If you’re studying HSC Economics and are looking for some relevant and timely case studies, well look no more! Today we’re breaking down the current news of China-Australia relations.

Now all of this can get pretty confusing, but we’re going to focus on some of the main events that have caused these shifts between the two countries.

This case study is great because it looks into a range of relevant topics like balance of payments, free trade and protection, economic growth, and employment. 

So what are you waiting for? Let’s get started!

Let’s Begin in 2016
What is the Belt and Road Initiative?
Debt-trap Diplomacy
The Banning of Huawei
The World Trade Organisation (WTO)
What happened in April, 2020?
The Investigation into Australian War Crimes
China’s ‘Leaked’ Document
December, 2020

Let’s Begin in 2016

2016 marks the first time an Australian Prime Minister, Malcolm Turnbull, visited China.

The Australia-China Trade Agreement had already come into effect in 2015, so we can see a considerably positive and productive relationship.

2018

Now 2018 is where some tensions in the relations between Australia and China surface. 

Australia implemented the Foreign Interference Legislation which was created to control foreign interference in diplomatic and domestic affairs. Arguably, the Foreign Interference Legislation was targeted towards China, however this was denied by the Australian Government. 

It was this legislation that created the beginning scenes of tension and concerns between Australia and China.

2019

These concerns were also amplified in Australia’s 2019 Federal Election where the media really stepped in to cover news on foreign interference, especially in relation to China.

It’s also important to consider that the Foreign Interference Legislation was implemented after the USA Election, where Russian interference was at the forefront of concerns. So here we can highlight the general distrust between certain countries and therefore a change in relations.

Although Australia’s relations with China are unstable at this point, Daniel Andrews did sign China’s Belt and Road Initiative. This was hugely positive as the Belt and Road Initiative is a crucial aspect of China’s economic policy. 

What is the Belt and Road Initiative?

“China’s Belt and Road Initiative is a strategy that seeks to connect Asia with Africa and Europe via land and maritime networks with the aim of improving regional integration, increasing trade and stimulating economic growth.”

Essentially, it’s a large investment into China’s trading policies and infrastructure. This includes both hard and soft infrastructure.

  • Hard infrastructure: this relates to the physical components of trade, like roads, railways, ports, and shipping docks. 
  • Soft infrastructure: these are the intangible aspects of trade, such as diplomacy, political negotiations and free trade agreements

Another crucial thing to note is that China’s Belt and Road Initiative is an insanely large scale investment, with speculations and estimations from 1 to 4 trillion dollars. 

Part of this initiative is designed to stimulate Chinese businesses within the domestic economy, whilst trying to reduce regional disparity. Now regional disparity is something that has surfaced because of China’s industrialisation, so it’s a newer issue that’s being tackled by the Chinese Government.

The Southern and Eastern regions of China are where economic growth was focused. However, the Northern and Western regions are now being recognised for their geographical significance as a connection to Europe, the Middle East, and Russia. By focusing on the North and West of China as key trading routes, there is hope to stimulate more domestic and economic growth.

Debt-trap Diplomacy

Another rising concern is what’s called Debt-trap Diplomacy.

Essentially, China has been leasing trading ports from other countries until they can pay their debt back. However, majority countries struggle to pay back these leases. This is where China jumps in to take care of these debts, however China also gains geopolitical advantages from these countries.

Now it all sounds a little confusing, but here are a couple examples to try help you out!

For instance, Malaysia, Pakistan, Sri Lanka, and many other countries, have taken on large trading projects, and have used loans from China to fund these projects. However, when Sri Lanka, for example, aren’t able to pay their loan back, they are indebted to China. 

China then kindly takes care of these debts for Sri Lanka in exchange for, what we call, a geopolitical advantage.

A geopolitical advantage is basically China benefiting from the geographical region, natural resources and trade networks of that country, helping them expand their trading and overall economy. 

The Banning of Huawei

A major scandal, pivotal to Australia and China’s relations, was the banning of the new Huawei phone with 5G infrastructure from China. 

There were a number of concerns with the new 5G technology coming out of China, from political surveillance issues to general user privacy and cyber security. Multiple countries and regions ended up banning the Huawei phone, including the UK and Japan. Canada had cautions about the new phone, and the US placed high restrictions on Huawei. 

The main reason this has caused tension between Australia and China, is because Australia started this whole domino effect of countries banning the Huawei. The Chinese Ambassador to Australia even mentioned that “Australia was adopting a Cold War Mentality.”

So this gives you an idea of the growing political, and ultimately economic, tensions between the two countries.

The World Trade Organisation (WTO)

The WTO classified China as a developing country due to large inequalities in the country. There was also the motive of trying to close the gap between developing and advanced economies.

Because China is categorised as a developing country by the WTO, they receive advantages on how trade is operated. Now this is seen as pretty controversial, especially when you consider China’s economic development over the past couple decades or so.

In 2019, we then saw the US questioning the WTO for their classification of China as a developing country, in which Australia’s PM, Scott Morrison, publicly agreed on.

