Chinese trade war on our coal shapes as an own goal

As China continues its cat-and-mouse bullying over black-listing Australian coal, the Chinese government has not even had the courtesy to notify Australia about the apparent change of policy. As Scott Morrison said on Tuesday: “We take official information from the Chinese government … so that’s where we’re seeking clarification.” In the face of Chinese provocation, the Prime Minister and his government are responding responsibly and calmly. Any black-listing, as Mr Morrison said, would be a breach of World Trade Organisation rules and Australia’s free-trade agreement with China. The WTO has mechanisms, and in extreme cases penalties, for dealing with rule breaking and for settling disputes. Such procedures can be long and cumbersome. Australia’s formal action against China’s barley tariffs is “imminent”, Trade Minister Simon Birmingham said on Tuesday: “We’re close to making a final decision in that regard,” he said. Senator Birmingham is hoping to avoid having to take legal action about coal. He and Mr Morrison stressed Australia was willing to engage in dialogue to resolve the issues at stake.

Unfortunately, so far China has been recalcitrant in ignoring all overtures to hold mature, bilateral discussions after moving against Australian beef, lobster, wood and wine as well as barley and now coal. According to reports in the South China Morning Post, wool is being considered as the next target. And Australia’s largest mining companies — BHP and Rio Tinto — have been asked to explain to Chinese steel manufacturers why their iron ore prices are so high as the surging trade undermines Beijing’s eight-month trade campaign against Australia. The campaign is presumably a retaliation for the Morrison government’s entirely reasonable call in April for an independent inquiry into the origins of the coronavirus in Wuhan. But it is out of all proportion and reflects its true mindset, that of an authoritarian dictatorship. It also comes amid rising concerns about Chinese Communist Party members embedding themselves in overseas consulates, including that of Australia in Shanghai, and in companies holding sensitive contracts with the Australian and US governments.

China has not confirmed officially it has black-listed Australian coal. But after meetings in China on Saturday of the National Development and Reform Commission, China’s main economic planning agency, the CCP’s bellicose mouthpiece, the Global Times, reported approval had been given to power plants to import coal without clearance restrictions, except from Australia. Coal producers in Mongolia, Indonesia and Russia would benefit from the change in policy, it said.

That news will make for an anxious Christmas for coal workers, investors and those in the regional areas where the miners live and work in Australia. It is also bad news for the 1000 sailors stranded aboard 80 bulk carriers off China’s coast, which are not being allowed to unload. Not surprisingly, the ship owners holding the black-listed coal are threatening legal action against Chinese buyers, as Perry Williams reports. With China buying $13.5bn in coal a year, the crisis has put Australia’s industry under pressure. But China is not our biggest market for thermal coal, as Mr Morrison pointed out on Tuesday. Japan buys $9.6bn of thermal coal a year, followed by China ($4bn), South Korea ($3.3bn) and Taiwan ($2.8bn). The biggest markets for Australia’s metallurgical coal are India at $10.2bn, followed by China ($9.7bn), Japan ($7.4bn), South Korea ($3.8bn) and Taiwan ($2.5bn). The Australian resources sector believes China will have no option in the foreseeable future but to continue sourcing Australian metallurgical coal for steelmaking. But, as we have argued for months, diversification of markets is critical.

In jettisoning Australia’s second-largest export, China is also setting itself up for a lose-lose situation in terms of President Xi Jinping’s target of net-zero emissions by 2060. One tonne of Australian thermal coal produces as much energy as 1.5 tonnes of local Chinese product and other imported sources. As a result, emissions would be driven high if China opted for inferior-quality coal sourced domestically or in nations other than Australia. That issue will test the depth of China’s commitment to reducing its ballooning contribution to climate change.

The Minerals Council of Australia is correct when it says the use of a rules-based system is vital to restoring stability to a trading relationship that has been beneficial for both nations, supporting years of economic growth and job creation, including in Australia’s regions. Mr Morrison and his ministers are seeking out their Chinese counterparts for bilateral talks, but to no avail so far. The government is right in rejecting the call by former trade minister Matt Canavan on Monday for a 1 per cent levy on Australian iron ore exports to China to offset the impacts of trade bans on other industries. In a fiendishly difficult situation, Australia’s greatest strength is the quality of our exports and the fact we play fairly, by the rules.