Australian authorities conducted three separate internal studies in the past eight years to determine whether the commodity-exporting nation could completely diversify its supply chains from China but all said the task was impossible, according to two sources with knowledge of the matter.

• Separate administrations conducted investigations into the feasibility of diversifying import-export relationship, all resolved such a decoupling would be unmanageable

• Current relations came after years of networking by exporters and cannot be replicated elsewhere, analysts say

Australian authorities conducted three separate internal studies in the past eight years to determine whether the commodity-exporting nation could completely diversify its supply chains from China but all said the task was impossible, according to two sources with knowledge of the matter.

The unanimous and non-partisan judgment helped to justify Canberras renewed trade engagement with Beijing late last year despite obstacles such as Aukus, a regional security pact between Australia, the United Kingdom and the United States.

Australias Department of Foreign Affairs and Trade (DFAT) and its treasury department jointly administered two studies, one in 2015 and another in 2020, both of which concluded no other markets could replace China as a market for Australian commodity exports, one source said. Both spoke on the condition of anonymity due to the sensitive nature of the topic.

China-Australia trade conflict

28 February, 2020 - Australian concludes, following a review, it will continue to impose anti-dumping duties on Chinese deep drawn stainless steel sinks 31 March, 2020 - Australia initiates anti-dumping investigation into cheap precision pipe and tube steel from China, South Korea, Taiwan and Vietnam 16 April, 2020 - The commission initiates another anti-dumping investigation into A4 copy paper exported by China, Brazil, Indonesia and Thailand 21 April, 2020 - Australian Prime Minister Scott Morrison discusses a probe into the origins of the coronavirus with world leaders, including US President Donald Trump, German Chancellor Angela Merkel and French President Emmanuel Macron 11 May, 2020 - China bans imports from four major Australian meat processing plants 13 May, 2020 - Australian Dumping Commission concludes, following a review, it will continue to impose anti-dumping duties on Chinese silicon metal 18 May, 2020 - China confirms 80.5% tariff on Australian barley exports following the conclusion of its anti-dumping investigations 27 May, 2020 - Australia initiates an anti-dumping investigation into painted steel strapping from China and Vietnam 30 June, 2020 - Anti-dumping investigation widens to include aluminium zinc coated steel from China and Vietnam 13 July, 2020 - Australia initiates an anti-dumping investigation into copper tubes from China and South Korea 27 July, 2020 - Australia Dumping Commission assesses possible continuation of dumping duties on Chinese hot-rolled rods in coils of steel 18 August, 2020 - Chinas Ministry of Commerce confirms it has started an anti-dumping investigation into Australian wine imports following a complaint from the China Alcoholic Drinks Association 31 August, 2020 - China announces a countervailing investigation into subsidised Australian wine imports 31 August, 2020 - China halts barley imports from Australias CBH Grain, the countrys biggest grain shipping company, because harmful weeds were found in the cargoes 12 October, 2020 - China verbally bans Australian thermal and coking coal imports 16 October, 2020 - China discouraging its spinning mills from using Australian cotton 30 October, 2020 - China customs bans imports of log timber from Queensland and grain imports from Emerald Grain, while it also delays imports of Australian lobster 6 November, 2020 - Australian coal, barley, log timber, lobster, wine, copper, sugar faces blocks at Chinese ports due to verbal bans 11 November, 2020 - China customs bans imports of log timber from Victoria 15 November, 2020 - China and Australia join 13 other nations in signing the Regional Comprehensive Economic Partnership (RCEP) agreement 28 November, 2020 - China imposes temporary anti-dumping measures ranging from 107.1 to 212.1% on Australian wine imports 8 December, 2020 - China suspends beef exports from another Australian meat processing plant 10 December, 2020 - Chinas imposes temporary anti-subsidy (countervailing) duties ranging from 6.3 to 6.4 per cent on Australian wine imports, on top of anti-dumping duties imposed November 28 21 December, 2020 - WTO confirms Australia has lodged an appeal against Chinas tariffs on Australian barley 28 March, 2021 - China applies anti-dumping duties of between 116.2 per cent and 218.4 per cent on Australian wines in containers of two litres or less 28 April, 2021 - China rejects Australias first request to establish a World Trade Organization (WTO) panel to investigate its anti-dumping and countervailing duties imposed on imports of Australian barley 6 May, 2021 - China indefinitely suspends high-level economic dialogue with Australia 28 May, 2021 - WTO agrees to form a dispute settlement panel over Australias barley trade row with China, with New Zealand joining as a third party 18 June, 2021 - Australia confirms it has formally lodged a complaint with the WTO over China’s anti-dumping tariffs on Australian wine 24 June, 2021 - China lodges a complaint with the WTO against Australia for its anti-dumping and anti-subsidy duties on imports of Chinese railway wheels, wind towers and stainless steel sink products 28 June, 2021 - Australia formally files complaint to the WTO over Chinas duties on bottled wine imports 9 September, 2021 - Report finds the cost of Chinas ban on a series of Australian goods has been almost negligible for some exporters 26 October, 2021 - WTO agrees to establish a dispute-settlement panel to address Australia’s complaint over China’s wine tariffs 20 December, 2021 - China and Australia agree on a timeline for their WTO dispute over Beijing’s wine tariffs 29 December, 2021- Beijing sets its 2022 import quota for Australian wool at 40,203 tonnes, up from 38,288 tonnes a year earlier 20 January, 2022 - Beijing seeks WTO arbitration on Canberras tariffs on railway wheels, wind towers and stainless steel sinks **25 January, 2022 -**Australia rejects Chinas request to establish a WTO panel on Canberras tariffs on railway wheels, wind towers and stainless steel sinks 28 February, 2022 - WTO agrees to establish a dispute-settlement panel to address China’s complaint over Canberras tariffs on railway wheels, wind towers and stainless steel sinks 21 June, 2022 - Wine Australia confirms its ‘difficult’ decision to close its office in Shanghai 9 July, 2022 - New Australian Foreign Minister Penny Wong meets her Chinese counterpart Wang Yi at a G20 meeting in Bali 24 July, 2022 - Australian PM Anthony Albanese says Chinas sanctions on Australian goods should be lifted immediately 8 August, 2022 - Australia initiates another anti-dumping investigation into Chinese aluminium extrusions **15 November, 2022 -**Australian Prime Minister Anthony Albanese meets with President Xi Jinping at the G20 summit in Bali 21 December, 2022 - Chinese Foreign Minister Wang Yi met Australian counterpart Penny Wong in Beijing 29 December, 2022 - Trade Minister Don Farrell says he is willing to visit China to talk through Beijing’s bans on imports of Australian barley and wine 4 December, 2022 - Reports emerge that China is considering lifting its unofficial ban on Australian coal imports 10 January, 2023 - Chinas ambassador to Australia says that there is ’no such thing’ as official sanctions on Australian exports 31 January, 2023 - Australias trade minister, Don Farrell, says he will hold a virtual meeting with Chinese counterpart Wang Wentao 6 February, 2023 - Australias trade minister Don Farrell holds virtual meeting with Chinese counterpart Wang Wentao 30 March, 2023- China’s vice-trade minister Wang Shouwen and Australian counterpart Tim Ayres meet at the Boao Forum for Asia 11 April, 2023 - Australia reaches an agreement with China to resolve their dispute over barley imports, Australian Foreign Minister Penny Wong says 14 April, 2023 - China says it will review the necessity of continuing to impose anti-dumping and anti-subsidy tariffs on imported Australia barley 19 April, 2023 - Western Australia-China strategic dialogue held in Beijing during visit by Western Australia Premier Mark McGowan 12 May, 2023 - Australian trade minister Don Farrell holds talks with his Chinese counterpart Wang Wentao in Beijing 18 May, 2023 - China agrees to resume imports of Australian timber 12 June, 2023 - China asks for another month to complete a review into its tariffs on Australian barley 4 August, 2023 - China says it will drop its tariffs on Australian barley imports 7 September, 2023-Australian Prime Minister Anthony Albanese says he will visit China later in 2023

