Morrison government has ‘punched China in the face’: A2 Milk chair

The Morrison government needs to repair Australia’s relationship with its biggest trading partner, A2 Milk chairman David Hearn says.

Mr Hearn said Australia should engage in more diplomacy to raise its concerns around foreign interference Picture: AAP

The Morrison government has “punched China in the face” and needs to engage in more diplomacy and less public grandstanding to repair Australia’s relationship with its biggest trading partner, A2 Milk chairman David Hearn says.

Mr Hearn said Australia did not need to kowtow to Beijing or surrender its sovereignty or values to de-escalate trade tensions that has seen China’s communist regime target Australian commodities from barley and beef to wine and lobster.

“I don’t think Australia’s sovereignty or independence is anyway threatened by China’s behaviour or attitudes,” Mr Hearn told The Australian.

“Like everything in life, there is a constructive balance — a middle road — and the one thing that everyone would understand about dealing with China is that their public face, pride and public reputation is something that they guard jealousy.

“If you are going to effectively punch them in the face in public, you are going to inevitably incur some response, it’s just not in the culture of the country to not respond. And so, I would be arguing I don’t think Australia should be insecure enough to suggest its independence is being threatened.”

Instead, Mr Hearn said Australia should engage in more diplomacy to raise its concerns around foreign interference, Hong Kong, Taiwan — and the origins of COVID-19.

“What it (the Morrison government) should be doing is what most of the diplomats in the world have done for some time, which is to have a relationship that is relatively benign and neutral on the surface, and when there are comments they wish to make on particular aspects of their behaviour or actions, they do that behind closed doors where you get a good hearing.

“You may not get an answer you like, but you’ll get a good hearing. If you do that in public, you won’t get a hearing.”

Tensions continued to escalate between Canberra and Beijing on Wednesday when Mr Morrison visited Japan on his first overseas trip since the COVID-19 pandemic struck, to sign a defence pact to underpin security in the Indo-Pacific region.

Beijing’s leading propaganda outlet, The Global Times, blasted the deal and accused Australia and Japan of being “tools” for the US and warned Canberra and Tokyo would pay the price.

“China is unlikely to remain indifferent to US moves aimed at inciting countries to gang up against China in the long run. It‘s inevitable that China will take some sort of countermeasures,” The Global Times editorial states.

“Countries like Japan and Australia have been used as US tools. The strategic risk for a tool to be damaged is certainly higher than that of a user. We suggest Japan and Australia exercise restraint on the way to form a quasi military alliance against China.”

But Australia’s ambassador to the US Arthur Sinodinos said he expected Joe Biden would maintain the Trump administration’s tough approach to China and would do so more in concert with regional allies like Australia.

Meanwhile, Mr Sinodinos’s predecessor Joe Hockey said Mr Biden would not win back more blue collar workers by “becoming friends with China” and predicted a further deterioration in relations because of the pressure to prosecute human rights.

“That is an area Donald Trump chose not to go to and it’s an area the Chinese are very anxious about,” he said.

But Mr Hearn said businesses wanted smooth international trade, with more than 80 per cent of A2 Milk’s business comes from China. His comments follow Elders chief executive Mark Allison calling for a de-escalation of tensions on Monday.

Such is the sensitivity, most executives have been wary of commenting on the trade tensions with China. Treasury Wine Estates issued a statement in Mandarin after it was mentioned in a media report, which also stated that COVID-19 originated in China.

TWE issued the statement on its official social media account in China, saying that its chief executive Tim Ford did not make the comment, which was the view of the media. The company said that only parts within double quotations marked are Mr Ford’s words and the accusation on social media is caused by translation mistakes.

“At a fundamental level, any business doesn’t want friction in between export markets and markets they’re trading into so it can get on and do the business without external forces exerting pressure on it,” Mr Hearn said.

“So in general, every business, and we are no exception, would much prefer relationships to be just balanced. And I think the position that Australia has taken with China, from a commercial point of view, I would say undoubtedly is very regrettable.

“I would also say, personally — and I’m not a politician and it’s not my place to make a comment — but it’s regrettable from a political point of view and economic point of view for Australia because the reality is Australia is highly dependent on China as an export market for its products. I think it would be good if (the Morrison government) changed their stance, at least in public.”

A2 Milk is dual listed on the New Zealand and Australian stock exchanges. It has been playing up its New Zealand heritage as Beijing increasingly targets Australian soft commodities, following Mr Morrison spearheading a push for an inquiry into COVID-19’s origins earlier this year and the government introducing foreign interference legislation.

“We are obviously a New Zealand company by heritage and original location. Our product that goes to China is nearly all ultimately New Zealand source. From our point of view, we are obviously emphasising our New Zealand heritage, which is not an invention — it’s real — we are a New Zealand-based company and a New Zealand inventor started the business and products are all coming from there.

“Our strategy at this time is to continue to emphasise that, and to continue to build our brand in China with local consumers and hopefully ride out the geopolitical issues.”

Already, A2’s trade with China, via the lucrative daigou — or trusted shopper — market has fallen significantly. While COVID-19 enforced international travel bans hit the retail daigous, who are mostly students and tourists buying products from Australian shops and sending them back to China, Mr Hearn said the company didn’t anticipate the “corporate daigou” trade to also evaporate.

Most the corporate daigous are based in Melbourne and trade was interrupted during the city’s three-month lockdown. Now restrictions have been eased, Mr Hearn said there had been “flickers of life” but the trade is “nowhere near” pre-pandemic levels.

“I am encouraged by that as soon as it (Melbourne) opened up, we did see some in-store pick up in business. When I say that, I don’t want to be misunderstood — it is not anywhere near back to where it was but there was a flicker to life.

“That gives me encouragement that the latent business demand and the latent business model is still intact and it will come back. The big question, and therefore what the forecast looks like for where we’ll be this year, is all dependent in large part on how fast that will return.

“I don’t know the answer to that yet. We have taken a middle road caution between an optimistic v-shape recovery and pessimistic u-shape recovery.”

A2 maintained its forecast from September of a modest increase in full-year revenue — of 4-9 per cent, to $NZ1.9bn ($1.8bn) — versus the 33 per cent leap to $NZ1.73bn last year.

Its shares closed down 4.8 per cent on Wednesday, at $13.98.