Insights for Investors by Investors

China ramps up its campaign for self-sufficiency

The-Inside-Adviser-Assets_12:11:209

Australia is facing yet another round of export bans after Chinese authorities knocked back tonnes of lobsters, timber from Queensland and barley from a second grain grower. Without warning, paid goods that had arrived at ports were sent back in what is known as a ‘soft ban’ that falls outside of current trade agreements.

Authorities even left a lobster shipment stranded, making it unlikely to survive more than 48 hours. The General Administration of Customs of China (GACC) issued the typical reasons, ranging from Aussie timber containing pests to the lobsters being contaminated, despite clear quality tests being conducted before departure. Australia has the most stringent regulatory and biosecurity controls in the world. It’s obvious what is going on here, the message is clear: China is kneecapping Australia as punishment for a range of sins.

The move follows China’s recent ban on coal imports and comes against a backdrop of trade punishments aimed at hurting Australia in retaliation for calling an international probe into the origins of the Coronavirus. But more broadly, to reset the trade relationship, not unlike the US is seeking to do with China at the same time. In 2020 alone, China has banned Queensland timber, wheat, barley, sugar, red wine, logs, coal, the A$700 million lobster trade, copper ore and concentrate. It’s a dirty tactic in any playbook. PM Scott Morrison told local radio station 2GB, “We are an open-trading nation, mate, but I’m never going to trade our values in response to coercion from wherever it comes.”

So, what’s next? Iron ore and LNG?

Whilst some economists appear confident China will remain the top destination for Australia’s iron ore shipments, it seems more likely that this diplomatic spat could see Beijing go all the way, irrespective of the economic cost. Australian iron ore accounts for roughly 60% of China’s total imported iron ore. Going down the path of banning iron ore will hurt domestic steel producers and will come at a cost to Chinese growth at time when the CCP is looking to release stimulus into construction and infrastructure. Exports worth up to $19 billion a year have been disrupted with an additional $28 billion on the chopping block. The CCP also recently announced its intention to seek self-sufficiency in many key production sectors over the decade ahead.

The answer is simple: Australia’s over-reliance and dependence on China has put us in a vulnerable position. We cannot have all our eggs in one basket anymore. Australia must look for other countries to replace China.

Subscribe to our Newsletter​

Share on facebook
Share on twitter
Share on linkedin
Share on email

Everyone's reading :

Leave a Comment