DFAT and Treasury studies have made it clear that Australia cannot successfully diversify trade away from China, the person said. Diversification to Southeast Asia is really China plus.

The first study was ordered by Prime Minister Tony Abbott, as his cabinet decided to act on a US warning in 2012 that growing economic and trade dependence would make Australia vulnerable to Chinese pressure.

Abbott was always suspicious of the motives of Communist China, the person said. He is famous for describing the Australian relationship with China as based on fear and greed.

China is a major buyer of Australian iron ore, liquefied natural gas and agricultural products. Bilateral trade, which totalled US$152.9 billion last year, is widely believed to be a bedrock in relations and a means of avoiding total breakdown.

That breakdown appeared more imminent than ever in 2020, when the Scott Morrison administration called for an international investigation into the origins of Covid-19. After China responded with a series of official and unofficial trade sanctions, the concept of diversification started to gain more attention.

Australias former treasurer Josh Frydenberg vetoed the release of a public version of either report because it did not fit in with the China narrative of the Morrison government, according to the source.

However, the reports are well known in official circles in Australia.

The Anthony Albanese administration, which took office last year and has made a conscious effort to improve relations with China, has filed a report that comes to the same conclusions as the studies completed during the Abbott and Morrison administrations.

Another source added that at high levels of the Australian government, there is an understanding that it is not feasible to move away from China entirely.

It is common for the government to run internal studies for practical and less practical (political) reasons, the source added.

All three studies are classified, and the Post was not able to obtain copies of the reports. Neither DFAT nor the Australian Treasury replied to the Posts requests for comment.

Telling these Australian exporters to diversify is both silly and insulting, said James Laurenceson, director of University of Technology Sydneys Australia-China Relations Institute.

Data from the institute showed that among the three major Australian export goods lithium, iron ore and lobster Chinas imports account for a respective 84, 69 and 80 per cent of the world total.

Laurenceson said that in areas where Australian exporters are selling into competitive global markets, like for coal or barley, diversification is borderline irrelevant.

This is because if China closes its market (as it did in 2020), Australian exporters can very easily and very quickly find alternatives, he added. They dont need to diversify because global markets will simply redirect their output.

David Olsson, national president of the Australia China Business Council, said the recently released Southeast Asia Economic Strategy 2040 highlights the massive potential of markets in the region, but will take time to fully realise.

Accessing the China market has taken decades for many exporters, building relationships, networks and understanding the laws and culture, he added. Australian business is a long way from that level of engagement in Asia.

The Australian government has also named India as a top three export market by 2035, as the country is set to be the third-largest Asian destination for outward Australian investment.

Diversifying away from China in the supply chain would be tough, said Dong Xuyang, an analyst at Climate Energy Finance, an independent think tank in Sydney.

Whether people like it or not, the reality is that China is dominating the global renewable industry as a result of insufficient effort from the rest of the world. And China is producing these products at the scale and speed the global energy transition needs.

First published in the South China Morning Post on 5 September 2023.