Australian Prime Minister Scott Morrison and Chinese President Xi Jinping in a combo photo. Image: Getty/AFP

SYDNEY – In Wang Xining, China’s deputy ambassador to Australia, Beijing has a fashionably dressed interlocutor fluent in English and not afraid to pursue rhetorical flights of analogy.

In his latest re-emergence in Canberra, he did not disappoint. Talking to the National Press Club, he took off from observing this was the year of the ox, a symbol of strength and perseverance.

“China is not a cow,” he said. “I don’t think anybody should fancy the idea to milk China when she’s in her prime and plot to slaughter it in the end. So we are open for collaboration and cooperation, but we’ll be very strong in defending our national interest.”

Even with Wang taking a shot at Australia for being “the first” to ban Chinese telecom equipment giant Huawei from its 5G mobile networks and then persuading Britain and other security partners to follow suit, it seemed to many at the event that Wang was signaling a response to a lull in Australia’s sometimes shrill warnings about Chinese influence and espionage.

Another sign of lessening prickliness was that Wang was helping launch the latest China Yearbook by the Australian National University’s China in the World Institute, whose scholars have often critiqued the leadership style and policies of President Xi Jinping.

But if this was a slight opening in China’s shut door to Prime Minister Scott Morrison’s government, it didn’t get a matching response.

Indeed, only a few hours later, Foreign Minister Marise Payne announced Canberra was canceling two agreements by Victoria, the country’s second most populous state, to participate in China’s Belt and Road Initiative. She said they were “inconsistent with Australia’s foreign policy or adverse to our foreign relations” but did not elaborate.

Australian Foreign Minister Marise Payne announced Canberra was canceling two state agreements to participate in China’s Belt and Road Initiative. Photo: Thomas Peter/AFP

Last December, Morrison’s government enacted a new law under the federal powers of the Australian constitution giving Canberra sway over foreign relations and defense. The law requires the Department of Foreign Affairs and Trade to vet all foreign agreements by state governments, local councils and public universities.

This first exercise of that power follows a string of measures that have irked China: a new law in 2017 requiring registration of foreign lobbyists and banning foreign donations to political parties, the 5G ban on Huawei in 2018, a federal police raid on four Chinese state media journalists, and last year’s call for an independent inquiry with “weapons inspector” powers into the origins of the Wuhan outbreak of Covid-19.

The latter was followed by a series of Chinese restrictions on Australian shipments of barley, beef, timber, lobsters, wine and coal amounting to some A$20 billion (US$15.5 billion) in lost exports.

Now, Australian businesses are waiting to see where the next blow will fall. A Chinese Foreign Ministry spokesman said the move would deepen tensions between Canberra and Beijing, and called for it to be reversed.

Chen Hong, a specialist in Australian studies at Shanghai’s East China Normal University who last year had his visitor’s visa revoked by Canberra for unspecified activity, predicted retaliation.

“By using this domestic law, Australia basically fired the first major shot against China in trade and investment,” he told the Global Times, a Beijing state media outlet. “China will surely respond accordingly.”

But where? China’s trade sanctions have been largely countered at a macro-level by a rise in the price of iron ore caused by Beijing’s domestic stimulus measures and continuing supply constraints in Brazil, Australia’s main exporting competitor.

A file pic from 2013 shows a Fortescue executive at the Solomon iron ore mine in the Pilbara region in Western Australia. Photo: Reuters/David Gray
An iron ore mine in Western Australia’s Pilbara region. Photo: Agencies

It would take China billions of dollars and some five years to open up the largest alternative source of the steel raw material, the Simandou deposit in the West African nation of Guinea, 650 kilometers from the sea and 40 days sailing from China as opposed to 15 days from Australia’s Pilbara ports.

There remain a few export sectors where China could still hurt Australia short of this major step. Wool shipments continue. A bigger hit could come if Chinese authorities actively discourage or block Chinese students enrolling at Australia’s universities and colleges, or tourists making visits.

Temporarily these weapons aren’t available because of Covid-19 travel restrictions, but longer term they would hurt. In the year to June 2019, ahead of the pandemic, education ranked as Australia’s fourth-largest export, and tourism the sixth, with Chinese students and visitors a top component.

Morrison’s government is claiming it won’t come to this and clearly relies on continuing iron ore shipments and high prices to protect the trade balance.

Reports by Canberra political correspondents quote senior Australian officials” as saying Australia was prepared to wear China’s response, given how it had survived the past year of economic coercion.

