CAPE TOWN (Reuters) – For South African winemaker Vergenoegd Löw, the pandemic could be catastrophic, but a fierce trade war between China and Australia has cost the 325-year-old plantation its toll.
Its red, white and rose bottles pile up as South Africa bans the sale of alcohol under tight lockdown and visitors who once flock to vineyards near Cape Town to sip wine and snap photos of the notorious Indian Runner duck disappear.
That changed when Beijing imposed tariffs of up to 212% on Australian wines in November after Canberra led a call for an investigation into the origins of the COVID-19 outbreak in Wuhan.
Not just wine. Beijing hit various Australian goods with customs, created a new layer of bureaucracy and outright banned some Australian imports, giving a boost to African suppliers of anything from coal to beef to copper.
“We can now get a much larger volume of sales,” said Shaun McVey, marketing manager at Vergenoegd Löw, which has signed the new deal in China. “Instead of shipping maybe three or four containers a year, we’ve increased that to 15 to 20 containers.”
Chinese drinkers bought nearly 40% of Australia’s wine exports before long-burning tensions between Beijing and Canberra peaked and brought trade to a sudden halt.
Over the past three months, South African wine exports to China have surged 50%, according to trading agency Wines of South Africa, and hopes are high for more sales after Australian stocks waned during the Chinese Lunar New Year holiday.
Martyn Davies, Deloitte’s managing director for emerging markets and Africa, said a protracted trade war would create a wide window of opportunity for miners and other sectors such as agribusiness, although exploiting that potential would require work.
The Chinese market presents a variety of constraints, from incomprehensible language and bureaucratic barriers to tailoring marketing to its unique social media ecosystem, analysts say.
“Many African companies are significantly behind the curve,” said Davies Deloitte. “Australian companies have engaged China for 35 years.”
The lack of a trade agreement between China and countries in sub-Saharan Africa also means exporters may face an uphill battle.
Despite its increasingly important role as an investor in the continent, China only signed its first free trade agreement with the African nation, the Indian Ocean island nation of Mauritius, in January.
Thus, while some African products may overtake Australian goods in the pecking order, they remain at a disadvantage when competing with exports from countries with preferential Chinese trade terms such as Chile, Peru or New Zealand.
In the mining sector, China has spent the last decade scaling up projects in Africa to maintain the flow of raw materials to the manufacturing giants.
The investment is now paying off and African producing countries are pocketing royalties as exports to the world’s second largest economy get a boost at the expense of Australia.
Last year, state-owned Aluminum Corp of China Ltd, known as Chalco, shipped the first cargo of bauxite from the Guinea project, and a prolonged trade war between China and Australia will only help the West African nation’s economy.
Australia’s shipments to China of the stone used to make aluminum fell 22% in the last quarter of 2020 while imports from Guinea jumped 70%, according to Chinese customs data.
That’s after Guinea tripled its bauxite production between 2015 and 2019 when mining projects began operating, with most of it shipped to China. During the same period, Guinea’s gross domestic product jumped 40%.
Graph – China turned to Guinean bauxite because it avoided Australia:
Meanwhile, Chinese copper concentrate imports from Australia plunged to zero in December 2020. At the same time, exports were up 17% from the Democratic Republic of Congo, another country where Chinese companies such as China Molybdenum have invested heavily to secure major mineral supplies.
The South African coal industry has also received a much needed boost. Sales of Australian thermal coal to China, which is mainly used in power generation, and metallurgical coal for steelmaking, slumped to zero in December.
South Africa’s first shipment of thermal coal to China in five years landed last month and exporters expect sales to pick up further in 2021.
Graph – China’s copper imports from the DRC soar:
‘INNOVATIVE AND BEAUTIFUL’
To address the lack of a trade agreement with China, Standard Bank South Africa, which is partly owned by the Industrial and Commercial Bank of China, has sought to equalize.
Africa’s biggest bank measured by assets uses online platforms and events to match its customers with Chinese buyers in a bid to boost exports.
However, those efforts now face unique challenges for the coronavirus pandemic, such as shipping pressure due to global trade distortions that have sparked a bidding war for container space and pushed prices to record highs.
“You get a lot of interest. And then when people look at the current logistics costs, they end up not completing the transaction, ”said Philip Myburgh, head of Standard Bank’s African-China banking.
However, wine is one of the African exports that Standard Bank considers a good bet. So was Edouard Duval, chief executive of East Meets West Fine Wines, one of China’s largest wine importers.
If South Africa could capture just 1% of Australia’s 38% share of the import market share quickly emptying out, that would double its exports to China, he said. “The potential is there … this is a very dynamic and fast-moving market.”
South Africa typically exports less than half of its wine and raised 9.1 billion rand ($ 616 million) in overseas sales last year, with Britain buying the most. Sales to China totaled only $ 19 million.
Although Chinese tariffs removed sales of Australian wine in November and December, its exports to China alone still totaled A $ 1.01 billion ($ 779 million) last year.
At the “Cheers” wine shop in Beijing, Lin Lulu doesn’t really care about the impact of the trade war with Australia.
“South African wines now have a big advantage over Australian wines because of the new fare situation,” he said, filling his shelves with South African red wines. South African wines are more innovative and beautiful.
($ 1 = 1.2962 Australian dollars)
($ 1 = 14.7621 rand)
Additional reporting by Mike Hutchings in Cape Town, Helen Reid in Johannesburg and Thomas Suen, Tom Daly and Muyu Xu in Beijing; Edited by David Clarke