Australia should boycott exports to China, commentator says
China likely views its continued dependence on Australian iron ore as a “strategic weakness,” but has no viable alternative at the moment, according to an expert.
While Beijing’s trade sanctions on Australian products including beef, wine and barley hurt exporters, soaring iron ore prices more than made up for the difference, highlighting the main flaw in the Chinese plan. aimed at punishing Canberra amid deteriorating diplomatic relations.
Iron ore, Australia’s top export and a critical steelmaking ingredient, rose further to reach $ 220 a tonne on Monday, amid persistent supply problems and record steel production in China which stimulates demand.
“They probably see this as a strategic weakness,” Dinny McMahon, author of The Great Wall of Chinese Debt: Ghost Banks, Ghost Towns, Massive Loans, and the Chinese Miracle Ends, told the ABC China, if you listen Podcast.
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“They cannot complete their sanctions program because they are so dependent on certain Australian resources that they are certainly aware of how weak their position is. And ultimately, it’s not a position they want to be in, long term. “
Unexpectedly, the total value of Australian exports to China increased in the first quarter of 2021, largely due to the high price of iron ore.
In the first five months of the year, China recovered 444.9 million tonnes. In 2020, China bought 81% of all Australian iron ore shipped overseas. Exporting brings in about $ 136 billion to the Australian economy per year.
Chinese state media last week spoke harsher and threatened to send Australia into a “winter spell” by finding alternative sources of iron ore, which would wipe out more than $ 81 billion economy.
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China wants to “cut ties completely”
The Chinese Communist Party now claims that by using the latest scrap recycling technology, it can halve its dependence on Australia’s iron ore exports over the next decade.
Its other options for supplying iron ore are Brazil – but security disasters have dramatically reduced production there – and the impoverished African nation of Guinea, where the utter lack of infrastructure means the increase in any significant production would take several years.
McMahon, who wrote in 2018 about China’s vast steel-fueled “ghost towns” and potential economic collapse, says his views have changed following a rapid strategic shift under President Xi Jinping.
“I think what they have been doing in the last few years in the financial system suggests that the potential for a major crisis or explosion is no longer as great,” he told the ABC.
“Xi Jinping has really developed new visions of what growth should look like in China. But the purpose of what China is trying to do in terms of reforming its financial system, reforming its capital markets, reforming its economy, investing in R&D, the whole vision behind it is to become a economy less dependent on iron ore. “
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McMahon said that if China succeeds in this goal or manages to find an alternative source of iron ore, “it would bring them closer to the point where they could – if they wanted – cut ties with Australia altogether.”
“Which, as WA Premier Mark McGowan said, would be a big deal,” he said. “Not just for mining states like his, but for all of Australia.”
Cheng Hong, director of the Center for Australian Studies at East China Normal University, wrote in an opinion piece for the newspaper World time It came out last week that Prime Minister Scott Morrison’s government was trying to “fool itself and fool the Australian public”.
He played down the trade figures, blaming the “irrational” increase in iron ore prices.
“Turning a blind eye to the sharp decline in real trade between the two countries, they are currently taking advantage of the current spike in international prices for major commodities, which has led to statistically temporary highs in bilateral trade, trying to create an impression misleading that the current diplomatic freeze does not affect business activities at all, ”he wrote.
“In fact, business owners in various industries can witness an unprecedented winter cold in their dealings with China. It is becoming untenable for Australian politicians to continue to use this data as a fig leaf to misinform and defraud its business community. “
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“Pig Iron Scott should boycott China”
Economic commentator David Llewellyn-Smith, writing in MacroCompany Tuesday compared the current situation to Australia exporting iron to Japan in 1938, earning Robert Menzies the nickname “Pig Iron Bob”.
“In the 1930s, when we were last faced with the paradox of delivering bullets to the very fascist state that came to the south to destroy our way of life, we didn’t stop either,” a- he writes.
Llewellyn-Smith said that despite Mr Morrison’s harsh speech, he was unwilling to take the only drastic step that could make a difference – boycott iron ore exports to China.
“The results would be instantaneous,” he wrote.
“The Chinese economy would be structurally shocked to its knees … An instant debt crisis would sweep the Chinese financial system as its bizarre chain of corruption froze … It is possible that this will spark a political revolution in China.”
Australia would also suffer from a fall in the dollar to 40 cents “if not lower”. China would back-boycott all exports to Australia, causing massive short-term shortages, especially in electronics.
“But you know what? We would be fine,” he wrote.
“The very large initial impact on national income would quickly be offset by halving the currency. We would quickly find new supply chains or rebuild our own production.
The move would trigger a global political and financial crisis, he argued, and could potentially advance China’s takeover of Taiwan.
“Realistically it would be a good result,” he said. “Forcing China to move before it is ready would advance its ultimate containment.”
The problem, he said, was that such drastic action was difficult in liberal democracies.
“It is a great strength in peacetime because it preserves openness and prosperity,” he wrote. “But it becomes a handicap when, from time to time, an autocratic regime rises to threaten it.”
The other big problem, said Llewellyn-Smith, is “we want the money.”
“Australia can survive relatively well by cutting off all trade with China, but the iron ore interests that run the joint cannot,” he wrote.
“This is what one might call the inertia of political economy. Things cannot change when so many interests are integrated into the architecture of national management. Except one, there is no one more in the pocket of these interests than “Pig Iron Scott” Morrison. “
– with Benjamin Graham