Editorial | Free-trade deal may offer path to improved China-Australia ties

Australia’s refusal to reverse its latest move in a long-running, tit-for-tat diplomatic falling out with China – the veto of two controversial Belt and Road Initiative deals the state of Victoria made – has been met by Beijing’s harshest response yet. High-level economic dialogue has been “indefinitely suspended”, putting an end to bilateral talks to facilitate greater cooperation, particularly on trade.

An even tougher line may be expected if Canberra tears up the lease of the port of Darwin to a Chinese company, which is now under review. But so far, the rhetoric is generally more strident than the reality, economically if not politically.

Except for specific industries such as Australian wine and lobster exports, neither side has been too badly hurt by their dispute, compounded last year when an Australian call for an independent inquiry into the origins of the coronavirus angered Beijing. China has sanctioned Australian commodity exports that it can obtain elsewhere at relatively little extra cost, from coal and copper and wine to barley and beef.

Australian exporters have been largely successful in finding other markets, albeit at the cost of disruption and lower profit margins. That leaves untouched Australian iron ore for China’s thirsty steel mills, now fetching near record prices, and liquefied natural gas.

As a result, Australia’s economy has emerged in better shape than feared. But, as one Australia media commentator has observed, that does not mean Canberra can go on poking China in the eye without paying a price. Australia passed a law last December allowing Canberra to cancel international agreements made by publicly funded institutions if they had a negative impact on foreign policy. China’s embassy in Canberra has warned the vetos will worsen chilly bilateral relations.