China's Ministry of Commerce said Tuesday it is launching an anti-dumping investigation into some wines imported from Australia.
Australia's Federal Trade Minister Simon Birmingham said in a statement that Chinese authorities "have also advised Australia that they are considering a request to launch a countervailing duties investigation."
"This is a very disappointing and perplexing development," Birmingham said, adding that "Australian wine is not sold at below market prices and exports are not subsidised."
The announcement comes amid growing geopolitical tensions between the two countries. China is Australia's top export market, and by far the largest destination for the island continent's wine exports by value, according to the government's industry authority, Wine Australia.
The Chinese investigation targets "wines in containers holding 2 liters or less," according to an English translation on the Commerce Ministry website.
A typical bottle of wine is about 0.75 liters.
The anti-dumping probe follows a request in early July from the China Alcoholic Drinks Association, the Chinese Ministry of Commerce said in a separate online statement Tuesday. The inquiry will look into potential dumping during 2019, and industry damages for the years 2015 to 2019, the statement said.
The investigation will last for one year — until August 18, 2021 — with the potential of being extended until February 18, 2022, under special circumstances, according to the ministry.
Australia had the largest share of China's imported wine market at 37%, according to data for the 12 months through May from Global Trade Atlas and cited by Wine Australia in an August 4 report.
France was second at 27%, followed by Chile at 13%, the report said.
Trading in shares of Australia's biggest wine company Treasury Wine Estates was briefly halted pending an announcement, according to a statement on the Australian Stock Exchange website. The shares tumbled more than 13% in Tuesday trading.
Treasury Wine Estates later said in a statement released by the Australian Stock Exchange that the company will cooperate with any requests for information from Chinese or Australian authorities. The company added it will remain focused on building its premium and luxury brands, and generally working to grow its contribution to China.
It was not immediately clear whether Treasury Wine Estates is part of the Chinese probe.
James Pearson, CEO of the Australian Chamber of Commerce and Industry, said in a statement to CNBC that in addition to maintaining the long-standing trading relationship with China, the Australian government needs to help the domestic industry find new trading partners and build emerging markets.
Australia exported 62% of its wine produced in the 12 months through the end of June, according to Wine Australia's report.
Mainland China was by far the largest market by value, with exports rising 0.7% to 1.1 billion Australian dollars ($790 million), the report said, noting growth in exports at higher prices and a decline at the lower-end of the market.
Wine Australia referred a CNBC request for comment to the national industry association Australian Grape and Wine.
The organization said in a statement that: "We believe that the Australian grape and wine sector is well placed to respond to this investigation and Australian Grape & Wine and our exporting companies will cooperate fully."
"The Australian industry welcomes the opportunity to build on these ties and work with the Chinese industry and government to further technical cooperation and develop lasting relationships," the association said.
— CNBC's Will Koulouris contributed to this report.