Hong Kong has become a crucial player in Australia’s trade stoush against China, with the port city now a black market hub for Aussie wine.
In November last year, China introduced crippling tariffs of up to 212 per cent for Australian wine exports as part of an escalating trade war.
But now experts believe Chinese buyers have found a way around that – illegal wine imports are flowing through Hong Kong as a backdoor into the mainland.
Wine Australia’s annual Wine Export Monitor, released on Wednesday, shows that sales in Hong Kong have skyrocketed while China’s purchase of exports have plummeted.
Hong Kongers spent $186 million on Australian wine in the 2020-21 financial year, an annual rise of 111 per cent.
At the same time, exports to China fell 45 per cent to $605 million, down from more than $1 billion the year prior.
Lowy Institute senior fellow Richard McGregor says the figures mean it’s very likely that Hong Kong’s “grey market” has returned, which is good news for Aussie producers.
“This has been rumoured for a long time, and now it’s showing up in the stats,” he told news.com.au.
China has been embroiled in a trade war with Australia for the last 18 months, after Prime Minister Scott Morrison angered the communist nation by calling for an investigation into the origins of the coronavirus.
Wine as well as iron ore, barley and even lobsters have fallen foul of the Asian superpower in its bid to undermine Australia’s economy through cutting off trade.
Mr McGregor said that old, illegal trade routes were being reopened between Hong Kong and China to avoid buying wine from Australia directly.
“That role of Hong Kong as the middleman to the world has gradually disappeared over time because now you trade directly with China,” he said.
But in light of recent trade wars, “some people have tried to revive Hong Kong’s role as a trans-shipment point,” he added.
Hong Kong is the fourth biggest buyer of Australian wine, which is three spots up from a year earlier.
“At this point it’s not legal, it’s basically the grey market,” Mr McGregor said.
“There is some leakage from Hong Kong into China. The trade (is) damaged but not destroyed.”
Australian wine isn’t the only commodity to be ferried back to the mainland in this way.
David Olsson, National President of the Australia China Business Council, says it’s been happening some time with Australian rock lobsters.
“I anecdotally heard from a trade official that there’s more lobster coming into Hong Kong than could possibly be eaten,” he told news.com.au, speaking from Hong Kong on a business trip.
“One can put two and two together and assume they’re going into the mainland.”
Lobster exports rose by more than 2000 per cent in Hong Kong after trade sanctions were placed on them.
“The environment we’re living in is encouraging that grey market,” he said.
Although the “backdoor” is providing a lifeline for Australian producers, Mr Olsson warned that trouble is on the horizon.
“While this provides short-term relief for our exports, it’s a high-risk strategy, particularly the speed with which they (authorities) can shut down those channels,” he explained.
Mr McGregor agreed.
“If the Chinese really wanted to shut this off, they can,” he said.
“It’s very hard as a producer to rely on the grey market. Chinese customs could shut it down at any time. It’s not a substitute for legal and aboveboard trade.”
The problem is also that the grey market doesn’t provide nearly as much cash as legitimate trade.
Strong growth in wine exports to the UK and Hong Kong, who were number two and three on the list, failed to make up for the massive decrease from the number one buyer – China.
China’s punitive tariffs on Australian wine saw overall export volumes drop 5 per cent and their value drop by 10 per cent to $2.56 billion.
“I don’t think (the grey market) is ever going to be more (than) a relative fraction of the profit we can bring it if we trade directly with China,” Mr McGregor said.