The Evolution of Australia-China Relations and the Formation of a New Cold War Order
The deterioration of bilateral relations between
China and Australia has become a reality. In retrospect,
Australia, like Canada, was once regarded as a moderate Western country with relatively
smaller population and vast territory. Australia and Canada are far away from
China, but both had close economic ties with China, and their attitudes toward
China were quite different from those of other Western powers. Today, things
have dramatically changed as the two countries are going toe-to-toe with China
in the geopolitical game.
Over the past year or so, Australia has emerged
as the strongest supporter of the Quadrilateral Security Dialogue (QUAD) framework.
Compared with Japan's stuttering defense policy reform
and India's wavering between America and Russia, Australia is rapidly rearming
itself. Australia announced in January 2021 that it will significantly increase
its naval expenditure, focusing on developing its long-range strike and maritime combat capabilities. In
March this year, Australia announced that it would jointly develop medium- and
long-range missiles with the United States. On September 15, Australia even
formed AUKUS, a new three-nation alliance with the
United States and the United Kingdom, and began to
build nuclear submarine forces with the help of the two. All
things considered, Australia seems serious when it comes to standing up to
Why has the seemingly "peaceful" Australia-China
relations evolved into the current impasse? What policies
and measures are worth reflecting on during the deterioration of the relations?
Researchers at ANBOUND believe the changes in Australia-China
relations involve a complex "Cold War Order".
It should be emphasized that the "Cold War Order" was not formed through negotiations, but by continuous and serial conflicts and
competitions. This has happened in the past, so will it happen again in the
future. We would like to point out that the geopolitical game in today's world
has not reached the level of the Cold War, but the changes and formation of the
"Cold War Order" do exist. From the perspective of the formation of
the "Cold War Order", it is not difficult to find the existing problems
and "rules" in the changes of Australia-China relations.
The nature of the changes in Australia-China
relations is actually not complicated. At the beginning of the conflict,
China's logic was, "if Australia wants to earn our money, it should follow
what we want”. Behind this logic lies Australia's close economic and trade
relationship with China. Some policy analysts in China are blind believers in the Australian economy's dependence on Chinese imports.
Since 2010, China has remained Australia's largest trading partner, export
destination, and source of imports. According to statistics, Australia's
exports to China accounted for 33.1%, 34.1%, 38.2%, and 39% of its total
exports from 2017 to 2020. In recent years, Australia's export dependence has
been as high as 40%, leading some people in China to believe that Australia's
export dependence on the Chinese market is the bargaining chip of China.
However, this view is obviously too optimistic
and ignores the high dependence of China's economic structure and industrial
structure on Australian resources. In the case of Australian iron ore, which
accounts for 60% of China's domestic supply, China still buys more than 80% of
Australia's iron ore as it struggles to find a supply chain to replace its
imports, even as bilateral relations hit rock bottom. In 2020, the bilateral
iron ore trade between China and Australia is estimated to be as high as AUD 80
billion, or about USD 58 billion. Can China wean itself off iron ore imports
from Australia? The truth is, this will be a highly unlikely outcome. China
imports a lot of iron ore from Australia, which is due to the quality and cost
of iron ore. It can be assumed that, at least in the short term, Australian
iron ore is irreplaceable for China. In 2020, the total global crude steel
production was 1.878 billion tons, China's crude steel
production was 1.065 billion tons, accounting for 56.8%. To some extent,
China's steel industry, as well as the production of rail tracks, cars,
aircraft carriers, tanks, and so on, could be seriously affected if iron ore
imports from Australia are restricted.
Since the deterioration of Australia-China relations,
China has repeatedly countered Australia's geopolitical provocations against it
with trade sanctions. Unfortunately for China, the sanctions have had limited
effect. The Australian goods on which China has imposed bans and restrictions
include barley, wine, beef, cotton, and coal, according to tracking by ANBOUND's
researchers. In 2019, these targeted exports were collectively worth about USD
25 billion, or 1.3% of Australia's GDP, according to the Australia-based
Lowy Institute. The Chinese restrictions were not as damaging as feared
because Australia limited the damage by diverting many of its exports to other
countries. Roland Rajah, lead economist at the Lowy
Institute, estimated that affected Australian exports to China, excluding coal,
will remain steady for most of 2020, with trade amounting to just over USD 9
billion. As restrictions escalated at the end of 2020, exports eventually
fell to about half that amount. After the restrictions were imposed, these goods
found alternative export markets and their trade increased by about USD 4.2
billion on an annualized basis, offsetting most of the losses due to China’s
restrictions. By January 2021, Australia's coal exports to the rest of the
world were USD 9.5 billion higher on an annualized basis than they were before
the ban. In addition, Australian coal has been gaining
market share in India.
It can be seen that in the "trade war"
triggered by geopolitical friction between Australia and China, the iron ore
export, which has the greatest impact on both sides, is basically unaffected;
China has imposed trade restrictions on a number of Australian goods, and
Australia has found alternative export markets. In this trade war of sanctions
and counter-sanctions, the Australian economy has not suffered any real damage
and Australia has basically won the game.
Objectively, this situation should have something
to do with China being unfamiliar with geopolitical theory. Not knowing the
social classification model and the different social and economic nature
determines the different results caused by "money". In addition,
China’s domestic policy departments seem to be unaware that ANBOUND's argument
that excess capital will lead to "upstream industry having a bigger
say". All these theories can be used to predict the outcome of the trade
The outcome of the geopolitical game between Australia
and China, trade sanctions and counter-sanctions, may not be expected by many
people, and probably not by Australia. Because of this, the unexpected outcome
has led to a complete shift in Australia's attitude from negotiating to standing
up and confronting the rise of China. This is followed by Australia actively
engaging in confronting China on a series of issues surrounding Indo-Pacific, Western
Pacific, and the South China Sea.
From the deterioration of Australia-China
relations, we can observe a key to the formation of the "Cold War Order".
The "Cold War Order" was formed by continuous and series of conflicts
and competitions, rather than through negotiations. Therefore, China will
definitely face such a series of competitions and confrontations in the future,
and the geopolitical game between Australia and China is just the beginning.
Final analysis conclusion:
Australia-China relationship has deteriorated to
its lowest point in history. The geopolitical and geo-economic games between
the two countries have formed a series of conflicts and competitions, and also
promoted the formation of the "Cold War Order". In the future, China
will face many kinds of competition, and the geopolitical game between China
and Australia is just the beginning.
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