Tensions grow between China and Australia

The People’s Republic of China and Australia certainly had a much better relationship in the past than they have at the present time. Observers and experts even talk about reaching a new low in bilateral relations between the two nations. Several factors play a role here – A snapshot.

China’s encirclement under the leadership of the USA
Political tensions between Australia and the People’s Republic of China have visibly intensified over the course of this year, culminating in the conclusion of a military and economic agreement between the government in Canberra and India’s Prime Minister Narendra Modi in the middle of the year.

If one adds the island republic of Taiwan to Japan, South Korea and Vietnam, a policy of regional encirclement by individual neighboring states has been emerging for some time with regard to the People’s Republic of China, which is taking place and being expanded under the leadership of the United States.

Delay of Australian imports – import ban expected this week
The South China Morning Post (SCMP) cited multiple sources earlier in the week to indicate that Chinese customs authorities were currently delaying an import of lobster from Australia. Chinese imports of copper ores, copper concentrates and sugar from Down Under would also be expected to be banned later this week.

This is just at a time when bilateral relations between the two Pacific nations have reached a new low in many decades. Already last week, the People’s Republic of China tightened an import ban on a range of wood and barley products commonly used in animal feed and beer production, some of which have already been banned from import since early September.

Now, some Australian lobster exports are reported to have been subjected to increased import controls by customs authorities there after arriving in the People’s Republic of China, leading most Australian exporters to halt shipments for the moment until more clarity can be provided, according to the SCMP.

The Australian government publicly protests against the measures
Local media reports said that in at least one case, several tons of premium shellfish were left behind at a Chinese airport. In response, Australian Agriculture Minister David Littleproud said he had “serious concerns” about reports that apparently unnecessary excuses were being made to justify the search for various trace elements of minerals and/or metals by Chinese inspectors.

According to Littleproud, all products exported to the People’s Republic of China had already been tested before leaving Australian ports. For this reason, Littleproud raised the question of why such measures are being taken in the People’s Republic of China.

A determining factor could be that the People’s Republic of China accounted for 94 percent of all Australian lobster and langoustine exports in 2018-2019, with an export value estimated at more than half a billion AUD.

Imports of premium shellfish only stay fresh for three days unless they are quickly put into storage containers. Barley products were also recently subject to tariffs by customs authorities in the People’s Republic of China, while wine imports were subject to additional import procedures.

The Australian Department of Trade has meanwhile lodged an official protest against this type of delay, because serious rumors were currently circulating about additional import bans to be imposed by the People’s Republic of China. Commerce Secretary Simon Birmingham insisted that “the Chinese authorities should not use discriminatory measures from now on.”

A statement released earlier in the week said that all importers should be treated equally. This appears to be particularly true following an official announcement on a temporary suspension of an import of Australian coal and possibly certain fibers used in Chinese cotton mills.

“Given that concerns had arisen in certain industrial sectors due to a violation of obligations under the World Trade Organization statutes or with respect to the Free Trade Agreement concluded between the People’s Republic of China and Australia, the Chinese authorities should refrain from applying discriminatory measures,” Birmingham added.

Prime Minister: China exploits position as largest trading partner to exert coercion
Citing the United Nations, Australian exports to the People’s Republic of China totaled the equivalent of $103 billion in all of 2019. Scott Morrison, the country’s prime minister, had recently accused the People’s Republic of China of using an exercise of coercion to emphasize its own status as Australia’s now largest trading partner.

The current development follows accusations and speculation by political leaders of Western nations – including the U.S. and the U.K. – in early summer, according to which the Beijing government was thrust into the world spotlight for its own role as well as a possible cover-up of the spread of the new coronavirus. The Australian government then initiated an international investigation.

China responds to coronavirus allegations
At the latest, bilateral relations between the People’s Republic of China and Australia became increasingly strained after the Beijing government called on Chinese tourists and students to refrain from visiting Australia, which even led to the temporary arrest of well-known Australian media representatives in the People’s Republic of China.

Prior to the outbreak of the global pandemic, Chinese travelers proved to be by far the most bubbly source of international tourism revenue from Australia’s perspective. That information comes from an industry report released in June, which said Chinese visitors accounted for $12.4 billion of the $45.4 billion in total annual tourism revenue generated Down Under.

DepthTrade Outlook

Everything is starting to drift apart more and more. Of course, the People’s Republic of China uses its market power to achieve political goals. In terms of strategic goals in the Asia-Pacific region, this is especially true. Australia, in turn, must consider how it intends to position itself in the future in the face of an ongoing health crisis and worsening economic problems. China, by its very nature, will not tolerate growing political, economic and military ties with India, while the 5-Eyes nations – including Down Under – are doing everything they can to collectively paint China into a corner.

That the Australian government’s demand for an international investigation into the origin of the new coronavirus is fully understandable, correct and also highly important is one thing. However, it is quite another to take the biggest trading partner in the world to task for this without much tact. Down Under, they will have to prepare themselves to bake smaller rolls in the future if bilateral relations with the People’s Republic of China deteriorate even further – and then stand by them.

Hayato Ishikawa Send an email

Mr. Ishikawa has more than 25 years of experience in the financial markets, focusing on stocks, real estate, cross-asset risk hedging, and business founding. He is co-founder of a private investment group - specializing in the western pacific region and an independent analyst as well as business advisor. Mr. Ishikawa is known for bringing technical and fundamental analysis as well as sentiment into a coherent overall assessment - unbiased financial and political journalism made in Japan.
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