June 23, 2020

Weaponizing the Ties that Bind: China’s Clear Message to Australia Amid the Covid-19 Inquiry Cause Celebre

By Tennyson Dearing

In mid-April, the Australian government started on a campaign for an independent inquiry into the origins of Covid-19. Central to its appeal was that an investigation should be conducted outside the purview of the WHO, which Australia worried had drifted too close to China.

The move was abrupt, and came without warning for, or prearranged support from Australia’s partners overseas. In a bid to form a coalition of the willing, Australian Prime Minister Scott Morrison touted the plan on calls with Chancellor Angela Merkel, President Emmanuel Macron, and President Donald Trump, as well as in letters to all of the G20 leaders.

At the same time, however, the EU had submitted a draft resolution it intended to table at the World Health Assembly (WHA) in May. The resolution called for, inter alia, an ‘evaluation…of the lessons learnt’ from the international response to Covid-19 (OP 5.18). In a strategic pivot, Canberra abandoned its own campaign, and moved to support the EU’s resolution with a view to strengthening the language.

On 18 May the WHA met virtually, and the draft EU motion passed unanimously. Contained in the motion is a key clause, reportedly pushed for by Australia (Galloway and Bagshaw 2020), for an ‘impartial, independent and comprehensive evaluation’ of the source of the virus, and of the WHO’s response. China is not mentioned by name, and the Independent Oversight and Advisory Committee, established by the WHO, will oversee the review.

It’s arguable that Australia’s contribution to the resolution was slight. Yet Australia’s injury to China was not in the outcome of its efforts, but rather, in its intent to speak out against the economy on which it so heavily depends.

Australia’s Dependence On China

China is Australia’s largest export market. In 2019 China accounted for 32.6% of Australia’s total exports (around AU$153 billion dollars), casting a long shadow over its second-biggest export market, Japan, with a share of 13.1% (AU$61.7 billion) (DFAT 2020). Last year was not the exception but the rule, and reinforces a decade-long tradition of Sino supremacy in Australian trade relations.

Australia’s exports to China can be divided in two categories: primary goods (including commodities like minerals or beef) and services (including leisure and education). Both are affected by China’s domestic conditions. Over the last two decades, an expansionary fiscal policy has driven investment-intensive growth. In 2000, Chinese government expenditure hovered at 1.58 trillion yuan; by 2019 expenditure had swollen to 23.89 trillion yuan (NBS 2020). Much of this has been concentrated on manufacturing and infrastructure projects, increasing demand for raw materials, and especially iron ore and coking coal—Australia’s two largest exports (DIIS, 2019).

Additionally, the burgeoning of a Chinese middle class has seen a tremendous shift in economic power. Not only is China a source of supply of goods, but it is now a source of demand, too. According to McKinsey & Co (2019a), Chinese consumer spending accounted for 31% of global household consumption growth between 2010 and 2017. This is coupled with changing consumer habits, as households spend more on discretionary and premium products, including Australian agricultural exports which last year accounted for AU$14 billion (Rural bank 2019).

Middle-class demand has also affected Australian services. Australia’s tourism industry is the country’s single largest services export, with a pre-Covid value of AU$152 billion. In 2018, Australia’s biggest cohort of international visitors came from China (1.3 million people), spending AU$11.5 billion (Tourism Australia 2018). Australian education exports are equally exposed. Last year universities hosted 212,264 Chinese students, accounting for approximately 10% of all students, and over $10 billion in revenue (CIS 2019).

Australian exports to China now account for 16% of GDP, compared with 4% from 2003 to 2007 (McKinsey & Co 2019b). Certainly then, Australia is highly exposed to Chinese demand, and in turn, to China.

Reprisals As a Matter of Course

Canberra’s calls for an inquiry came amidst already souring Sino-Australian relations, particularly after the government intervened to ban Chinese-owned Huawei from participating in Australia’s 5G-network in 2018. Though, following the inquiry push, Beijing responded with diplomacy in terrorem, and weaponized those economic ties that Australia depends on.

On 26 April, China’s Ambassador to Australia, Cheng Jingye, leveled a veiled threat that, if Canberra continued on its course for an inquiry, Chinese tourists and students would reconsider their choice of destination, and that ‘ordinary people would think “why should we drink Australian wine? Eat Australian Beef?”’(Tillet 2020a).

In May, China imposed an import ban on four Australian abattoirs, citing technical infringements and, after an ongoing investigation, imposed two tariffs on Australian barley at a collective 80% for ‘anti-dumping infringements’. State-owned power utilities in China were also warned against buying Australian thermal coal, and instead encouraged to purchase domestically. Then, in June, China’s Ministry of Culture and Tourism issued a travel alert, reporting a significant increase in racial attacks toward people of Chinese appearance—something Australia’s Minister for Foreign Affairs, Marise Payne, labeled ‘disinformation’.

As Australia enters its first recession in 29 years, the assault on trade will be keenly felt. The Australian Bureau of Agricultural and Resource Economics and Sciences suggests that the barley tariffs alone will cost Australian farmers ~$330 million, but will potentially cost China ~$3.6 billion given its reliance on Australian barley for brewing beer (Tillet 2020b). Though, it’s not likely that China imposed tariffs without realizing its own opportunity cost; rather, and even more concerning, China imposed tariffs despite the costs.

Neither Beijing nor Canberra has publicly acknowledged that the trade measures are linked to politics, and both have been firm in their condemnation of the other. While this is not China’s first use of sharp power, the confrontation signals China’s willingness to make its own, Machiavellian rules of the game. More than this, it sends a clear message to Australia, and the international community, that political affronts will be met with economic consequences.

Reference List

Centre for Independent Studies, 2019, The China student boom and the risks it poses to Australian universities, Salvator Babones, Sydney.

Department of Foreign Affairs and Trade, 2020, Trade and investment at a glance 2020, AGPS, Canberra.

Department of Industry, Innovation and Science, 2019, Resources and energy quarterly, AGPS, Canberra.

Galloway, A. and Bagshaw, E. 2020, ‘Coronavirus inquiry resolution adopted at World Health Assembly as China signs on’, Sydney Morning Herald, viewed 19 June, <https://www.smh.com.au/politics/federal/coronavirus-inquiry-resolution-adopted-at-world-health-assembly-as-china-signs-on-20200519-p54ukn.html>.

National Bureau of Statistics of China, 2020, ‘National government revenue and expenditure’, viewed 20 June 2020, <http://data.stats.gov.cn/english/tablequery.htm?code=AC07>.

McKinsey & Company, 2019a, China consumer report 2020: The many faces of the Chinese consumer.

McKinsey & Company, 2019b, China and the world: Inside the dynamics of a changing relationship.

Rural Bank, 2019, Australian Agricultural Trade 2018-2019.

Tillet, A. 2020a, ‘China consumer backlash looms over Morrison’s coronavirus probe’, Australian Financial Review, 26 April, viewed 20 June 2020, <https://www.afr.com/politics/federal/china-consumer-backlash-looms-over-morrison-s-coronavirus-probe-20200423-p54mpl>.

Tillet, A. 2020b, ‘Barley backfire: tariffs to cost China $3.6b, Birmingham reveals’, Australian Financial Review, 17 June, viewed 20 June 2020, < <https://www.afr.com/politics/federal/barley-backfire-tariffs-to-cost-china-3-6b-birmingham-reveals-20200617-p553ej>.

Tourism Australia, 2018, Annual Report, AGPS, Canberra.

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