However, when we look into the WTO’s claims with a bit more detail, you’ll find that developing countries are receiving preferential treatment to encourage and stimulate global free trade.

Nonetheless, China doesn’t actually receive many of these economic or trading advantages, even though they are considered a developing country, because of their continual economic growth. 

Essentially, what happens here is Australia gets caught in the middle of a dispute between China and the US.

Now if you’re interested in the US China Trade War, you can find out more here!

What happened in April, 2020?

Of course, the COVID-19 pandemic really surfaced around March, after some news about it in late December within China. The World Health Organisation (WHO) had already initiated an enquiry in April to investigate the origins of the Coronavirus. 

However, PM, Scott Morrison, decides to raise an independent enquiry into COVID-19 because the WHO enquiry was being, supposedly, audited by China. Basically, Scott Morrison wanted an enquiry that he could oversee — one with less influence from the Chinese Government.

Of course, the investigation into COVID-19 was major news, and the management of it by the WHO was being critiqued on a global level. It was a sensitive matter for China, to say the least.

From here, distrust between China and Australia continues to grow.

The Rest of 2020

In May, 2020, we see 80% tariffs placed on Australian Barley exports, and four of Australia’s largest meat and beef processors were suspended. Now these changes were made on the claims of ‘dumping’, which is a quality control issue managed under the WTO.

In August 2020, China also cancelled a deal to sell Lion Dairy. This move on China’s part was more of a political motive rather than an economic interest.

However, the changes don’t end there!

In October, 2020, China takes another hit at Australian commodities, and were no longer importing certain parts of coal. Just to give you an idea of how big of an impact this has on Australia; our coal exports to China dropped from 9.4 million tonnes in May, to 5 million tonnes in October, and 1.8 million in November.

We then have Scott Morrison sign a reciprocal with Japan, which is basically a defence pact. Now this is generally standard business between countries, however given the context of China’s relations with Japan, this event simply adds fuel to the fire.

In response, China places tariffs up to 200% on Australian wine, again, on the basis of dumping!

The Investigation into Australian War Crimes

Following the wine tariffs, there was investigation into Australian War Crimes which had some media presence. However, we suddenly see China’s involvement, with a Twitter post from the official Chinese Government account.

The post was a photoshopped image of an Australian soldier with a knife against the throat of an Afghan child, aiming to show the brutality of Australia during this enquiry. 

Now there are a number of interesting points here — firstly, China has previously been under fire for their violation of human rights. Secondly, this edited image being posted from an official government account, arguably, marks the beginning of a propaganda war. 

This photoshopped image erupts into a massive dispute between Australia and China. We see Scott Morrison demand an apology from China, which just led to further criticism.

This call for an apology ended up attracting more attention to the issue than it would have received otherwise. 

53 of Australia’s coal ships, carrying approximately 500 million dollars worth of coal, also get denied at the ports of China. China then starts to diversify their supply chain, by signing a 3 year contract to import 1.5 billion dollars of coal. 

China’s ‘Leaked’ Document

Next, we see a formal document outlining issues in the Morrison Government about their policies with China. This was a collection of 14 disputes from the Chinese Embassy in Canberra that was supposedly leaked to news outlets.  

This formal dispute turns, what was a trade and economic issue, into a political issue. Even more so, a specific attack on the Morrison Government, rather than relations with the Australian Government in general.

December, 2020

China continues to cut off imports from Australian industries. Claims are made on a quality control issue with Australian timber, with the detection of pests in logs.

With industry after industry being attacked, the Australian Government decides to pass a new foreign relations law that allows the Commonwealth to reject anything done by local and state governments.

So this is clearly targeting the Belt and Road Initiative signed by Daniel Andrews earlier on. Essentially, the Australian Government is trying to centralise its foreign policies — to ensure consistency across the board. 

Interestingly, the Australian Government also decided to ask the WTO to investigate China’s tariffs on Australian Barley… 7 months later. This suggests that Australia was hoping these tariffs would be alleviated by China after a couple months. 

This was the first time that Australia has asked the WTO to investigate China on the basis of dumping claims; which certainly creates a precedent for how we will handle the tariffs and restrictions placed on other Australian exports like wine and timber. 

Keep Your Eyes Peeled for Part 2!

The changing relations between Australia and China is an ongoing situation, and we can only gather judgement on what has unravelled so far.

Now that you have a better understanding of the disputes surrounding foreign trade, exportations and also the political battles, we’ll have a look at the impact of all these events in Part 2

The impact is something you don’t want to miss out on! This is especially if you want to create a comprehensive analysis on Australia’s economy in terms of trade and growth. 

So, we’ll see you in Part 2 to dive deeper into the relations between China and Australia!

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Nandini Dhir is a Content Writer at Art of Smart and is currently studying a Bachelor of Arts (majoring in Marketing) and a Bachelor of Advanced Studies (Media and Communications), as a Dalyell Scholar, at Sydney University. She enjoys covering local issues in her area and writing about current events in the media. Nandini has had one of her pieces published in an article with the Sydney Morning Herald. In her free time, Nandini loves doing calligraphy, ballet, and sewing, or is otherwise found coddling her cats.