China, the fastest growing major economy in the world, has long been denounced by US President Donald Trump as being an unattractive place to do business. With high tariffs and protectionist policies, he might have a point. However, it seems Xi Jinping has been listening, as China has chosen to implement sweeping tariff cuts on a range of spirits.

In an attempt to attract a new range of consumers, tariffs have been cut on spirits including Vermouth from 65% to 14%, and in a move welcomed by the Scotch Whisky Association the whisky tariff has been cut from 10% to 5%.

More likely than Donald Trump’s criticism as a motivator for this policy change is a mix of consumer mistrust of domestic brands and the steep decline in performance of luxury spirits following Xi Jinping’s crackdown on corruption.

Tackling the scandals

Rocked by a near-continuous barrage of food safety scandals, Chinese consumers’ trust for Chinese brands is at rock bottom. More concerning is that these are step above the famous horse meat posing as beef scandal in the UK. A highly covered scandal in China involving baby milk formula in 2008 left 6 dead and around 54,000 hospitalised. There have been many more since, and with a recent scandal involving toxic Chinese whisky, it is easy to see why Chinese consumers are cautious of domestically produced spirits.

In addition to this is the previously mentioned decline in spirits sales following Xi Jinping’s corruption crackdown, what he called tackling the “tigers and flies.” However, the tigers and flies were in fact affluent officials who fuelled luxury spirit consumption in the country. Whilst the crackdown was viewed in China as a success, albeit a somewhat controversial one, China will not be keen in the drop in growth from an extremely lucrative sector.

With a rapidly growing economy, and a burgeoning middle-class, China is aiming here to capitalise on trust in Western brands by promoting growth through reduced barriers to entry. Whilst it may seem unusual to see moves by China’s administration embracing Western products at the expense of domestic ones, remember that Xi Jinping’s power base is built upon his establishing of China as a global player, and more importantly a global marketplace. This won’t be the maker or breaker of his rule, not by a long shot, but expect to see more developments like this as China continues to modernise and gain its place as a world power.

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