Australia-China trade tensions escalate

China’s National Development and Reform Commission (NDRC) has suspended economic communications with Australia, emphasising Beijing’s move away from Australian commodities.

The NDRC, China’s state planner, announced the suspension on Thursday.

It was preceded by the Australian Government’s decision to scrap Victoria’s Belt and Road Initiative agreement with China, after claiming it was not in Australia’s interest.

The NDRC’s suspension means all economic dialogue with the Australian Government has been barred.

“Recently, some Australian Commonwealth Government officials launched a series of measures to disrupt the normal exchanges and cooperation between China and Australia out of Cold War mindset and ideological discrimination,” the NDRC stated.

“Based on the current attitude of the Australian Commonwealth Government toward China-Australia cooperation, the National Development and Reform Commission of the People’s Republic of China decides to indefinitely suspend all activities under the framework of the China-Australia Strategic Economic Dialogue jointly held by the National Development and Reform Commission of the People’s Republic of China and relevant ministries of the Australian Commonwealth Government.”

The strategic economic dialogue framework allows senior members of both governments to communicate and discover future opportunities for energy and resource, infrastructure and the industrial and financial sectors.

“There are no specific projects related to the natural resource sector under this framework,” Wood Mackenzie senior economist Yanting Zhou said.

Verisk Maplecroft principal analyst Kaho Yu said both Australia and China will likely continue their restrictions imposed on one another.

“The two countries are locked in a cycle of tit-for-tat policy action against each other. While Beijing will likely continue to impose administrative restrictions on imports from Australia, Canberra will also likely tighten restrictions on Chinese investment, especially in sensitive sectors,” Yu said.

“Any ban will be most effective when wielded against commodities in which China has a diversified import profile, and the target sector is heavily dependent on the Chinese market.

“However, their deteriorating bilateral relations will likely drive Beijing to diversify supply away from Australia, especially of resource commodities it sources primarily from the latter.”

Despite the tensions between the two countries, Wood Mackenzie believes China is unlikely to ban imports on Australian commodities it has a heavy reliance upon, including iron ore.

Instead, Wood Mackenzie anticipates China will raise administrative costs for imports.

Wood Mackenzie principal analyst Shirley Zhang said China’s ban on Australian thermal coal has already shown impacts, which will continue through to next year.

“The ban is already in place and has affected trade flows and seaborne prices over the past six months. It is hard to define the impacted timeframe of the “indefinite suspension” at different negotiation stages,” Zhang said.

“Our current (April) base case assumes the impact on thermal coal will linger through 2022.”

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