Political payback from China painful

The news Australian coal is sitting waiting for China customs clearance raises questions of if the moves are politically motivated.

The news this month that more Australian coal is sitting off the coast of China waiting for customs clearance, which is now taking double the normal time, raises questions of if the moves are politically motivated or are related to domestic supply issues in China.

Coal coming into China faces periodic supply restrictions, with tighter import quotas imposed in November aimed at holding total imports in 2018 to the same level as in 2017 after a surge of imports earlier in the year. January saw a surge in coal imports to China, up almost 20 per cent on January 2018 to 33.5 million tonnes.

But it appears new restrictions were placed on coal imports towards the end of January, just before the start of Chinese New Year celebrations, which may be more targeted at coal from Australia.

This has seen some clearance times for Australian coal going into China blowing out to 40 days.

There are many factors involved, including a slowing of the Chinese economy, government moves to support the domestic coal industry and moves to lower production in smaller more polluting steel mills for environmental purposes.

The Minerals Council of Australia has been watching the situation, with chief executive Tania Constable saying the council was “deeply concerned about the restrictions and the uncertainty of when they will be lifted”.

“We believe an unofficial quota system [has been] employed since the restructure of customs and quarantine arrangements in October 2018,” she said. She said talks were ongoing with the Chinese embassy in Canberra.

BHP believes the restrictions are in response to the changing domestic situation in China. But questions are quietly being asked about whether there may be an ele­ment of political payback, with Australian coal being singled out for the new restrictions this year.

While it did appear the import cutbacks last year were related to domestic supply issues, there seems to be indications that the latest supply quotas were being imposed in a way more targeted at Australian coal — so much so that some traders in China have decided to play it safe and buy lower-quality coal from countries such as Indonesia and Russia.

Reuters reported this week that only cargoes from Australia were affected by the more recent import clearance delays.

“We have stopped ordering coal from Australia because it is unknown how long the restriction will last,” said a manager at a Shanghai-based trading company who usually buys about 400,000 tonnes of Australian coal a month.

Authorities at some ports notified importers verbally this month that Australian thermal and coking coal would take longer than usual to clear, the manager said.

Relations between Australia and China, which were strained last year, appeared to have been getting back on track, with Foreign Minister Marise Payne visiting Beijing late last year and Defence Minister Christopher Pyne visiting last month.

But there is no doubt China is still upset at Australia’s decision in August last year to ban its telco giant Huawei from supplying equipment for the next-generation high-speed 5G network.

The company has been hit with a wave of anti-China sentiment being driven by the US, with Vice-President Mike Pence last week trying to convince Europeans not to use Chinese equipment for their 5G networks. China has become increasingly concerned at the actions against Huawei, including the arrest of its chief financial officer Meng Wanzhou in Canada in December to face charges of violating US sanctions on doing business with Iran.

More recently there has been media speculation that Chinese-backed elements may have been behind the recent hacking of the federal parliament network — despite a strenuous denial by China’s Ministry of Foreign Affairs.

Australia has also opposed the death penalty given recently to a Canadian citizen accused of attempting to smuggle drugs from China to Australia and has raised questions about China’s detention of two Canadians in December.

Canberra has also expressed concern at the lack of access to legal advice afforded Australian-Chinese writer Yang Hengjun, who was detained at Guangzhou International airport last month.

It is too early to tell if the moves targeted at coal from Australia are part of a political message.

Last year, imports of Penfolds wine into China were held up at Shanghai by stricter customs clearances, a move many people thought had political overtones.

Behind-the-scenes negotiations between Australia and China saw the issue sorted, with Treasury Wine Estates CEO Michael Clarke saying last week the problem had not been repeated.

Another factor is the accusations of dumping of Australian barley by Chinese authorities.

China’s Ministry of Commerce announced in November that it would be starting a one-year investigation to determine whether Australian exporters dumped barley into the China market at unfair prices between January 2014 and September last year.

Barley imports to China from Australia jumped by 67 per cent over the period to 6.5 million tonnes in 2017, a trade worth some $1.5 billion. But imports of Australian barley into China fell sharply in 2018. Then came the announcement the Ministry of Commerce was launching its investigation.

The US-China trade negotiations could see deals done that ­involve increased Chinese purchasing of US goods — to the detriment of goods from Australia.

While the Trump administration has attacked China on many fronts over the past year, the Chinese have focused their anger on perceived slights against them by smaller countries. It makes for a testy political environment that will inevitably affect trade.