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Apr 24, 2021

Relations between China and Australia have become fraught over the past year after Canberra pushed for an international probe into the origin of the coronavirus without diplomatic consultations beforehand, and Beijing eventually responded with a number of trade blocks on wine, barley, cotton, copper, coal, sugar and lobsters. We look at the issues in this series. Smaller export products victimised in a year-long conflict between China and Australia will struggle to find new markets in the short term, while economically codependent trade in commodities such as iron ore will be spared disruptions, analysts say. As frayed relations pass the one-year mark, Australian exporters of goods including barley, wine and coal see new trading opportunities in countries such as Vietnam, Indonesia and Mexico, but these markets will not be able to absorb excess trade immediately, research firm IBISWorld said. Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team. Using barley as an example, Matthew Reeves, a senior industry analyst at IBISWorld, said finding replacement export markets is not always a simple task. The Australian barley industrys progress since China introduced the tariffs last year reveals the resilience of Australian exporters, who have pursued diversification strategies. However, shifts to new export markets can take months to achieve, and will do little to ease disruption in the short-term, he said. Whats happened over the past year, and whats the outlook? China imposed total anti-dumping duties of 80.5 per cent on Australian barley last May after an 18-month investigation that started before the conflict escalated, rendering the grain uncompetitive in China. Barley was not the only casualty of tensions between the two countries, which escalated when Canberra pushed last April for an inquiry into the origins of the coronavirus pandemic without consulting Beijing. On Wednesday, tensions stepped up a notch when the Australian government tore up Victoria states non-binding Belt and Road Initiative agreements with China, along with two older agreements with Iran and Syria under new foreign relations law. While Canberra says the law was not aimed at China, it was enacted soon after a political furore over Victorias actions. Since then, China has also imposed unofficial bans on coal, log timber, lobsters and wine. Anti-dumping duties were levied on cheap Australian wine late last year and formalised last month, effectively pricing it out of the Chinese market. IBISWorld identified Vietnam, India, Mexico and Indonesia as potential new export markets, citing shared trade pacts like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) of which Mexico, Vietnam and Australia are signatories as springboards for more trade. Tariff reductions as a result of the CPTPP will bolster Australias economic relationship with these countries, Reeves said. Australia is also cultivating bilateral trade deals with India and Indonesia that have growing economies and can soak up exports like coal and food products such as meat, dairy and grains. Vietnam will also have an appetite for food, minerals, and metals, IBISWorld said. Last November, as the unofficial Chinese ban hit Australian lobsters, Australian agriculture minister David Littleproud espoused the virtues of Vietnam as a possible lobster export market. Early this year, tariffs for seafood exports to Vietnam dropped to around 8 per cent and they will be completely eliminated by 2022 as a result of the CPTPP. And weve given you [exporters] other free trade agreements in which to sell your product. And in fact, lobsters, before the free trade agreement came in place, 93 per cent of our lobster market went to Vietnam, and Vietnam still remains a very strong and close friend of Australia, Littleproud said as he asked exporters to remain calm following the ban. But replacing China with Vietnam as a lobster market will have its challenges. Export numbers from the Australian Bureau of Statistics show that in 2019 China imported over A$800 million (US$618.5 million) of live and processed crustaceans, including lobsters, while Vietnam imported next to nothing. In comparison, before the China-Australia free trade agreement was signed in 2015, China imported A$32 million worth of the product while Vietnam imported about A$700 million. While smaller exporters will have challenges finding new markets, Australian iron ore miners have little to be concerned about, ratings agency Fitch Ratings said. In a new analysis on Thursday, Fitch said economically codependent trade such as iron ore is likely to be spared from the bilateral conflict. Iron ore is Australias largest export to China and critical for the nations industrial policy apparatus, Fitch said. We do not expect China will cease iron ore purchases. Iron ore plays a critical role in Chinas industrial development, as the main ingredient in steelmaking. Its importance has only risen over the past year, as Chinas fiscal policy response to the coronavirus shock includes a large infrastructure programme, Fitch Ratings Jeremy Zook, Andrew Fennell and Kathleen Chen said in a note. We would expect China to exclude iron ore from potential punitive trade measures on Australian goods, given Australias outsize role in the global iron ore trade Fitch We would expect China to exclude iron ore from potential punitive trade measures on Australian goods, given Australias outsize role in the global iron ore trade and a limited number of alternative suppliers. But if there are more punitive measures towards Australias exports, they would be levied against smaller export sectors that did not have an impact on Chinas near-term growth prospects, the analysts said. Overall, the trade actions in the past year have not had a material impact on Australias economy due in part to the continued strong exports of iron ore to China. As a result, Fitch says Australias sovereign credit rating is unlikely to be affected by the trade tensions with China, at least for now. Trade actions have been damaging for affected industries at a micro level, but these industries do not comprise a significant portion of overall exports, apart from coal, Fitch analysts said. More from South China Morning Post:China-Australia relations: wine traders eye spirits to survive crippling disruptionsChina-Australia relations: lobster exporters look to reboot in alternative markets after years of relying on Chinese demandChina-Australia relations: wine piling up keeping Sydney exporter awake at night ahead of peak seasonChina tells Australia to reflect on its own deeds as it imposes new import bansChina-Australia relations: Canberra should know how to improve relationship, Beijing saysThis article China-Australia relations: iron ore miners to escape Beijings punitive trade measures as small exporters scramble for new markets first appeared on South China Morning PostFor the latest news from the South China Morning Post download our mobile app. Copyright 2021.