China port reportedly bans Australian coal amid Huawei tensions

China port reportedly bans Australian coal amid Huawei tensions-中国北方一主要港口禁止澳大利亚煤炭入关
Published on: February 21, 2019
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A major port in northern China has reportedly banned coal imports from Australia — in a sign that Beijing may be flexing its economic muscles and warning nations not to bar its next-generation wireless technology.

The indefinite coal restrictions at Dalian started this month and are part of an overall plan to cap imports into the customs region this year, Reuters reported, citing an unnamed Dalian Port Group official. China’s foreign ministry wouldn’t say if it was specifically targeting Australia, only that it regularly inspects coal imports for environmental reasons.

The move may be a shot across the bows of Australia, which last year followed the U.S. in banning Chinese telecommunications giant Huawei Technologies Co. from its 5G network on security concerns. China has said the concerns are unreasonable and warned other countries of unspecified consequences if they follow suit in blocking Huawei equipment.

While Dalian only takes about 2 percent of Australia’s coal exports, such a ban would mark a deterioration in often strained relations between the key trading partners. The Australian dollar fell as much as 1.1 percent, the most in two weeks, to around 0.7086 on Thursday after the Reuters report. Meanwhile, China’s biggest traded mining company, China Shenhua Energy Co., rose more than 4 percent.

Seeking clarity

Asked directly about the report on Thursday, foreign ministry spokesman Geng Shuang told reporters in Beijing that China examines imported coal to protect the environment. He didn’t say whether China was targeting Australia specifically. Trade Minister Simon Birmingham said Australia’s ambassador to Beijing was seeking to “urgently clarify” the veracity of the report.

China, which has a history of using trade as leverage, has been seeking to counter resistance in several nations to using Huawei in 5G networks. It’s ambassador to Canada this week warned that excluding the company will have repercussions. Meanwhile in New Zealand, which has also barred Huawei, the government this week sought to downplay concerns that China is now turning a cold shoulder.

Australia is the world’s most China-dependent developed economy yet has an enduring security relationship with the U.S. and often finds itself walking a diplomatic tightrope between the two. In recent months, Prime Minister Scott Morrison’s government agreed to work with the U.S. on a naval base in Papua New Guinea, a move seen as a direct counter to China’s growing influence in the South Pacific.

Australian beef and wine exporters last year blamed politics when their products were held up at Chinese ports, after then-Prime Minister Malcolm Turnbull implicitly criticized Chinese meddling in Australian politics and universities.

Australia banned Huawei in August last year, recently revoked the permanent residency of a Chinese billionaire over concerns that he’s an agent of influence and is pressing the Chinese for access to Australian citizens and permanent residents held in prison or trapped in Xinjiang.

“They are putting pressure on us, along with New Zealand, because of our stances on Huawei,” said Malcolm Davis, a senior analyst at the Australian Strategic Policy Institute in Canberra. “They could do more if they wanted to, but if they did they would shoot themselves in the foot because if they stop buying our raw materials, they will suffer as well.”

Trade ties

China produces about half of the world’s coal, but it relies on overseas supply for some thermal coal, which is used for power generation, and high-quality coking coal, an Australian specialty that’s used to produce steel. China was the second-biggest customer of Australia’s coal last year, according to Australian customs data.

While China has restricted overall coal imports occasionally to support domestic miners or restrict low-quality supplies, the limits on Australian coal appear to be one of the few times it has targeted a specific country.

On Wednesday, the head of Glencore Plc said the mining giant sees politics behind China’s move to delay customs clearances of Australian coal imports and is awaiting a resolution to the “diplomatic dispute.”

“There’s a bit of a political issue” related to delays processing Australian coal cargoes, Glencore’s Chief Executive Officer Ivan Glasenberg told analysts Wednesday after the release of the company’s financial results. “We’re waiting and monitoring to see what big effect it has, what effect it’s going to have, when they are going to resolve this diplomatic dispute.”

The views from Glencore, one of the largest miners in Australia, contrast with the position taken earlier this week by fellow mining giant BHP Group, which sees the delays as a result of China seeking to balance consumption of domestic and imported coal. Glasenberg didn’t highlight any specific political issues between the countries.

Hear the message

The reasons for the restrictions are unknown, Credit Suisse Group AG said in a note Thursday. “If it is geopolitical and intended to remind Australia who our key trading partners are, it may need to last several months before the price impact becomes apparent and Australian political leaders hear the message from miners,” the bank said.

China has a history of using trade to help it achieve its foreign policy goals. After South Korea’s Lotte Group agreed to sell the Korean government land for a U.S. anti-missile system known as Thaad, Chinese authorities suspended operations at more than half of the company’s stores in China for alleged fire safety violations.

During a dispute with Japan over islands in the East China Sea in 2010, Japanese trading companies found China was refusing to fill orders for rare-earth elements. Beijing never acknowledged an export ban, but no other country reported such delays.

“It is hard to know the exact Chinese motives in this case,” said Zhang Baohui, director of the Center for Asian Pacific Studies at Lingnan University in Hong Kong. “If the speculation is correct, then it shows the stakes for the 5G race are now higher for all parties. The U.S. is relentlessly pushing its allies to ban Huawei and China is starting to push back.”

Source: Bloomberg News

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