Illustration: Tang Tengfei/GT

As the prices of Australia's major export commodity, iron ore, have shot up of late, some local economists and politicians declare that the economic loss stemming from a severely strained relationship with China has been offset. The country has clearly lost sight of the growing risks that its iron ore industry is facing from Canberra's reckless political schemes and the ongoing global industrial upgrading.

Indulging in the fleeting revenues of the boosted iron ore price, Australian economist Chris Richardson defined that China's "trade aggression" against Australia as "smart politics" but "dumb economics", as cited by local news outlets.

According to Richardson, 'fear tax' is one of the reasons pushing up the iron ore price as industry practitioners are spooked by the market prospect amid the freezing China-Australia relations, and "the taxman will be a considerable beneficiary of that." 

While essentially, behind the anxiety, is the ill intent of the Morrison government that has been recklessly sabotaging the relations with its largest trade partner.

As a major trade item between China and Australia, about 80 percent of Australia's iron ore export shipped to China in 2019, which accounted for about 60 percent of China's iron-ore imports. Its price has been rising this year amid the COVID-19 pandemic, and surged nearly 30 percent in the recent two months.

The surge of Australian iron ore price is mainly affected by the fluctuation of international commodity prices, and was mainly driven by market factors, including rising demand, and capital market speculation is to blame for the price hike too. In short term, it is true that Chinese steel producers will bear losses as their demand is rising due to a rapid economic recovery at home.

According to China's General Administration of Customs, China imported 1.07 billion tons of iron ore in the first 11 months of the year, up 10.9 percent. In order to ensure supply, Chinese importers have been rolling out measures to hedge the risks, such as cross-border mergers and acquisitions, as well as suppliers diversification.

In the first half of the year, China's iron ore imports from India hit an eight-year high. According to a report by South China Morning Post, Brazilian iron ore mining giant Vale struck a deal with Chinese state-owned port operator Ningbo Zhoushan Port to create additional capacity to handle iron ore shipments at Shulanghu Port as Vale moves to increase market share in China.

The fleeting rise of iron-ore price will not save Australia's economy or government receipts, inversely, the economy highly reliant on resource exports, especially iron ore, should be aware of its increasing risks when Canberra keeps undermining business environment for its exporters while the global industrial upgrading will gradually lower demand for raw materials. 

China and Australia share complementary trade structures, and China has long viewed Australia as an important trading partner. Following the ink of the China-Australia Free Trade Agreement four years ago, which covers over a dozen of sectors including cargo, service and investment, market access has been largely broadened and bilateral economic ties enhanced. Moreover, the freshly concluded Regional Comprehensive Economic Partnership (RCEP) also offers a multilateral framework to mitigate the fallout of the strained economic relations, which is crucial for Australia's recovery from the COVID-19 crisis.

However, seriously impacted by an obsession with the US, the Morrison government has been siding with an anti-China coalition, from banning China's Huawei to heightening discriminative scrutiny of Chinese investments. 

If Canberra keeps holding onto its geopolitical mentality or even, as some irrational politicians have claimed, to slap tariffs on Australian iron ore exports, it will further burden the country's economic recovery during post-pandemic era, as clearly it is Australia that needs China more, both in terms of commodity and service trade.

The article was compiled based on an interview with Song Wei, an associate research fellow at the Chinese Academy of International Trade and Economic Cooperation. bizopinion@globaltimes.com.cn