China – Australia Tensions Led To Coal Imports Ban

China –
Australia Tensions Led To Coal Imports Ban

In international trade, China and Australia are
major trading partners, where up to 24% of Australian trading is done with
China. That said, Australia and China’s economy are highly correlated. One
example from this year would be the outbreak of the Covid-19 in China, which
had since sent Australia’s economy into a deep recession for the first time in
almost three decades.

This year, the shrank in Australia’s GDP for the
second quarter pictured clearly how Australia’s economy is dependent on China’s
economic performance. However, as the world struggles to recover from the
pandemic’s damage, many countries are investigating the origins of the Covid-19
virus – with most countries pinning the blame on China, including Australia.
Since then, tensions were sparked between both sides, leading China to ban
certain imports from Australia.

The heightened political tensions had recently led
to China banning Australian thermal and coking coal imports, causing several
Australian vessels stranded idly at Chinese ports. Several vessels carrying
coal had waited at Chinese ports for more than a month as custom clearances
slowed down, while the number of waiting vessels increased lately. According to
reports, as much as 7 million tonnes of coal are put on wait, more than the
usual number of 4 to 5 million tonnes.

The ban was seen as politically motivated as
Chinese authorities only communicated the ban verbally. However, some analysts
argued that the informal approach was aligned with China’s goal to reduce
consumption and carbon emissions by lowering coal imports overall. As China is
less reliant on coal imports from Australia than other commodities such as iron
ore, the ban is expected to persist for an indefinite period, most likely until
the political dispute between both sides cools off.

In the first half of 2020, Australia was the
largest coking coal (key ingredient in steel production) exporter to China
following the the country’s infrastructure boom. The latest ban also targets
thermal coal used in electric power generation, suggesting a strong blow dealt
to Australia’s exports into China as it contributes more than the exports of
coking coal.

From China’s front, the ban comes amid the control
of coal imports to align with China’s target to reduce pollution and consolidate
the coal industry. As countries worldwide are still restless in their battle
against the Covid-19, tensions could escalate unexpectedly with similar bans,
restrictions, and tariffs brought onto the table. 

Photo Credit: https://www.smh.com.au/