China tensions set to further pummel Australia’s coronavirus-battered economy
- Officials in Canberra say they cannot meet Beijing’s conditions to re-engage in high-level dialogue on trade and other ties – and are prepared to ‘pay a price’
- Optimists cite the past experiences of Japan and South Korea, but Australia’s position is weaker – and neither Canberra nor Beijing seem willing to compromise
Former Prime Minister Malcolm Turnbull said last month that China’s campaign to “make us more compliant” has “completely backfired”. Beijing’s pressure, he added, “has demonstrated to China that they can pull all these levers and it doesn’t actually work”.
“In the future that’s where the growth will be, all this middle-income stuff, and unfortunately that’s what’s being impacted in this conflict with China,” said Bob Gregory, a professor at Australian National University who has studied the economy for half a century.
Now the hopes for larger markets and more jobs are in tatters, as tariffs drive up the costs for some goods and Australia’s reputation in China tumbles. The flow of investment has also fallen away, at least partly because of Canberra’s new-found hostility to money from Chinese companies.
Australia had ridden the China bonanza for nearly two decades, earning windfalls from mineral exports and income gains from cheap imports. That continues for now, with China’s punitive trade actions targeting commodities from coal to barley, lobsters and wine, but leaving iron ore untouched.
09:18
Will iron ore be dragged into the ongoing China-Australia trade conflict?
Chinese Foreign Ministry Spokesman Zhao Lijian made clear in July that the trade sanctions were in retaliation for Australia’s actions.
“We will not allow any country to reap benefits from doing business with China while groundlessly accusing and smearing China and undermining China’s core interests,” he said.
While at least one major Australian wine producer is trying to ensure that the money spent developing China’s market is not wasted, the image of Australian wines has taken a battering.
In turn, Canberra has denied rising numbers of Chinese investment and acquisition proposals. Treasurer Josh Frydenberg said earlier this year that he was rejecting investment that would have been approved in the past, arguing that China had changed under Xi.
Chinese investment in Australia tumbled 27 per cent last year to its lowest level since 2007, when the mining boom began, according to a KPMG LLP and University of Sydney report. The government is currently reviewing the 2015 decision to lease Darwin Port to a Chinese company, opening the possibility of retroactively cancelling that and other deals.
But Australia’s position is weaker than Japan’s, and neither Canberra nor Beijing have shown a willingness to compromise. China has made clear it is waiting for Australia to make the first move, while Trade Minister Dan Tehan said Australia is prepared to “pay an economic price” to defend its sovereignty.
Foreign Minister Marise Payne said in August that China has advised that it will only engage in high-level dialogue if Australia meets certain conditions, pointing to a list of 14 grievances China had with Australia that was released last year. “We can’t meet the conditions,” she said.
That means Australia’s economy, already facing the risk of a double-dip recession as Covid-19 lockdowns shut the nation’s biggest cities, may soon see the trade tailwind fade too.