Tensions between China-Australia rising due to COVID-19 investigation and ‘economic coercion’

What a difference 100 tonnes of medical supplies make.

Two secret shipments in February of Australian medical supplies to China have led to a dramatic change of attitude in Canberra.

And it seems Australian resolve seems to have further solidified as Beijing tries to apply economic pressure on Australia to head off the nation’s call for an international inquiry into the origins of the COVID-19 virus.

The most immediate effect is to signal that Chinese companies will no longer have a smooth path to making Australian acquisitions.

There have been fears that cashed-up Chinese corporations could be looking to pick up distressed assets here as companies struggle with the economic downturn.

Yet just six months ago, it was all so different.

China Mengnui Dairy last December completed its $1.5 billion takeover of Australia’s fourth largest infant formula maker, Bellamy’s Australia.

A month earlier the same Chinese company announced it was bidding $600 million for another Australian-based (although Japanese owned) company in this sector, Lion Dairy and Drinks, best known to the public for brands that include Dairy Farmers, Pura, Berri, Vitasoy and others, and which included Lion’s raw milk processing chain.

That, too, went through: the Chinese company got what it wanted in both cases.

Foreign interests now control an estimated 77% of Australia’s dairy sector (American company Saputo and New Zealand’s Fonterra being other big players here).

Two mining investments blocked

Yet just a week ago the Australian Federal Government invoked the “national interest” to block a $14.1 million investment by a Chinese lithium chemical company in an Australian exploration junior that’s project was located, not in Australia, but in the Democratic Republic of Congo.

That company, AVZ Minerals (ASX: AVZ), is now looking elsewhere for financing.

A week earlier rare earth company Northern Minerals (ASX: NTU) learned a $20 million planned investment from another Chinese company had also been blocked by Federal Government Treasurer Josh Frydenberg.

True, the Australian Government had already unveiled a policy to keep control of critical minerals production here, but the timing fitted into the seemingly transformed attitude in Canberra to its China relationship.

New restrictions on foreign investment

In late March, the Federal Government was reported to have placed what were described as severe and indefinite restrictions on all foreign investment bids.

This followed revelations that, before the true scale of the COVID-19 panic was disclosed by China, two of its companies operating here had secured more than 100t of surgical masks, thermometers, wipes, hand sanitiser, gloves and medicines, and had them airlifted to China.

One shipment included 100,000 protective coveralls and 900,000 pairs of medical gloves.

So, while the clampdown on foreign investment bids does not specify China as the target, the evidence so far is that Chinese companies now face an uphill battle to buy up more of Australia.

This is a sea-change from the previous situation where that country’s cashed-up buyers found willing sellers, and accommodating government policy, here in Australia.

Chinese shopping list has been a long one

In 2015 the Northern Territory Government sold a 99-year lease on the Port of Darwin to the Landbridge Group from Shandong province.

The port is now listed by China as part of its Belt and Road Initiative (BRI).

BRI, also known as the New Silk Road, is an ambitious infrastructure project stretching from China through East and Central Asia to Europe, with links to Africa and Australia.

It is seen by its critics as a vehicle by which China can exert greater economic and political influence.

Ten years before the Port of Darwin was handed over, Merredin airport in Western Australia’s wheatbelt region was leased for 100 years to China Southern Airlines for training of pilots.

One of the ostensible reasons China Southern wanted that particular airport for training was the prevailing calm weather in that region.

The airport then consisted of two gravel airstrips. Under China Southern, it was transformed by the laying of two sealed runways and installation of lighting to allow night flying.

A subsidiary of Beijing-based Xinjiang Goldwind Science and Technology operates or is building seven wind farms and two solar power farms in Australia.

In 2017, Rio Tinto (ASX: RIO) sold (for $2.69 billion) its Coal & Allied subsidiary and its Hunter Valley coal operations to China’s Yancoal.

In 2016 Shanghai real estate conglomerate Shanghai Cred bought more than 400,000ha of pastoral land in the goldfields region of WA.

This included the Melita, Jeedamya and Kookynie stations. The company then bought two iconic cattle properties, Yakka Munga (northeast of Broome) and Mount Elizabeth stations.

In 2019 Aboriginal traditional owners protested about the Chinese owners undertaking mass land clearing at Yakka Munga.

While defenders of land sales to Chinese companies make the point that these purchases involve only a very small percentage of Australia’s land area, entrepreneur Dick Smith in 2018 argued the discussion should be about the value of the land.

“We understand it’s a very small percentage, but it’s the best — they buy the best,” he said.

First signs of hostility last year

In September 2019, Professor Wang Yiwei issued an extraordinary warning to Australia after being brought here by the Chinese Embassy in Canberra.

In a television interview, the professor of international relations at Renmin University in Beijing said Australia could be in the front line of any Cold War between China and the US.

“If there is a war between the US and China over the South China Sea or Taiwan — you are the frontier.

“You are the first sacrifice for that,” he said. “So be careful to not use the Cold War, not to make trouble with China — not good for you.”

He said that the US had many allies and so it would be easy for Washington to sacrifice Australia.

Australia-China relationship has become fraught

The sending of vital Australian medical supplies to China was one spark that ignited the latest phase of this new, uneasy relationship between Beijing and Canberra, but those flames have subsequently been fanned by Australia talking about a full investigation being needed into the origins of the COVID-19 virus.

And the language has turned quite nasty.

Earlier this week Hu Xinjin, editor of Chinese state media publication Global Times, reacted to the comments by federal ministers as to the need for such an investigation.

Mr Hu said relations between the two countries were likely to deteriorate further if Australia pushed for the investigation.

But after talking about “risk awareness” when it comes to doing business in Australia and rethinking about where Chinese should send their children to be educated, he made an extraordinary comment.

“Australia is always there, making trouble. It is a bit like chewing gum stuck on the soles of China’s shoes,” he said.

Then he continued with this ominous comment: “Sometimes you have to find a stone to rub it off”.

Now China is threatening boycotts

The biggest ripple, though, was caused by China’s ambassador in Canberra Cheng Jingye issuing a threat that Chinese consumers could boycott Australian products and services as a retaliation for the continuing push for a COVID-19 probe.

Mr Cheng used the word “dangerous” to characterise Australia’s call for an investigation into how the virus originated and, just as importantly, how it spread.

In his newspaper interview he specifically cited the cases of our tourism industry and (like Mr Hu) suggested Chinese parents may no longer want to send their children to university here.

Clearly China has experienced mounting anger against Australia, with their hostile comments going back to the decision by Prime Minister Scott Morrison shutting the door to people travelling from China to Australia as protection against the virus spreading here.

So far, the Federal Government has been holding its nerve.

Foreign Minister Marise Payne responded to Mr Cheng’s comments in his newspaper interview by calling them “economic coercion”.

Liberal MP and chairman of the parliamentary joint committee on intelligence and security, Andrew Hastie, has called for Australia to take back control of Darwin’s port, calling the lease “strategically naïve”.

This story has a long, long way to go yet.