China’s biggest and oldest winery, Changyu Pioneer Wine Company, is calling for the removal of consumer tax on wines to boost the country’s domestic wine consumption.
The call was made by Zhou Hongjiang, chairman of Changyu Pioneer Wine Company and a delegate to China’s legislature, National People’s Congress at this week’s “two sessions”, the country’s biggest event on the political calendar.
It came at a time amid growing concerns that many Chinese wineries are saddled with debts as wine sales stall and that the coronavirus pandemic could trigger prolonged economic pains for wineries and merchants.
This is not the first time that Chinese wine industry representatives have called for removal or reduction of taxes on wine, mainly led by large-scale wineries like Changyu and local government from Ningxia, a region that’s considered China’s premier wine region.
In 2018 at the “two sessions”, Zhou advocated for tax removal for wine, and a year later in April, China reduced VAT tax on wine from 16% to 13% but consumption tax remained 10%.
The tax reduction according to Zhou is still not enough and further reduction is expected to boost Chinese wine sales. “Everyone knows that Australia and Chile enjoy zero tariffs [thanks to Free Trade Agreement]. Because we are burdened with high taxes, and face fierce competition from abroad. It has dealt a huge blow to Chinese wine industry,” Zhou told Chinese drinks publication Jieyejia.
Australia ranks as China’s biggest wine supplier by value, and Chile by volume, but imported wine in general is estimated to take up roughly 30% of the wines drank in China, with domestically produced Chinese wines taking the lion’s share.
China, although ranked as the world’s 7th biggest wine producer, has experienced a gradual decline in wine production in the past few years, creating a knock-on effect on wine sales and profits.
According to data released by China’s National Bureau of Statistics, among the country’s large-scale wine companies, referring to those with revenue over RMB 20 million (US$2.8 billion) a year, their annual sales are almost halved in 2018 compared with 2012, and their total profits slumped from 2012’s RMB 5.4 billion to RMB 3 billion.
Changyu, the country’s oldest and biggest winery founded in 1892 known for producing volume wines, contributed to one third of the total profits of all the wine companies. The Chinese winery reported RMB 1.1 billion (US$154.2 million) net profit in 2019, according to Zhou.
“Compared with some wine producing countries in Europe and other parts of the world, our taxes on wine are higher than most,” he lamented.
With coronavirus pandemic this year, Zhou noted wine industry now more than ever needed end consumers.
“On-premise consumption has been greatly reduced, and this has created a huge hurdle for wine sales. We have many lower-tier distributors loaded with stocks because of stalled Chinese New Year sales. Our industry desperately need end consumers,” he pleaded.
The company earlier slashed sales targets for its distributors nationwide in a published letter sent out to its staff and partners without revealing specifics.
Changyu produces roughly 15 million cases of wine a year, and has wineries in the country’s main producing regions including Shandong, Beijing and Ningxia. In addition to its own wine production, Changyu imports from Spain, France and other European countries for domestic market.