Paying the price

Relations between China and Australia are degenerating so rapidly it’s hard to know where to look. Symptoms of strain are breaking out all over, and there are still few indications that our government has any idea of how to stem the bleeding, let alone to begin improving relations. China watchers are alarmed at how bad things have got, such that it’s hard to find a single expert willing to predict anything other than years in the hurt locker for Australian exporters and diplomats. The plain evidence is that the imposition of barriers and tariffs on Australian goods is coordinated from the top level of Chinese government, and will not be reversed any time soon. Australian ministers can’t even get a phone call with their Chinese counterparts, and diplomatic relations have descended (partly thanks to our own PM) into online slanging matches. One would think that, if you were planning to engage in angry megaphone diplomacy at 10 paces with your biggest trading partner, you’d have a plan to deal with the fallout. But, alas, plans to find new markets to replace those lost in China are still years away, and our government MPs are still intent on chest-beating.

Writing in The Australian this morning, LNP senator Matt Canavan proposed that Australia respond to Chinese pressure by applying a levy on exports of iron ore to China, “because it cannot easily replace our supply”. China gets about 60 per cent of its iron ore from Australia (worth $85 billion last year), in volumes that could not be covered by other countries.

“China’s trade action has already caused massive economic harm to our beef, barley, seafood and wine industries,” Canavan wrote. “To avoid further harm we need to make the Chinese Communist Party pay a price because that will be the only thing that will stop further trade restrictions.”

His proposal, bound to be inflammatory in Beijing, was immediately ruled out by his successor, Resources Minister Keith Pitt, with the classic put-down: “Backbenchers are entitled to their views; we work under the rules-based trading system and Australia will meet its commitments.”

Iron ore is the one card up Australia’s sleeve. China needs it – for defence purposes, for its manufacturing and construction, in short for many major industries that its economic health and security rely upon.

As usual, though, threats by Australia made via brash public statements are unlikely to help anyone. It’s not like the Chinese government was unaware it relied on Australian ore. 

Meanwhile the ABC reports that, from December 31, foreign buyers (read: Chinese buyers) will face even more scrutiny when bidding for sensitive assets in Australia. In March, the Morrison government ruled that every foreign investment bid for an Australian asset must be screened by the Foreign Investment Review Board (FIRB), and Chinese bids have reportedly all but frozen since the changes were introduced. With Australia recently blocking the Chinese purchase of a major dairy producer, for no obvious reason, it’s no wonder the temperature in Beijing is rising. Needless to say, Australian exporters of wine, seafood, barley, coal, timber, lamb, beef and wool stand by, dreading the next blow. Universities must also be looking at their bottom lines as they wonder how many Chinese students will return to our shores.

But Xi Jinping’s government is not for turning, and it will wear the extra cost of our ore if it needs to. How long can Australia bear the cost of the trade war?

Finally, in The Australian this morning, it was also revealed that Australian, British and US consulates in Shanghai have been “infiltrated” by Chinese Communist Party members “employed as senior political and government affairs specialists, clerks, economic advisers and executive assistants”. 

A leak of official membership records (“the first in the world”) exposed details of 1.95 million CCP members, “including their position, birthdate and ethnicity, after being extracted from a Shanghai server by whistleblowers”.

Here is one of the nubs of the problem for Australia: with nearly 100 million members, the Chinese Communist Party includes most people of influence in China, and most who are ambitious and interested in public affairs generally. Are we to tar them all as “infiltrators”? 

The first step to righting the relationship will be to tone down the attitude, stop clutching for tough-guy headlines, and quietly work towards understanding who we’re dealing with. As it stands, things are set to get worse before they get better.

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