What happened?
On 6 May, the National Development and Reform Commission, state economic planner of China, announced that it is indefinitely suspending the Strategic Economic Dialogue with Australia, which was launched in 2014 to strengthen the bilateral economic and investment ties. 

The statement on the NDRC website has accused Australia of disrupting "the normal exchanges and cooperation between China and Australia out of Cold War mindset and ideological discrimination." Chinese Foreign Ministry spokesperson, Wang Wenbin called it a "necessary and legitimate" response to Australia. He mentioned that Australia is "abusing" national security concept to pressure cooperation from China.
 
What is the background?
First, the Sino-Australian differences in recent years. Sino-Australian relations are at their multi-decade low. Tensions began since Australia becoming the first country to ban telecom giant Huawei in 2018. In April 2020, when Australia demanded an international inquiry into the origins of the COVID-19 virus, China retaliated with a series of accusations of racism and human rights abuses. In July 2020, travel restrictions from Australia after the passing of Hong Kong National Security Law invited further trouble as China imposed sanctions and high tariffs on commodities from China. Although the housing industry and iron ore imports constituting majority of the trade between the two remained unaffected, wine was imposed with more than 200 per cent tariffs and other commodities like coal, barley, beef, and cotton were also highly affected. The scraping of the Victorian BRI project, in April 2021, by the federal government in Australia came as the final blow.

Second, the regional and international environment. Although the relationship between China and Australia has always faced challenges due to Australia's intimacy with the USA, the latest currents in the Sino-US trade war have made it difficult for allies like Australia to reconcile with China. Australia considers itself as an emerging power in the Indian Ocean, and is a partner in the Quad as well as the Supply Chains Resilience Initiative. However, China sees it as the weakest link in the chain of US allies. The attempts made by Australia to diversify its trade partners were not well received by the rising superpower of China. While China is pushing for a bigger goal of sending a message to its opponents in the West by giving Australia one of the hardest economic punishments, Australia is also stubborn to stand up to the bully.

Third, the domestic aspirations. President Xi's aggressive foreign policies have brought back the Chinese nationalism narrative to the front. A key function of his presidency is built exclusively on this nationalism cultured by the Communist Party. President Xi has hit back on any western power that recommends China a democratic system. In his 'great rejuvenation of the Chinese nation,' he has built strong anti-American and anti-foreign sentiments. Moreover, in this tussle of domestic aspirations, Australia is a soft target for China. Prime Minister Morrison has also shown his wariness towards foreign interference in his country and has been scrutinizing every foreign deal under the backdrop of Australian national interests. By not visiting China even once, he has signalled that he is ready for the diplomatic war without fear.

What does it mean?
First, the impact on economy. The co-dependence between China and Australia in numerous sectors will keep the effect on their economies within check but, Australia will lose more since China remains its largest trading partner despite tensions.

Second, Australia's alternative partners of economic cooperation are also dependent on China which leaves it with little scope to squirm its way out from the sanctioned existence.