PETER DRYSDALE. Return to prosperity depends on mending China ties (AFR 20.5.20)

The global economy has taken a huge hit as the world’s major economies shut down economic activity in turn to fight the spread of Covid-19.

The GDP of China, Australia’s largest economic partner, dropped 6.8% in the first quarter this year. Its total trade fell 6.4% (exports 11.4% and imports 0.7%). In that period, Japan’s GDP dropped 3.4% and the United States fell 4.8%. The crisis hit China first and hard.

In the same period Australia’s exports to China grew by 4.3% on a year ago, twice as fast as Australia’s total exports. China’s share in Australia’s trade rose to 35.8%, despite a 12.8% drop in Australian imports from China. Exports of beef were up 30.3%. China has cushioned the initial economic shock of the Covid-19 crisis on the Australian economy. Earnings from Chinese tourism and international students dived, of course, a consequence of the Australian government’s policies to protect against spread of Covid-19.

These outcomes are the product of the huge market reform over the past 40 years that made China the largest trader in the world. They are a product too of its commitment to the rules-based trading order through accession to the WTO 20 years ago that integrated its markets with those across the world. They’re a product of both Australian and Chinese governments allowing businesses to lift their own and national incomes by finding the best deals in international markets.

These facts, one might have thought, put the Australia–China trade relationship in a sweet spot, buffeted though both nations are by the Covid-19 crisis. Yet the largely un-broadcast good news about the relationship is totally lost in a fracture of trust that now surrounds it.

Despite the vigour of the bilateral economic relationship, foreign investment perhaps excepted, it has soured badly over the past half-decade. In dealing with each other, both Australia and China are tripping over their increasingly complicated relationships with Washington and the reality that China is now a great power too — perhaps more sensitive than most because of the way foreign criticism plays into domestic politics.

The latest brouhaha was sparked by Australian Foreign Minister Marise Payne’s call for an independent, global inquiry into the origins of the Covid-19 pandemic and Prime Minister Scott Morrison’s pile-on. There was furious agreement on the need for review of the pandemic experience from Beijing to Brussels before Australia claimed ownership of the idea. Indeed it is part of the WHO’s established practice, once a global health emergency is over, to conduct comprehensive reviews to establish exactly what happened and what lessons can be learnt to manage emerging emergencies better, by national governments as well as the international community.

Thus the question was never about the justifiable desire for greater knowledge about the pandemic now taken forward in the World Health Assembly so that we’d be better prepared for contingencies of this kind in future. The question has been about the nature and the timing as well as the febrile international political context into which Australia lobbed the idea.

There was no developed Australian proposal. There was no consultation with neighbours or partners in the region, and not only China, they all were stunned at the guilelessness with which Australia and peddled its idea over the one to which it’s now signed on with the WHO.

Tensions have ratcheted up over China’s use of economic sticks to punish Australia over this political dispute. Chinese Ambassador, Cheng Jingye, floated the possibility of economic retaliation by a Chinese public that was ‘frustrated, dismayed and disappointed’ with Australia’s ‘politically driven’ call for a global inquiry. He criticised the Australian government for ‘pandering’ to the United States and argued that any future inquiry should be undertaken ‘without any hidden political agenda or any political purpose’.

Activating the long-brewing Chinese anti-dumping action against Australian barley exporters and the suspension of licences to four Australian abattoirs — however much both governments tried to present these as separate technical matters — have fuelled tensions.

China’s use of economic punishment is infrequent, despite the oft-cited cases of rare earth minerals, bananas, salmon, canola, and the Lotte department store boycott; it almost never works; and it is subject to international legal disciplines which China has accepted. Australia can take the barley issue to the WTO; just like China could contest Australia’s multiple anti-dumping actions on steel and aluminium products, but hasn’t.

Other big powers like the United States are also active users of economic muscle. China’s heavy breathing over Australian agricultural exports is more threatening in the context of its extra-WTO legal phase-one trade agreement with the Trump administration. This deal requires China to purchase an additional US$32 billion worth of agricultural imports from the United States over the coming two years. Welcome to a future of managed trade.

The Australia–China relationship desperately needs adult supervision and getting back on track. Beyond Covid-19 it’s a relationship central to the ambitions of the Australian community for economic recovery and reconstruction; it’s crucial to forging cooperative strategies that preserve prosperity and political stability in the Asian region; and it’s critical to help secure the rules-based global order. On these three issues Australia’s and China’s strategic interests converge.

Australia and China have much work to do to make up lost diplomatic ground. But they have an opportunity to join with partners in the region in getting international cooperation on Covid-19 on fast track. A strategic foreign policy priority for both is to work together with neighbours to engineer more rapid economic recovery from the crisis. China will be a central part of the cooperation and recovery effort. National action to arrest the pandemic now must be combined with proactive regional and global coordination on public health, financial and trade policies if there is to be anything like a V-shaped recovery from its economic effects.

