Coal, capital, and threats of coercion
Weeks of 28 June to 11 July 2021
Cat’s paw conniptions
Ministry of Foreign Affairs (MFA) spokesperson Zhao Lijian speaking at the regular MFA press conference on 6 July:
“We will not allow any country to reap benefits from doing business with China while groundlessly accusing and smearing China and undermining China’s core interests based on ideology. When a certain country acts as a cat’s paw for others, it is the people that pay for misguided government policies.”
This is not the first time that the Chinese government has made clear the politically coercive nature of its restrictions on Australian exports. But it is among the bluntest acknowledgements of the direct connection between Canberra saying and doing things that Beijing doesn’t like and China firing back with trade restrictions.
It also paints a bleak picture of the future: economic coercion will persist so long as Australia continues to say and do things that displease the Party-state. Economic coercion is therefore probably baked into the Australia-China relationship for the foreseeable future. Not only is Beijing explicitly saying that it will continue to punish Canberra for certain statements and actions, but there are also no signs of the Australian government shifting course on any of the sources of consternation in the Chinese government.
If anything, a range of political, diplomatic, economic, and strategic flashpoints loom on the horizon that are likely to make Beijing even more inclined to reach for the trigger of economic coercion. Among others, these include:
possible moves by the Australian Foreign Minister to veto Confucius Institute agreements;
the outcome of the review of the 99-year lease of Darwin Port to the Chinese company Landbridge Group;
pressure in Australia to launch targeted sanctions against Chinese officials implicated in grave human rights abuses; and
calls for Australian officials and athletes to boycott the 2022 Beijing Winter Olympics.
So, the kinds of threats that Zhao issued last week are likely to be on regular rotation at MFA pressers in the months and even years ahead.
Coal exports flatline
The monthly value of Australia’s coal exports to China, June 2019 to May 2021:
So far, coal is the most valuable Australian export to China that has been hit with politically motivated trade restrictions. The value of coal exports surged in May 2020 and then crashed. It’s now flatlining at zero.
Accurately reading the internal thinking in Beijing is notoriously difficult, but numbers like these at least give more prima facie credence to the pivotal role of April 2020 as a tipping point in Australia-China relations. In addition to all of Beijing’s explicit complaints about Australia’s call for an inquiry into the origins of COVID-19, the numbers also paint that period as a watershed moment.
That’s not to discount the myriad of other grievances that led China to embark on its current economic and diplomatic punishment campaign against Australia. But the close correlation between the start of this campaign and the April 2020 COVID-19 inquiry call makes it an obvious trigger.
46 trillion reasons not to decouple
Per Financial Times reporting from 5 July:
“HSBC … estimates that Chinese households will have Rmb300tn ($46.3tn) of investable assets by 2025 — an amount equivalent to the entire US bond market.”
In many liberal democracies, the story of China’s economic relations with the world is increasingly dominated by the strategic downsides of weaponised interdependence, economic coercion, and market-distorting industrial policy. But the financial story still seems to be one of eye-wateringly large upsides.
Notwithstanding the political and geopolitical risks associated with the Chinese market, international investment banks and funds are boosting their presence and expanding their activities in the gargantuan Chinese market. Although the Chinese market is fraught with strategic risks and moral compromises, it is equally still a source of stupendous wealth generation.
As always, thank you for reading and please excuse any errors (typographical or otherwise). Any and all objections, criticisms, and corrections are very much appreciated.