Submissions to a parliamentary inquiry identify risks associated with over-reliance on single export markets but also highlight little has been done to mitigate those risks
12 May 2020 | Su-Lin Tan, SCMP (Image: Rio Tinto)
Australia’s economy has become too reliant on China as a result of a government push for domestic industry to maximise exports to the world’s second largest economy, industry submissions to a government inquiry say.
The Inquiry into Diversifying Australia’s Trade and Investment Profile was announced in late February and will be conducted by the Joint Standing Committee on Trade and Investment Growth. Of the nine committee members, five are from the governing Liberal/National coalition and four from the opposition Labor Party.
Business groups also singled out Australian government policies, including management of bilateral relationships with Indonesia and India, as hurting access to alternative markets.
Some industries over-reliant
While some Australian export industries are not reliant on demand from China, companies like those in the mining sector are putting all of their eggs in one basket, the Small Business Association of Australia said in its submission.
“Minerals exporting has been dominant for several decades. The top four items [iron ore, coal briquettes, gold, copper ore] here represent 82.7 per cent of our export dollars. This is out of proportion if we were to lose the trade,” the association said.
It also called on the government to use the COVID-19 pandemic and devastating bushfires early this year as opportunities to look at the long-term revival of Australian manufacturing, thereby easing the country’s reliance on foreign producers and owners.
The long-running national debate has taken on new urgency since global supply chains were interrupted by the pandemic, sparking the current inquiry by parliament’s Joint Standing Committee on Trade and Investment Growth, which is looking at economic risks associated with dependence on one market.
Chairman already made his views clear
The committee is chaired by the outspoken Queensland LNP member George Christensen, who in a media interview in March said Australia should take back land owned by Chinese firms as compensation for the economic damage caused by the coronavirus outbreak. Earlier this week it was reported he intends to summons the Chinese Ambassador to Australia, Cheng Jingye, to give evidence. The committee has no legal power to require the ambassador’s attendance.
Ten submissions have been made to the committee since the inquiry was announced in late February, although hearings have yet to be announced.
“At this point it might be worth mentioning that our government is sometimes responsible for obstructing Australia’s trade.”West Australian Pastoralists and Graziers Association
The West Australian Pastoralists and Graziers Association (PGA) said the state’s highly export-oriented agricultural industries were reliant on China for wool sales, even though other wool producers like New Zealand, Uruguay, Argentina and South Africa were similarly dependent on China.
The PGA said Australia’s small population cannot soak up surplus production and China’s open market made it an attractive export destination compared to countries like India, which was more protected.
Policies of other nations not always to blame
Hopes of counting India as a secondary market were dashed when the last round of trade negotiations between Canberra and New Delhi ended without an agreement to increase Australian exports in 2015, the PGA said.
“At this point it might be worth mentioning that our government is sometimes responsible for obstructing Australia’s trade,” the PGA said.
“It was our own government which suspended the trade in live cattle to Indonesia in 2011.
“An unkind observer could say that our own government causes as much disadvantage to Australia’s trade relationships as foreign investment and trade agreements.” It also expressed concern over the tendency of some to politicise issues surrounding foreign investment.
“[our] view is that investment money is agnostic, that is, the worth of money is determined by its face value, not its origin.”West Australian Pastoralists and Graziers Association
Problem in a nutshell
The Australian nut industry, currently a small exporter to China, said that while it had already diversified its export market to 65 countries, it would need to step up shipments to the world’s most populous country to meet the government’s goal of reaching A$100 billion (US$64.2 billion) in agriculture industry turnover by 2030.
“The focus on China by [Australian] federal and state governments has been at times to the detriment of other markets while the nut industry has always focused on multiple markets,” the Australian Nut Industry Council said.
“Australian producers need access to multiple markets and every market that offers a return on investment for growers.”
Over the past decade, Chinese demand for Australian nuts has exploded due to the growing purchasing power of Chinese consumers.
The grain export cooperative CBH Group said that Australia had several markets for different grains, but cited China as the main customer for malting and feed barley and Japan for noodle wheat.
While China was a lucrative market, CBH Group said, Australian exporters remained at the mercy of sudden shocks to supply chains.
“The advantage of the reliance on China for malting barley is that China has high volume demand for malting and feed barley in order to satisfy the demand for beer and feed in China given its large population, demographics, and increasing demand for beer,” the cooperative said in its submission.
“Given this, China has paid price premiums to secure this volume away from other importing countries and encouraged further increased production globally.”
But it said the disadvantage was that logistics bottlenecks, disruptions to demand or political and legal changes were felt sharply.
Its submission, lodged on April 9, drew attention to a looming barley export issue as China announced in late-2018 it believed 32 indirect government subsidies had contributed to the dumping of Australian product on the Chinese markets.
These claims have been rejected by grain growers and the Australian government, China has flagged a tariff of up to 80%, which could be officially announced as early as next week.
Calculate costs before shifting policy
Independent research group China Policy Centre made a submission saying the government should not intervene in the market to reduce over reliance in trade with China “without a clear calculus of the costs and benefits in all domains of these interventions”.
But it added Australia should increase its resilience to foreign coercion by reducing the influence of businesses on politics.
This article was first published in South China Morning Post, Su-Lin Tan is a Hong Kong based correspondent with SCMP, she was previously a senior reporter with the Australian Financial Review,