Reprinted with permission of the author,

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Peter Drysdale is Head of the Asian Bureau of Economic Research and Editor-in-Chief of East Asia Forum in the Crawford School of Public Policy at The Australian National University.

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7 Responses to PETER DRYSDALE. Return to prosperity depends on mending China ties (AFR 20.5.20)

  1. “Indeed it is part of the WHO’s established practice,, once a global health emergency is over, to conduct comprehensive reviews to establish exactly what happened and what lessons can be learnt to manage emerging emergencies better, by national governments as well as the international community.

    Thus the question was never about the justifiable desire for greater knowledge about the pandemic now taken forward in the World Health Assembly so that we’d be better prepared for contingencies of this kind in future. The question has been about the nature and the timing as well as the febrile international political context into which Australia lobbed the idea.”

    HERE! HERE! Peter Drysdale . Well explained article . Thank you.
    Australian leaders should have known better that both Trump and Pompeo pointing their dirty fingers at China to cover their short comings as well as trying to save their seats in the coming election by playing this ugly racist card. I hope Australian leaders have learned an expensive lesion and know how to watch out for any future hole they dug out for them to jump in.
    Let WHO do their job professionally, support them where needed. Of course no one is perfect but their overall great track record speaks for itself. All things will end better for the health and prosperity of every one if USA and China can lead the world together harmoniously and constructively in UN and WHO.

  2. James O'Neill says:

    Mr Drysdale is correct, albeit about five years too late. After 30 years of working in and with China I have learned a few things about that fantastic country. One of them is that they never do anything hastily and without plenty of prior signals. Australia has had those in abundance in recent years but through a combination of arrogance, stupidity and blind adherence to the US view of the world has chosen to ignore them. The remedy that Mr Drysdale seeks will be harder and take longer than he envisages. Australia has only itself to blame.

  3. Chris Nyland says:

    BARLEY from the United States can now be exported to China following the approval of a phytosanitary protocol by both countries, a market development achievement years in the making finally accomplished with the boost of the US-China Phase 1 deal signed in January.
    See: https://www.graincentral.com/markets/china-approves-protocol-allowing-us-barley-access/
    Looks like Trump conned Morrison when he supported his decision to challenge China in order to make a space for American barley growers.

  4. Chris Nyland says:

    Last week the US and the Chinese governments signed a protocol that is reactivating barley sales to China following the approval of a phytosanitary protocol by both countries. This market development was years in the making and was finally accomplished with the boost of the US-China Phase 1 deal signed in January.

    The notice on China’s customs website was posted on Thursday and confirmed to be approved by the US Department of Agriculture’s Animal and Plant Health Inspection Service (USDA-APHIS).

    In coming weeks, APHIS and the US Grains Council (USGC) will work with Chinese officials to develop fumigation and industry best practices requirements, and the Council and barley industry will work to ensure potential exporters meet administrative requirements to sell to China.

    “We are pleased to see China making strides to uphold their purchasing commitments under its Phase 1 agreement with the United States, and the fact it could once again position the US barley industry as a preferred supplier is even better news for US barley farmers,” USGC president and chief executive officer Ryan LeGrand said.

    See: https://www.graincentral.com/markets/china-approves-protocol-allowing-us-barley-access/

    Makes one suspect the US conned Morrison when he urged him to challenge China in order to make space for American barley growers.

  5. Garry Woodard says:

    Perer Drysdale writes that the relationship between China and Australia ‘desperately needs adult supervision’. It is hard to understand how PM Scott Morrison’s ‘pile-on’ to his Foreign Minister’s proposal for international investigation of the origin of Covid-19 could have got through Cabinet: it was more of a shakily-controlled ‘pile-driver.’ . The notion of health inspectors akin to weapons inspectors operating in by definition hostile environments, has been laughed out of court. It was particularly provocative to the unconcealed target, China, whose greatest sensitivity is its territorial integrity. Chinese leaders boast ‘we dared to poke the Bear’. They would expect Australian leaders to speak and act with similar deliberation and acceptance of the possible consequences.

  6. Sandra Hey says:

    This latest brouhaha over China by the Morrison Government, is more about hardening public opinion against China whilst the Morrison Government is secretly handing over selective power to vested American Interest over Australia’s natural resources. Couple that with the billions currently been spent on military hardware, will be the Morrison’s pathway to economic prosperity for some. Trump and Morrison are singing from the same song book.

  7. Evan Hadkins says:

    Return to prosperity depends on ties with China . . . if we want the same system as before. That one that kills the planet.

    Rebuild better. Long supply chains are a bad idea. More pandemics are coming.

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