On Thursday last week China’s leader Xi Jinping was in fulsome form at the China International Import Expo in Shanghai. “Our aim is to turn the China market into a market for the world, a market shared by all, and a market accessible to all,” he told delegates at what is now one of the world’s largest trade shows.
Australian trade officials could be forgiven for wondering whether they had lost something in translation, however, after an increasingly troubled reception for their own exports turned even worse the following day.
Since the middle of this year Australian wine and barley has been targeted for Chinese anti-subsidy or anti-dumping investigations; imports of beef have been blocked for “technical infringements”; cotton sales have slumped as Chinese mills reduce their orders; and there’s been a marked slowdown in coal purchases from Aussie mines by Chinese power stations.
Last Friday there was news that the authorities had instructed importers to reduce their purchases of a further group of Australian goods that included copper, sugar, timber and lobster. Trade officials were soon scrambling for evidence that the restrictions were being implemented but the measures were another indication that the Australian government is getting the cold shoulder from a deeply displeased Beijing.
China’s foreign ministry telegraphed the message by calling on Canberra to “reflect” on how it is handling its relationship with its largest market. “Between China and Australia, which country is breaching the principles of a market economy and the bilateral free trade agreement? And which country is renegotiating its commitments, undermining cooperation and taking discriminatory measures? The facts are all too clear,” a Chinese foreign ministry spokesman insisted.
Australian diplomats have been tracking a rather different path to the darkening of relations, which started out with Canberra’s decision to block Huawei’s bid to build the country’s 5G network in 2018 (the first such veto by a Western government; see WiC422).
Ties then took a nastier turn with the call in April from Scott Morrison, the Australian prime minister, for an independent enquiry into the origins of the Covid-19 pandemic, which immediately riled Beijing (see WiC496).
The demand – which Morrison made again to the UN General Assembly in September – created another major point of contention in the relationship, although there is a strong sense that Beijing has been targeting trade with Australia because it regards Canberra as a close ally of Donald Trump’s more confrontational approach to China.
Along similar lines the China Daily’s observation this month was that Canberra is being censured for serving as Washington’s “roughneck”.
Of course, the Australians make for a less intimidating target than a more substantial foe like the US. Canberra has reasonable grounds for contrasting its treatment with the relatively subdued response by Beijing to months of rougher handling by the Trump administration, for instance. Trump has slapped tariffs on billions of dollars of Chinese goods, repeatedly charged that it covered up the origins of the Covid-19 pandemic and ordered American suppliers not to sell crucial components to Chinese tech firms. But apart from some tit-for-tat tariffs at the outset of the trade row, there isn’t much evidence of substantive retaliation from the Chinese against American exporters.
If Beijing really has picked out Canberra as a softer target for retaliation, the Australians will be hoping that Joe Biden’s presidential win presents a way of escaping the worst of the retribution. The China Daily urged as much on Monday, citing the change of guard in Washington as a chance for a rethink from the Australian government. “As the dust is now settling on the US presidential election, Australia is facing a new opportunity to choose the trajectory of its ties with China,” it noted. “The ball is in Canberra’s court.”
The crisis also underlines the conundrum facing the Australian government in how to shape its political relationship with a country that is the top destination for about a third of its goods. The Chinese have also been the key driver for Australia’s services exports – prior to the pandemic, at least – as the top source of tourism arrivals and international students (see this week’s “Education”), despite suggestions from the Chinese government that its nationals were better advised to study and travel elsewhere.
Canberra argues that its diplomatic approach to Beijing can’t be conditioned entirely by the commercial context and the opinion polls suggest that most voters agree. Negative views of China increased more among Australians than any of the 13 other countries in the latest Pew Research Center survey last month. Around 81% now say they see China unfavourably, up 24 percentage points since last year.
But the tensions at the heart of the trade relationship still reverberate across the domestic political spectrum, with growing criticism from Labor, the main opposition party, of the government’s handling of the bilateral relationship and deepening disquiet from business groups about the potential damage to their prospects.
The federal government is trying to forge a united front but it seems set to come under greater pressure from state governments to minimise the economic impact of the row. It risks further confrontation with its efforts to get a bill through parliament this month that allows it to overrule any state or local government arrangement with foreign governments.
Australian media is reporting that the legislation was prompted by the Victorian state government’s deal to join China’s Belt and Road scheme this summer, although opponents are warning that it could be applied to veto joint-research between Australian and Chinese universities or even to terminate town-twinning deals that the government disapproves of.
All of this is happening as Australian dependence on China as a market is growing. That relationship was already entrenched in industrial commodities like coal, iron ore and natural gas, which still account for about 70% of Australia’s goods exports to China. But the signing of a free trade deal in 2015 triggered a bigger boom, making China crucial to a wider range of businesses. Since the signing of the pact, exports of goods other than the big three commodities have grown more than three times as quickly to China as to other markets, according to a study by David Uren, a non-resident fellow at the United States Studies Centre at the University of Sydney. Sales of services like tourism and education to the Chinese have increased even faster, more than doubling compared to growth of about a third to other markets.
Uren also noted stellar sales in some of the goods now said to be unwelcome in China: lobster exports went from close to zero in 2014 to A$800m ($582.26 million) last year, for example, while sales of beef have ballooned by a factor of three, or 20 times faster than to other markets.
It’s the same story for Chinese wine demand, which has accounted for about 90% of the growth in Australian alcohol exports over the last five years, bringing in about A$1.2 billion in business last year. The most recent set of Chinese trade restrictions included red wine, which accounts for at least 80% of the Chinese imports.
Trade growth on this kind of trajectory was earlier celebrated as a spectacular success, with talk of how Australian exporters could tap into the changing tastes of China’s middle-classes for decades to come.
But others are arguing that the moral of the story is rather different. The flipside of all those additional sales is a dependence on China that makes Australia’s economy especially vulnerable. In this telling, Australian companies need the Chinese market to matter a little less to their profits – if they are to resist similar tactics from their favourite customer in future.
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