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CWA # 484, 7 June 2021

China Reader
China and Australia: Beijing's suspension of the economic dialogue with Australia will cost China more.

  Keerthana Rajesh Nambiar

Australia pulled out of Belt and Road initiative and opened for an independent investigation on the origins of coronavirus; China suspended the economic activities in retaliation.

In May 2021, The National Development and Reform Commission (NDRC), a macroeconomic management agency under the State Council of China, decided to indefinitely suspend all activities under the China-Australia Strategic Economic Dialogue. The NDRC further blamed Australia for the suspension of economic dialogue. China had complained about a "Cold War mindset" and "ideological discrimination" of some Australian officials. In a press conference by Wang Wenben (spokesperson of the Ministry of foreign affairs), mentioned the doubled restrictions and suppression slapped on the Beijing- Canberra projects in trade, culture, and people to people exchanges by falsely citing national security reasons are damaging the mutual respect of both the countries.

The cordial economic relations between China and Australia have been abrasive over the last three years. The souring ties between both countries began in 2018 when Australia banned Huawei. The ideological differences between both the countries have always conflicted, starting with the issues related to - Uighur Muslims, the national security law in Hong Kong, and then the Chinese allegations of war crimes committed by the Australian armed forces in Afghanistan. The back and forth coarse criticisms through Twitter worsened the ties between both countries. The major trigger was when Australia called in for an independent investigation on the origins of the coronavirus in China.

China and Australia: Looking back at the inter-dependency
China is one of Australia's biggest trading partner. Both countries are economically interdependent on each other. Australia is China's largest resource for iron ore, LNG, coal, gas, wool, and beef. Australia is the biggest exporter of iron ore in the world, China being its largest consumer. Almost 60 per cent of its iron ore is exported to China, almost  USD 85 billion. . The ban will disrupt the Chinese economy, and it will not be a pioneer in the production industry anymore.  The compromised supply of iron ore will paralyze the Chinese mills. Pig iron, one of the raw materials used in steel production, is derived from iron ore. China's extraordinary economic progress and technological advances will be altered the country and make an irreversible dent in the steel industry and its economy. 

Australia is the largest exporter of LNG to China, exporting more than 40 per cent. The prospect of China cutting off Australian LNG shipments, given its heavy reliance on supplies from the country, is more likely to be unstirred.  Australia last year shipped USD 10 billion worth of LNG to China, which would be challenging to replace.  Other Australian luxury goods such as wine worth USD 1.1 billion and gold worth USD 5.2 billion are very familiar among the Chinese and always have a high demand for these Australian products. The education and tourism sector is the other most co-dependent sector. Almost 33 per cent of the university students in Australia are Chinese, and academics itself is a field where the Chinese have invested millions in research. Australia is the most sought travel destination by the Chinese as it provides an all-in-one experience of exotic beaches, wildlife, good food, and wine. 

Looking beyond each other: Can they?
Exploring other markets is always an option for China. Now, China is forced to buy lower-quality coal at higher prices while its competitors benefit from high-quality iron ore at lower prices. It is more of a threat to long-term economic growth; the immediate effect would be comparatively less. For the past few months, China has been stocking up iron ore as the manufacturing season is near in China. Brazil is the second-largest exporter of iron ore, but the country is battling with the pandemic among other factors such as dam collapsing and heavy rains; hence, the exports would be low. China's agenda to explore Africa and Turkmenistan is a viable option but a very complex and time-consuming process. Recovering LNG  from countries like Malaysia and Qatar is a viable option for China but exporting in such a large amount is not feasible. With the export being ruled out, China will lose its hold on the Australian economy, making Australia turn to self-manufacturing options with abundant resources and a capable workforce.

The Australian economy will also be disrupted along with the Chinese. The co-dependent economy makes both of these countries vulnerable to suspension. Australia is one of the biggest importers of manufactured steel and concrete. Chinese products like electrical, electronic equipment, machinery, nuclear reactors, boilers, among many others worth more than USD 56 billion, dominate the Australian market. 

Serious spat or just tit-for-tat
Australia pulled out of Belt and Road initiative and opened for an independent investigation on the origins of coronavirus; China suspended the economic activities in retaliation. China being Asia's trading superpower with the lack of raw materials, will be fighting for its position, especially with groups like QUAD, where leaders from the US, Japan, India, and Australia put up a united front in the Indo-Pacific. The economic suspension is a grave failure in holding a diplomatic dialogue by both countries.



About the author
Keerthana Rajesh Nambiar is currently pursuing her post-graduation in International Relations at Maharajas College, University of Mysore. Her current area of research is East Asia.
 

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