London
CNN
 — 

China is opening an investigation into the price of brandy imported from the European Union in a move seen as retaliation for the bloc’s probe into an influx of cheap Chinese electric cars into Europe.

The Chinese Ministry of Commerce told reporters Friday that it had launched the anti-dumping investigation at the request of local liquor producers. Dumping refers to the practice of exporting goods to a country at prices that do not reflect their cost.

The European Commission was “assessing documentation” received from Chinese authorities, and would assist in the investigation “in close cooperation” with EU liquor companies, Commission trade spokesperson Olof Gill said in a statement.

China is an important market for European brandy producers, and news of the probe sent shares of luxury consumer goods groups tumbling.

Agatha Kratz, director at Rhodium Group, said the vast majority of the companies that could be affected by Beijing’s investigation were French cognac brands.

“China has become such a big market for spirits, and French spirit companies,” she told CNN. “In 10 years, (China has) become one of their key revenue drivers and growth drivers.”

Shares of Pernod Ricard fell nearly 4% in Paris. The company owns Martell, a maker of cognac dating back more than 300 years. Rémy Cointreau’s stock plummeted over 11%, while Bernard Arnault’s LVMH, which owns Hennessy cognac, dropped 1%.

Jessica Whyte, a spokesperson for Pernod Ricard, said that the company was “confident that (its) products and commercial practices fully comply with Chinese and international regulations.”

China could eventually impose tariffs on imports of French brandy, just as it did to imports of Australian wine in 2020 following an anti-dumping investigation. The tariffs crippled many Australian wine exporters.

Kratz, at Rhodium Group, said she believes the move was in retaliation for France’s strong support for the EU probe into suspected anti-competitive trade practices by China.

“A lot of French companies (toward) the end of the year were telling us that (they) hadn’t seen any retaliation and were feeling good,” she said, adding that the new investigation provides a “cold shower” for the industry.

In September, the European Commission said it had launched an investigation into Beijing’s possible use of “huge state subsidies” to keep prices for its electric vehicle exports “artificially low.”

“Global markets are now flooded with cheaper Chinese electric cars,” European Commission President Ursula von der Leyen said in a speech. “This is distorting our market,” she added.

Brussels has clamped down on cheap Chinese imports in recent months. In November, the European Commission imposed temporary tariffs of up to 24% on certain plastic products imported from China following an anti-dumping investigation.

Then, in December, the EU opened another anti-dumping investigation into Chinese biofuel imports, which local producers have claimed are “seriously harming” their industry.

“We expect 2024 to be a pretty tense year in EU-China relations, and we expect the EU Commission to potentially launch more investigations into certain Chinese exports,” Kratz said.

Maya Szaniecki contributed reporting.