China has called Australia’s plan to scrap a research agreement between the Victorian government and Jiangsu province an “act of revenge” over trade disruption that is fast threatening Australia’s economic growth. As relations between the two countries continue to deteriorate, Australian press said earlier this week that Canberra was scrutinising the bilateral Victoria-Jiangsu Programme for Technology and Innovation Research and Development after it was identified as being potentially contrary to Australia’s national interest. Signed in 2015 and renewed in 2019, it connects businesses and universities in the state of Victoria with counterparts in the Chinese province of Jiangsu and provides funding – grants of up to A$200,000 (US$152,000) – for shared research and development in areas such as manufacturing, clean technology and environmental protection. Former head of China analysis at Australia’s Defence Department, Paul Monk, was quoted saying this week that the Jiangsu deal could lead to a leak in Australian intellectual property. To the disappointment of those who have been hoping for a turnaround in relations, the Australian government is still heading down the road of no return for bilateral relations China Daily editorial “The bid to scrap the Victoria-Jiangsu Programme for Technology and Innovation R&D, which was agreed in 2015, is obviously intended as an act of revenge by Australian Prime Minister Scott Morrison for China’s probes into imports from Australia,” said an editorial by the state-owned newspaper China Daily on Tuesday. “To the disappointment of those who have been hoping for a turnaround in relations, the Australian government is still heading down the road of no return for bilateral relations. “China has no intention of seeking global hegemony. It pursues a peaceful rise, and seeks to develop reciprocal and equal relations with all countries. “However, it seems the current Australian government is unsettled by that. Looking through an ideological and geopolitical prism, it sees a distorted image of China, and perceives it to be a threat.” Last week, when asked if there was a chance the two countries could speak at a government level, China’s Ministry of Foreign Affairs said that diplomatic channels remained open and that it would be willing to engage if Australia showed its sincerity for a respectful discussion through “actions”. The relationship has soured considerably since April after Australia pushed for an international inquiry into the origins of the coronavirus without consulting Beijing, with trade suffering the most from the fallout. China has imposed anti-dumping and anti-subsidy duties on Australian barley and wine, and have also unofficially ceased trade on several products including coal, cotton and lobsters. On Tuesday, Australian Senator Jim Molan joined an increasing number of Australian backbench politicians who have called for a harder stance against China by telling Seven Network in a TV interview that he was concerned the current tensions between China and the United States and Australia could escalate into military conflict. The former Australian Army major said it was “much more likely than is currently recognised” that China could go to war with the US, and urged the Australian government to “prepare for the worst case scenario”. He pointed to China’s aggressive approach with Taiwan and in the South China Sea. Despite calls by former diplomats for tensions to cool, the conflict, which has its genesis beyond the coronavirus inquiry particularly after Australia rejected Huawei’s 5G technology and urged other countries to do the same, has continued to wreak havoc on trade. Capital Economics said last week that it expected tensions to remain indefinitely and estimated the trade actions on products so far, such as barley and wine, could erode Australia’s gross domestic product (GDP) by 1.8 per cent as the goods already targeted contributed that amount to Australia’s output. Taking the position that Australia’s two key exports to China, iron ore and liquefied natural gas, would be spared, Australia’s GDP could be trimmed even further, by about 2.8 per cent, if China targeted more minor exports, Capital Economics analyst Marcel Thieliant said. While Australia should be able to divert some shipments to other countries, the escalating trade war is another reason why Australia’s economy will never return to its pre-virus path even once the pandemic has been brought under control Marcel Thieliant “While Australia should be able to divert some shipments to other countries, the escalating trade war is another reason why Australia’s economy will never return to its pre-virus path even once the pandemic has been brought under control,” Thieliant said. Australia’s GDP grew by 2.2 per cent in 2019, according to the Australian Bureau of Statistics. Thieliant said, after stripping out the value of key export iron ore, which has risen on the back of record-level prices, figures show trade tensions have already had an effect on Australia’s GDP. Iron ore prices have risen to nine-year record levels of around US$170 to US$180 a tonne in recent weeks, prompting China to query the prices with Anglo-Australian miners Rio Tinto and BHP. Last month, simulations by economics experts Rod Tyers and Yixiao Zhou from The University of Western Australia and The Australian National University showed if China and Australia cut back trade by 95 per cent, Australia’s GDP and real per capita disposable income could fall by 6 per cent and 14 per cent respectively, while China’s GDP and income would fall by 0.5 per cent and 2.4 per cent respectively. Trade is not the only casualty in the conflict, with the plans to tear up the Jiangsu agreement this week pointing to regular criticism of China-Australia academic agreements and trade as well as business memorandums of understanding, including Victoria’s Belt & Road Initiative agreement with China. Australia’s concerns over foreign interference from Chinese students and businessmen in the past five years have contributed to the ongoing tensions. Victoria’s belt and road document, while not binding, spearheaded the newly enacted Foreign Relations Bill which gives the Australian government power to tear up any agreement or arrangement, including academic and research programmes, made with foreign countries without the possibility of an appeal. Such government surveillance could put at risk the high level of academic cooperation between the two nations, research by the Australia-China Relations Institute (ACRI) at the University of Technology Sydney has shown. China has overtaken the US as Australia’s leading international partner in producing scientific papers, ACRI said.