China Warms Up To Australia As Economic Coercion Turns Ineffective

China’s efforts to punish Australia through economic coercion appear to have failed. The trade ban Beijing imposed three years ago did not affect Australia much; rather the economic decoupling affected China significantly. China’s economic coercion did not succeed in hurting Australia’s economy or in changing its national security policy. Chinese action however led Canberra to side with the anti-China block that has challenged China’s growing influence in the Indo-Pacific.


While Australia did not budge, China appeared helpless as the trade ban made it struggle to arrange resources to meet domestic requirements. Now, the Beijing government has eased trade restrictions, allowing coal imports in the wake of meeting energy security challenges.


China imported 41.17 million tonnes of coal from Australia, which is 151 higher year-on-year and the highest in the three years. Even exports of iron ore from Australia to China increased by 24.3 per cent in March.


The exports of Australian goods to China reached USD 12.71 billion in March 2023, which is 31 per cent higher than what it was a year ago. The China- Australia relations were affected in 2018 after Australia announced legislation to crack down on foreign interference, which perceived to be aimed at China. It deteriorated further after Australia joined the Western nations in their demand for independent investigations into the origins of Covid-19. China responded by imposing a ban on Australian imports of coal, wine, barley and lobsters.


Chinese action however could not keep Australia on a tight leash. Australia did not bend and started exploring new markets. James McIntyre, economist at Bloomberg Economics, said “Australia’s exporters were able to pivot in response to China’s measures, and growth prospects look more favourable in other markets — especially India. The real benefit from China’s trade restrictions may have been that it prompted Australian businesses to focus on brighter export opportunities.”


When China stopped importing coal from Australia, new markets of Japan and India were found. Australian coal found markets in Europe, Malaysia, South Korea, Taiwan and Vietnam. China found the trade ban backfired as it affected its economic growth. Ultimately, it left with no option but to resume imports of coal and iron ore from Australia. The power crisis at home forced China to unload Australian coal.


Norway, France, the Philippines, Japan, South Korea, and a few eastern European countries were subjected to economic coercion by China. European Union had expressed concerns over China's tactics of deploying economic coercion to achieve political goals. Similar views were echoed in the Indo-Pacific region, where China is flexing its military muscle. This brought the US, Japan, India, and Australia together and form Quadrilateral Security Dialogue (QUAD).


The QUAD group has an informal objective of containing exploitative trade and economic policies of China in the Indo-Pacific. Australia has been vocal and active in confronting China’s growing influence in the Indo-Pacific. Australian Prime Minister Anthony Albanese has supported the Group of Seven’s (G7) view on easing reliance on trade with China. This comes despite China's move to resume imports from Australia. The G7 nations warned China of the consequences if it resorts to economic coercion.


China now is trying to establish cordial relations and smooth trade again with Australia. China is set to lift the ban on Australian timber and other products soon. “The Chinese customs has formally notified the Australian minister of agriculture that China will resume import of Australian timbers,” said Xiao Qian, Chinese Ambassador to Australia.


The sudden reverse course taken by China despite Australia showing no change in its position sends a message that Beijing's economic coercion move has failed. Richard McGregor, Senior Fellow at the Lowy Institute, said “Australians have grown in confidence about the country’s ability to withstand economic coercion from China...Beijing may tactically retreat now and again to fill shortfalls or if it wants for political reasons to present itself as a conciliatory partner.”


Global observers have reached to the conclusion that China's bullying tactics to coerce Australia have turned out to be a “spectacular failure.” Jeffrey Wilson, research director at a policy think-tank Perth US Asia Centre, said “Far from producing a quiescent Australia, coercion has had the opposite effect and hardened its stance... Australia demonstrates that China’s bark is worse than its bite.”  This may well provide "food for thought" for European leaders and policy makers currently trying to position themselves in relation to China and the changing global geopolitical landscape.