by Rowan Callick for The Australian.
Can anyone conceive of Australia’s iron ore sales to China, our big-ticket global income earner, lurching downward uncomfortably – or coming to a grinding stop altogether?
Yes. This unthinkable is quietly being thought, in corporate and government back rooms, in hypotheticals, and in risk-management exercises, even as relations with China are being stabilised by Canberra as a top priority, to widespread applause.
A core challenge remains – that while China’s leadership is strong, the personalisation of governance and its remorseless changes and ambitions make it a less stable trade partner.
Conflict over Taiwan is unlikely, but the odds are too close for any comfort. The rhetoric remains intense. And a worldwide pandemic followed by a ferocious land war in Europe have concentrated minds on the prospect that the worst does indeed sometimes happen.
Australia isn’t in the military front line of any likely hot war or blockade, though Australian military bases hosting US forces and joint intelligence facilities could be targets for China’s long-range strike capabilities in the event of conflict.
And even in scenarios short of full-scale war, Australia looms large in the economic sights of all sides, since its iron ore provides China with a strategically vital input, including for the vast steel quantities needed for its immense naval build-up.
China depends on Australia for about half of the ore it needs to make its steel, which accounts for more than half the world’s total production.
Ore sales to China – 60 per cent of all Australian exports to the country – earned Australia $108bn in the financial year 2021-22, more than 18 per cent of its total worldwide goods and services income, and delivered Western Australia’s government 25 per cent of its general revenues.
Yet double dreams of Chinese President Xi Jinping, the most powerful Chinese leader since Mao Zedong – and with massively more resources at his command – are triggering the concerns of some Australian decision makers that our crown jewel – our iron ore exports – could disturbingly soon come into play.
The first is Xi’s dream of a reconstructed economy that prioritises “common prosperity”, self-reliance and “socialism with Chinese characteristics” and elevates Communist Party and state security over growth. Demand for ore could start to slump as China’s once-voracious property and infrastructure sectors continue to tread water, as they are doing already – or sink, exacerbated by the impact of rapid demographic decline.
The second dream, more intensely worrying because it would force a rapid crisis over ore sales, is of an increasingly militarised Chinese rejuvenation – which has already successfully corralled the South China Sea – that goes on to involve “reunification” by seizing Taiwan.
Repercussions of plummeting ore receipts would be felt severely in the wider economy, and might include a significant fall in the value of the Australian dollar, pushing up substantially the price of imports and forcing cuts in federal and state government services.
If conflict over Taiwan were to be the trigger, that would also require searching elsewhere for new sources for many products that are now made In China.
David Uren, a Senior Fellow at the Australian Strategic Policy Institute, has written that “it would be the loss of access to Chinese manufactured goods” – including goods assembled elsewhere with key Chinese components – “that would be the greatest source of disruption for the Australian economy”, as shown by the impact of sanctions on Russia. And “the global impact of the loss of trade through the Taiwan Strait would be incomparably greater than that flowing from” the Ukraine war.
Xi said soon after taking power a decade ago: “The issue of political disagreements that exist between (Taiwan and China) must reach a final resolution, step by step, and these issues cannot be passed on from generation to generation.” That clock is still ticking.
He declared at last October’s Communist Party congress that “the wheels of history are rolling on towards China’s reunification” as “a historic mission and an unshakeable commitment” of the party, which “will definitely be fulfilled”.
Xi has usually in speeches stressed his preference for a peaceful “reunification”, but this appears to be a challenging – at best – prospect.
Polling shows that 86 per cent of Taiwan’s 24 million population reject China’s proposed “one country, two systems” formula – under which Hong Kong is already being ruled increasingly harshly by Beijing – while only 2.4 per cent of respondents identify themselves solely as “Chinese”, with 63.7 per cent calling themselves “Taiwanese”.
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