US takes advantage of China and Australia trade dispute

As the US muscles in on the beef trade and Evergrande edges closer to collapse, it’s time for Australia to stop relying on China, warns an expert.

US exporters have taken advantage of Australia’s trade dispute with China by slipping in to fill the void – shipping more beef in July and August than for the whole of 2020.

But an expert has argued Australia should be using the trade war as a way to escape from Beijing’s “coercive intervention”.

The US exported $US240 million ($A327 million) worth of beef to China in July and August compared with $US195 million ($A265 million) for the whole of 2020.

Australia exported $US1.3 billion ($A1.8 billion) worth of beef to China last year and is averaging around $70.5 million ($A96 million) a month in 2021.

Last year, China banned beef imports from many Australian producers, along with wine, lobster and timber, as part of a backlash against the federal government’s move to curb the Communist country’s influence.

The US move has left Australian beef exporters worried they will be permanently excluded from the China market.

Australian beef is seen at a supermarket in Beijing last year. Picture: Greg Baker / AFP

In the medium term, trade on beef and other commodities are likely to remain largely driven by simple market opportunities, according to one expert.

There’s no doubt US producers will take advantage of the Chinese market created by the country’s action to limit Australian access, said Michael Shoebridge, director of defence, strategy and national security at the Australian Strategic Policy Institute.

Impact of climate change

While nations are working on “decoupling” from China’s use of trade as a weapon, including the AUKUS deal, and by removing vulnerabilities in supply chains that are key to national security and technological power, Mr Shoebridge argued more needed to be done.

“On food production and markets, the Australian debate needs to get over its decades long lazy fixation with the single China market,” he said.

“Diversifying into non-China markets is hard work and different to the simple logic of doubling down on what had been an easy growing market in China.

“But the China market is now full of known risks of coercive intervention for Australian business, including our beef producers.”

China is not an essential part of Australia’s beef exports according to Michael Shoebridge. Picture: Lillian Watkins

An unfortunate global environment provides a huge opportunity for Australia, he added, as food insecurity bites with 7.8 billion people to feed, alongside climate change’s impact on food production.

“Climate change is making crop and food production failures more likely in more parts of the world, with concurrent failures more frequent. The result is that large surplus food producing nations like Australia will become more important to many nations’ food supplies,” he explained.

“At the same time, the number of wealthy consumers globally who want to buy foods like quality Australian beef is increasing. So, we face a future environment where there are more wealthy consumers who want to buy beef than there is beef to sell them – and, fortunately for us, China is not an essential part of that future.”

Shaky property sector

While China has been able to boost its beef imports from elsewhere, its facing its own home-grown problem of a wider crisis in its property sector.

Its second biggest property developer China Evergrande, which is facing a staggering $A400 billion in debt, missed its third round of bond payments on Monday.

Investors were waiting to be paid $A200 million and if it doesn’t cough up the money by the October 18/19 deadline it will formally be in default.

But Evergrande isn’t the only one feeling the pain. Another Chinese developer Fantasia also missed a payment and others such as Modern Land and Sinic Holdings are trying to delay deadlines

The compounding pressures in China’s property development and financial sectors are clear, Mr Shoebridge said.

“Evergrande appears to be slowly moving to defaulting on its huge debts, with firms like Fantasia and Modern Land now also in distress,” he said.

“These look likely to be joined by a growing number of other highly indebted, highly leveraged Chinese property developers because confidence in the sector has been broken.”

A resident cycles through the Evergrande city during the last day of the National Day and Golden Week holidays on October 7, 2021 in Wuhan, Hubei province, China. Picture: Getty Images

A problem for the Chinese government is that the property development and construction sector has been a ‘go to’ engine for Chinese growth whenever the economy encounters headwinds, he added.

“That was shown most graphically during the Global Financial Crisis and small Chinese investors as well as large ones are exposed to losses from the sector,” he said.

“It looks like central decision making by (Chinese President) Xi Jinping to rein in corporate power to grow his own authority is having effects that are hard for him and his advisers to predict or control. That’s the problem with markets in a highly authoritarian state.”

Chinese President Xi Jinping attempts to rein in corporate power could be having unintended consequences. Picture: Noel Celis / AFP

But the sector’s troubles don’t just hurt wealthy corporate leaders but impact small Chinese investors and employees, so Mr Xi cannot insist that this is all part of a campaign to transfer wealth to the poor, Mr Shoebridge said.

“The crisis reinforces the growing risks in China’s economy,” he said. “Chinese economic coercion against Australian trade perhaps gave some of our companies a head start in diversifying away from these risks – even if, at the time when this began, the coercion looked damaging.”

Originally published as US takes advantage of China and Australia trade dispute