China and the World

A bitter harvest

Beijing slaps tariffs on Australia barley, after row over Covid-19 inquiry

Sydney-Chinese-w

Chinese tourists: a boon in the past for Sydney

Was it really a coincidence? That was the question about the timing of China’s Monday announcement that it was slapping tariffs on Australian barley exports, which were worth about $600 million last year. Only a few hours later a meeting of the World Health Organisation (WHO) would adopt a call for an inquiry into the global response to the coronavirus outbreak, something which the Australian Prime Minister Scott Morrison has been proposing for almost a month. That effort has enraged the Chinese, who suspected an effort to blame them for the coronavirus and warned the Australians against “ideological bias and political games”.

A few days earlier there was news of a Chinese ban on meat exports from four abattoirs that process about a third of the beef that Australia’s farmers were expecting to sell to China this year. But the irony is that both governments have been keen to claim that the situations are unconnected. China’s foreign ministry argues that the beef and barley cases are regulatory matters, which predate the row over the pandemic inquiry, and the Australian agriculture minister took a similar position when the tariffs came into effect on Tuesday. “The reality is they are separate,” he said of allegations that the move was linked to the pandemic inquiry, adding “there’s no trade war” for emphasis.

The Chinese authorities say the tariffs are part of a long-running investigation into dumping, and that there have been problems in the past with the same slaughterhouses as well. But Beijing often adopts technical or administrative measures as a means of conveying its political displeasure. One example is how South Korean retailer Lotte ran into trouble over a series of licencing, tax and safety issues in the aftermath of Seoul’s decision to deploy a US missile system (see WiC354). Another is how the government has made it harder for mainland tourists to visit Taiwan.

For Australia the priority is more about downplaying the threat to its overall trade with its biggest customer – one that buys about a third of its exports.

Yet the reality is that most analysts see the beef and barley rows as punishment for Canberra’s calls for an inquiry into the pandemic. After all, the Chinese ambassador pretty much gave the game away with warnings about the potential repercussions, including a potential boycott of Australia by Chinese tourists and students.

There may also have been a sense of frustration that the Australian government is causing problems again, after Canberra was first to announce a blanket ban on Huawei’s equipment in its national 5G network in 2018 (see WiC422). But in the latest case it has been harder to cast the Australians as unruly outliers, especially after more than 130 countries backed a motion at the World Health Assembly for an “impartial, independent and comprehensive evaluation” of the international response to Covid-19.

The Chinese had realised this in the lead-up to the meeting, shifting their position towards supporting the resolution (which China’s Foreign Ministry described as “not the same thing” as Australia’s push for an inquiry). On Tuesday China accepted that a fuller investigation was required, albeit with the caveat that the review shouldn’t begin until the pandemic has passed.

To save further face, its diplomats can claim that the wording of the resolution had been softened from the initial suggestion by the Australians, who had argued against allowing the WHO to lead the investigation. The inquiry is now being described as an independent review within the health body, which comes closer to what Beijing had wanted.

Also important from China’s perspective is that Taiwan’s bid to attend the assembly as an observer was shelved (Beijing has blocked the island from attending since 2016; see WiC495), while Taiwan’s foreign minister also said it would hold back on pursuing its bid for WHO membership, following advice from “like-minded nations”.

Previously countries including Australia had indicated they would look more favourably on Taiwan’s request to be admitted to the UN body, based in part on its success in containing the outbreak.

Beijing is adamantly opposed to any change in status, saying that the Taiwanese are exploiting the issue as a route to recognition internationally.

Despite all of this politicking, it was hard not to see President Xi Jinping’s address to the gathering on Monday as a defensive measure. There was an offer of another $2 billion to fight the pandemic around the world, plus a commitment that any vaccine developed in China would be made available to all as a “global public good”. Most of the media focus was on his repudiation of criticism of China’s conduct, however. “All along we have acted with openness, transparency and responsibility, we have provided information to the WHO and relevant countries in the most timely fashion, we have released the genome sequence at the earliest possible time, we have shared control and treatment experiences with the world without reservation, we have done everything in our power to support and assist countries in need,” he insisted via video conference.

None of that appeased Alex Azar, the US health secretary, who dialled into the meeting to denigrate the WHO for failing at its “core mission”.

“In an apparent attempt to conceal this outbreak, at least one member state made a mockery of their transparency obligations, with tremendous costs for the entire world,” he added, leaving little doubt as to the target of his tirade.

The question for Canberra is how far its role in calling for an inquiry is going to spill over into a crisis in trade relations with China. At the moment the bad feeling looks like it will linger: when figures in the Australian government described the passing of the resolution as a vindication of its position, the Chinese embassy fired back immediately that the claim was “nothing but a joke”.

Lockdown restrictions have already shut down tourism and education – two of Australia’s biggest services exports to China – but the risk is that both could be squeezed further if relations fail to improve. Other export earners – wine, seafood and dairy, perhaps – might be in China’s crosshairs too.

Beijing’s ultimate threat is to shut down demand for the shipments of coal, iron ore and liquid natural gas that account for about 60% of Australia’s exports. There are already whispers in the Chinese press that the order might go out to switch to alternative producers. But that kind of scenario is unlikely without a drastic deterioration in relations. A boycott would batter the Australian economy mercilessly because of its reliance on the Chinese as customers.

But there would be costs for China too: putting tariffs on coal would push costs up at many of its power plants and cutting off iron ore would see a spike in expenses at steel mills, many of which are engineered to take particular blends of Australian ore.

“No one from either side will be trigger-happy over the iron ore trade. It’s the nuclear option,” was how Li Xinchuang at the China Iron and Steel Association described the risks of a worsening of the row, adding that it would take at least four years to find a substitute supply from places like Africa, which shipped a tenth of the ore sourced from Australia in the first quarter this year.

Not that Canberra should take the threat lightly, however. “Once such a transition is completed, Australia’s place as an iron ore supplier to China will be lost forever,” Li warned.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.