervene to address concerns.

Treasury Wine Estates chief executive Michael Clarke.
Photo: Jesse Marlow

"Chinese officials have introduced new and different verification and certification processes and we've been working with the Chinese authorities and the officials, as well as with Australian authorities and officials, to ensure that we can meet these new and additional processes, which are not just applied to Treasury Wine Estates, it's being applied to a number of other companies, across a number of different industries from Australia," Treasury boss Michael Clarke said.

Australian Trade Minister Steven Ciobo said in Shanghai he had been informed of the situation by Treasury, the largest importer of foreign wine into China, in the past 24-36 hours.

“The questions being asked relate to certificates of origin. We will look at precisely what the situation is and if we can get to the bottom of it," Mr Ciobo said.

The news from Treasury came as the former Reserve Bank Board member Mr Kraehe became the latest to voice concerns about the state of the relationship with China saying that Mr Turnbull had to make its improvement a key priority.

Amid a looming trade war between the US and China, and threatened punitive tariff packages worth hundreds of billions of dollars, American exporters have also reportedly encountered pre-emptive slow downs and extra scrutiny from Chinese customs in recent weeks. American wine is one of the products that will be targeted by an extra 15 per cent tariff from China if a trade war is not averted by talks in Washington this week.

Graham Kraehe has called for action on the relationship with China.
Photo: Jessica Hromas

Despite the signing of a free trade deal between Australia and China a few years ago, tensions have grown recently afetr Australia has taken a firm line on China, expressing concern over Chinese influence in the Pacific and about military bases in the South China Sea.

Mr Kraehe, a former chairman of Bluescope and Brambles, said current tensions were “really concerning”.

“My observation would be we need to really put some time and priority into improving the relationship with China, because although the US is our major ally, it’s not our biggest trading partner and it’s probably, over time, going to be - slowly hopefully, but slowly - less important to us than China already is and will become.

“So, I think all of the tensions we’re seeing at the moment are really concerning from our trade and our regional relationship point of view. We can’t rely on the US to be a big player in the Asia region,” Mr Kraehe said.

We will look at precisely what the situation is and if we can get to the bottom of it.
Steven Ciobo, Trade Minister

Mr Kraehe has significant business experience in China and has been visiting the country for decades.

“In a long term sense I think we need to form whatever relationships and arrangements we can with China, and we ought to get on with it and make it a priority for the government,” he said.

“I think we need Prime Ministerial input. We have a very powerful leader in China, in President Xi, and I’ve no idea what the relationship between Xi and our Prime Minister’s like, but I think it needs a concerted effort which involves our Prime Minister together with obviously the head of Foreign Affairs, and the minister for foreign affairs."

Treasury, whose exports to China have boomed in recent years, said it had been affected by new “verification requirements” that were slowing down the "clearance" of its exports after they arrived in China.

Mr Clarke told analysts and investors that Treasury did not think the issue would be ongoing.

"We don't see any reason why this is going to be a long term issue and we believe we can work through this," he said.

But investors still reacted sharply slicing 6.2 per cent from Treasury's share price on Thursday.

When asked if other Australian exporters to China were facing similar issues, Mr Ciobo said: “I have from time to time had other matters raised with me but those other matters are sporadic."

An analyst from Credit Suisse, Larry Gandler, asked Mr Clarke what he thought was the "root cause" of the new regulatory regime, and whether it was connected to the Australia/China relationship issue, or "something more mundane and specific".

In response Mr Clarke said: "I'm not going to speculate Larry. All I can do is work through the business models that are in place from a China point of view. And we're very happy to do that."