<![CDATA[China, Australia decoupling labelled 'zombie economic idea' amid coronavirus fallout]>
Calls for Australian businesses to diversify away from China as their main trading partner are nothing more than a "zombie economic idea" that is being used as a political tool to expedite the decoupling of the two countries, according to a report by the Australia-China Relations Institute at the University of Technology Sydney.
The debate about Australia's over-dependence on China for its livelihood has ramped up recently, triggered by the interruption of supply chains during China's coronavirus shutdowns in January. This prompted Australia to launch a national inquiry into the "vulnerabilities in Australia's economy to external impacts" in late February.
"In terms of exports, Australian businesses selling heavily into the Chinese market stand to lose the most if that market is disrupted. This provides a strong incentive to be well-informed about both opportunities and risks, and take steps to mitigate the latter.
"That some Australian entities like universities have attracted particular criticism owing to a significant exposure to the Chinese market misses the national interest benefit they have delivered, as well as the broader context."
The growth of Australian universities " supported by strong international student enrolments " created over 250,000 local jobs in 2018, and other industries like Australia's wool industry have managed to continue to thrive thanks to China taking most of its output, the report added.
Sydney beef exporter and consultant, Alpha Consultancy's Alfred Chung, pointed to the fact that Australia's beef industry relies on China for two thirds of sales, which otherwise would be "wasted".
A long-time partner of Australia's National Farmers Federation, Chung said the calls to diversify away from China are nothing more than "noise from Canberra" and a slap in the face for the Australian agriculture sector already crippled by severe drought and the recent bush fires.
"Politicians don't give a damn about the farmers, and in fact it is suicidal to diversify right now," said Chung, who exports beef brisket to the Nansha District of Guangzhou in southern China.
"Farmers have in fact diversified from Europe, America and Japan [into China] and it has taken years of leadership for Australia to gain the trust of China over its beef exports. If we are to diversify now, it will wipe out Australia's livelihood.
"The politicians make no sense, there will be very few markets for many firms to create a trustworthy and safe market like China."
In considering other markets outside saturated economies, emerging ones like Latin America are themselves trying to sell to China, with Australia's own small population is insufficient to soak up its beef production, Chung added.
Beef, alongside wool, are some of Australia's main agricultural goods exported to China, with mining products such as iron ore, natural gas and coal dominating the top of the export list. In services, education is the main export.
China is Australia's biggest export market and accounts for around a third of its total exports, overshadowing the second biggest market on the list, Japan, with 13 per cent, based on 2018-19 data. The United States is fourth on the list accounting for around 5 per cent of Australia's total exports.
Another beef exporter, fifth-generation New South Wales-based farmer, Macka's Beef's Robert Mackenzie, sells all his premium beef to China, where the demand is the greatest.
"I hope that our two countries will maintain a successful relationship ... if this doesn't happen, many people will be hurt," he said.
The rationalisation of government interference into the free market trade between the two countries also assumes businesses are not efficient enough to manage their own risks, said the report from the Australia-China Relations Institute, which was set up with funds from Chinese property developer Huang Xiangmo, who was stripped of his Australian residency earlier this year over his alleged links to China's Communist Party.
But businesses such as education group Belong, which have been looking into other markets in Southeast Asia after January's border closures halted the flow of students, have proven otherwise. Belong director Jenny Jia said while diversification was important, the Chinese market cannot be abandoned.
"For most Australian businesses with significant international exposures, monitoring and responding to developments in a diverse set of risks, including political risk, is already standard practice," Australia-China Relations Institute's Laurenceson and Zhou said.
"Second, the government can use its convening power, and draw on knowledge garnered from its international diplomatic network and trade and investment promotion agencies such as Austrade, to make sure businesses are aware of the risks and opportunities that exist, in China and elsewhere.
"Third, to the extent that the Australian government has access to information sources that businesses do not, a business accounting of the risks they face can be enhanced through regular and frank dialogues with, amongst others arms of government, national security agencies."
There are also, according to the report, more than one way to manage supply chain risks than simply decoupling as the government could incentivise businesses to hold additional inventories of critical goods or maintain strategic stockpiles.
Another way to increase self-sufficiency is via industrial policy or a "re-industrialisation" of the Australian economy, although such an initiative without a solid plan or other backup markets to replace China in the interim could reduce Australian income and jobs, they added.
But re-industrialisation, on its own, is problematic, according to University of Sydney professor of Chinese Business and Management, Hans Hendrischke.
Hendrischke believes it would be futile to try and revive the manufacturing sector in Australia, which saw its demise confirmed when car manufacturer Holden halted local production in October 2017 due to unprofitable operations.
At its peak, Holden sold nearly 180,000 cars a year, employing 24,000 people. But it also cost taxpayers a lot of money, with subsidies of over A$2 billion (US$1.3 billion) paid to Holden's manufacturer, General Motors, over a 12-year period.
"Decoupling is not an option for Australia because we don't have the base for decoupling, we don't have a trade deficit, we have a trade surplus and that comes from trade with China. And we are not [industrially] competitive with China, as the US is trying to be, as the Europeans are and Japan to some extent," Hendrischke said.
"The situation is also different for the US, which has a number of extra motives for decoupling."
The best Australia can do, according to Hendrischke, is to innovate into a "smart" manufacturer which would still require imported machinery from China.
Re-industrialisation would also mean reversing a deregulated open economy that has made Australians wealthy and again adding burden on taxpayers through having to subsidise certain industries, as seen with car manufacturing.
The weight of this, alongside the mutual dependency between China and Australia, would mean a complete decoupling would be unlikely, Hendrischke said. As much as Australia needs China, the reverse is also true, with China needing things like Australia's western education for its emancipation into a mature economy, he added.
Overall, Australia does not have to divorce from China economically, even if it has competing national security goals with China, Laurenceson and Zhou said.
"There are important discussions to be had around managing the risks associated with Australia's international economic exposure, particularly when confronted by a challenge like Covid-19 ... but the argument that Australia's national interest is best served by forcing a decoupling ... deserves to be laid to rest once and for all," Laurenceson and Zhou concluded.
This article originally appeared on the South China Morning Post (SCMP).
Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.