The BRI became Xi Jinping’s signature economic policy soon after he assumed power at the end of 2012. It aims at making China the center of global production and trade, radiating outwards through rail lines across the Eurasian landmass and sea routes to East Africa, the Middle East and the Mediterranean.

By choosing to reject this, Morrison’s government has directly rebuffed the Chinese leader personally. So far Australia is the only country to tear up a signed BRI agreement.

It was not always like this. In September 2017 Australia’s then-trade minister Steve Ciobo signed a memorandum of understanding with China pledging cooperation on infrastructure projects in third countries. 

“Australia supports the aims of initiatives such as the Belt and Road that improve infrastructure development and increased opportunities in the Asia-Pacific region,” Ciobo said.

Around the same time, Australia joined China’s new Asian Infrastructure Investment Bank (AIIB), and an Australian minister still sits on its board. It also allowed a Chinese stevedoring company to take a 99-year lease on the port of Darwin, the country’s northern gateway.

When the Victorian state premier Daniel Andrews was in Beijing in April 2019 at a global BRI forum, Frances Adamson, the current head of the foreign affairs department and former ambassador to China, sat alongside and gave a speech mentioning Morrison’s support for “the contribution the BRI can make in meeting the infrastructure needs of the region.”

Soon after, Morrison himself gave support to Chinese BRI projects, with the caveat that they must meet “genuine market need and international standards.”

But in the last three years, political issues like Xinjiang and Hong Kong have intruded into a relationship that was previously economic with a cultural overlay.

“It is vital that when it comes to Australia’s dealings with the rest of the world we speak with one voice and work to one plan.” Foreign Minister Payne now says.

That Victoria is held by the Australian Labor Party, which is in the opposition at the federal level, no doubt made the cancellation decision easier for Morrison’s conservative coalition government. Even so, Payne got an immediate endorsement from federal Labor. Though long the exponent of closer ties with China, it is being careful not to be seen as soft on national security issues.

Labor senator Kimberley Kitching, chair of the federal parliament’s Foreign Affairs, Defence and Trade References Committee, said the Victorian BRI agreement was part of a Chinese Communist Party strategy to bypass federal governments and create a “wedge” within a country.

“The CCP used the Victorian deals as a propaganda tool to spruik the BRI to our neighbors,” she told reporters. “We need to speak with one voice here, because if we don’t, we’re allowing a foreign regime to subvert our national interest.”

A woman walks by Chinese language advertisements for Australian property in Sydney's Chinatown on June 21, 2017. Photo: AFP/William West
A woman walks by Chinese language advertisements for Australian property in Sydney’s Chinatown on June 21, 2017. Photo: AFP/William West

But some China and trade experts think this threat is overblown. The grand BRI scheme is already running into objections: that it supports ill-planned prestige projects, that weak governments are being loaded with more expensive loans than they could get from international institutions, and that projects employ mostly Chinese workers.

At the latest Boao Forum, the Chinese counterpart to the annual Davos Forum of global business and political stars, the Maesk shipping giant’s Jens Eskelund pointed out that the Eurasian rail network was expanding its freight haul to 97 European cities by “huge and unsustainable” subsidies.

When a container ship recently blocked the Suez Canal, no one was talking about using this rail system as an alternative.

The Victoria agreements had not yielded any BRI projects anyway. So while Canberra is not aiming to kill the Chinese milch cow, it may be giving it an unnecessary, painful squeeze on the udder.

“Let’s be clear what has been canceled: a non-legally binding MOU that didn’t commit the Vic state government to do anything, let alone the national government,” said James Laurenceson, head of the Australia China Relations Institute at the University of Technology Sydney.

“There was an option to just let it lapse and not approve new agreements. A choice was made to send a message to China.”

Roland Rajah, head of economics at the Sydney-based think tank the Lowy Institute said China was running out of options to punish Australia without hurting its own interests. “Nonetheless, it is important to remember that China’s trade sanctions still impose real costs for many Australian businesses, workers, and communities,” he wrote.

Australian-made wine are seen for sale at a store in Beijing in a file photo. Photo: AFP / Noel Celis

“It is therefore not a license to indulge in unnecessary diplomatic provocations and insults. One can reasonably argue that nullifying the Victorian Belt and Road agreement falls into this latter category. The agreement is almost completely meaningless other than creating a minor awkward inconsistency in Australia’s official stance towards China’s Belt and Road program.

“Yet the symbolism seems to be quite important to Beijing.  So while the Australian economy can probably handle Beijing’s trade tantrums, in this case, it seems a problem we could have usefully done without,” he said.