China’s empty threat to harm Australia
Despite everything that has happened between Australia and China over the past year, Beijing has somehow ended up giving our economy a boost.
Australia’s most exported iron ore – 60 percent of which goes directly to China for use in steel production – has skyrocketed in value.
This time last year it was worth around US $ 60 per tonne. Now the same amount is worth over US $ 210.
Analysts say this is due to a spike in Chinese infrastructure-driven steel production and disruptions from Brazilian and Indian suppliers.
China’s increase in steel production, which is now reaching record levels, in turn gives Australia a massive windfall in liquidity – ironically over a period of time when trade tensions between Beijing and Canberra have touched down. the bottom.
However, it became clear this week that Beijing is not happy with the situation.
In its monthly briefing, the National Development and Reform Commission (NDRC) recommended that Chinese companies boost domestic exploration for steel inputs, explore overseas ore resources, and expand their sources of imports.
In strong words for the Morrison government, NDRC spokesman Jin Xiandong was reported by state media as saying Australia was only responsible for damaging its economic and trade cooperation with China.
“Therefore, we must make the legitimate and necessary reaction, and Australia should take full responsibility for these movements,” Jin told the conference.
“We urged the Australian side to treat Sino-Australian cooperation objectively and reasonably, to treat Chinese enterprises fairly, to end the disruption of bilateral trade and investment cooperation, and to take action. to advance bilateral relations for healthy development. ”
However, the move was not only deemed extremely risky by analysts – given near record prices and China’s reliance on high-quality supplies from Australia for around two-thirds of its imports – but also like a hollow threat.
Shiro Armstrong, director of the Australia-Japan Research Center at the Australian National University, said Chinese mines do not produce sufficient grade iron ore and their operations, usually in the mountains or grasslands, are messy. for the environment.
Tim Murray, co-founder of equity and macroeconomics research firm J Capital, says you only need to visit a Chinese mine to find out what’s wrong with Beijing’s plan.
“I have visited at least 30 Chinese iron ore mines. I have been underground. I’ve been to the bigger ones, he told the AFR.
“So I am quite familiar with the domestic iron ore capacity. The short answer is that there is no chance that domestic iron ore will replace imports. Certainly not in the short term.
“Their deposits are more difficult to obtain. They are a weak Fe [ore minerals] and require a lot of energy and environmental impact to make the blast furnace red. “
China is making efforts to put its money where it is, as local iron ore miners prepare to ramp up production in the coming months.
However, analysts believe that China should develop hundreds of new mines to keep up with its steel production.
As the factory floor and the world’s largest construction market, China has been the main driver of global metals markets for more than a decade and shows no signs of slowing down.
From the start of the year to mid-May, prices for China’s steel and copper production jumped more than 30% as construction and manufacturing resumed supercharged by demand from the largest consumer of metals in the world.
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Even if China were able to develop hundreds of new mines in a short period of time to keep up with this breakneck pace, it would need a huge amount of water and energy at a time President Xi Jinping has vowed to cut back. the country’s carbon footprint. .
Beijing’s latest move to hurt Australia’s economy comes after the Morrison government last month revoked Victoria’s participation in the China Belt and Road Initiative.
“We are not going to give up our sovereignty,” Defense Minister Peter Dutton said today at the end of April.
“China and others need to understand that Australia will not be bullied.”
Chinese officials were quick to call the move “unreasonable and provocative,” while Chinese state media said Australia would face “serious consequences” and a potential trade dispute.
“We urge Australia to put aside the Cold War mentality and ideological prejudices, to view bilateral cooperation in an objective and rational light,” Foreign Ministry spokesman Wang said at the time. Wenbin.
“Immediately fix the mistakes and change course, avoid continuing on the wrong track and avoid worsening the already very difficult Sino-Australian relations.”
A spokesperson for the Chinese embassy echoed the sentiment, warning in a statement that it could further derail the already degraded relations between the two nations.
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“We express our deep discontent and resolute opposition to the announcement made by the Australian Foreign Minister on April 21 to rescind the Memorandum of Understanding on Belt and Road Cooperation and the Accord. -related framework between the Chinese side and the government of Victoria, ”said the spokesperson.
“This is another unreasonable and provocative move taken by the Australian team against China.
“It further shows that the Australian government has no sincerity in improving Sino-Australian relations.
“This can only further damage bilateral relations, and will only end up hurting itself.”
– with Natalie Brown