Chinese tensions put Australian businesses under pressure

For thousands of years indigenous Australians relied on the sweet oysters that grow on the country’s east coast as a vital source of protein. Now a start-up backed by a Chinese port owner wants to transform the shellfish into a global luxury food brand for the Asian market. 

But Sydney-based East 33’s grand plan has been hampered by a growing trade dispute with Beijing, which threatens up to A$6bn ($4.6bn) of Australian exports to China covering a range of products from lobsters to wine.

“The Sydney rock oyster should be our native version of French champagne or Beluga caviar — it’s about premium, heritage, rarity and provenance,” said James Garton, co-founder of East 33.

Mr Garton has worked for three years to establish the first distribution channel for Australian oysters into China. But geopolitical tensions have forced him to pause his Chinese aspirations on the advice of his partner, Xingqi Gao, the founder of Shanghai Changxing Fishing Port, who owns an 8 per cent stake in East 33. Instead, the company will initially focus on alternative Asian export markets.

China is Australia’s largest trading partner, with two-way trade worth A$252bn last year. However, a deepening diplomatic dispute following Canberra’s call for an inquiry into the Covid-19 outbreak in Wuhan has angered Beijing.

China has slapped punitive tariffs on Australian barley, restricted beef imports and begun an anti-dumping inquiry into wine exports. Chinese importers have warned their Australian partners that wine, lobsters, timber, sugar, coal and copper would face trade disruption from last Friday, according to verbal briefings delivered by Chinese authorities.

Last week customs officials at Shanghai airport held up a A$2m shipment of rock lobsters while new health and safety checks were implemented. The delay led to the spoiling and loss of some produce.

“Not all of the rumours that have been flying around have been proven to be true, despite widespread talk of total bans on Australian imports and so on,” Simon Birmingham, Australia’s trade minister, said.

“We’ve been monitoring closely and we see products still flowing over the course of the weekend.”

Scott Morrison, Australia’s prime minister, has pursued a hard line against Beijing but businesses warn they could be left paying the cost © Getty Images

Canberra has asked Beijing to provide clarity on any new measures, but relations have deteriorated to such an extent that Mr Birmingham has admitted that his Chinese counterpart does not return his calls.

In an ironic twist, the trade rift has coincided with the China International Import Expo in Shanghai, an event intended to showcase the nation’s commitment to opening its economy.

“It is very clear that Beijing is willing to see Australia punished through the use of trade instruments,” said Hugh White, professor of strategic studies at Australian National University.

“And I think the Chinese want to deliberately keep us guessing with mixed messages coming out of Beijing. We hear that these bans have been imposed by off-the-record instructions delivered in private meetings by local officials, but the guys in Beijing say it has nothing to do with them. They are trying to keep Australia off balance.”

Richard McGregor, an analyst at the Lowy institute, a Sydney-based think-tank, said Beijing’s actions were likely a scare tactic to persuade Chinese importers to source alternatives to Australia goods. 

The immediate threat to trade has forced some Australian businesses to delay shipments to China but in the longer term analysts said it would force companies to seek alternative markets in Asia.

“Some wine exporters have already begun to defer shipments to China as they await clarity on the rumours and speculation,” said Tony Battaglene, chief executive of Australian Grape and Wine, an industry group.

But it will be difficult for wine producers to find alternative markets. China accounted for A$1.2bn of the country’s A$3bn-a-year of wine exports while Covid-19 had hammered global demand, said Mr Battaglene.

Iron ore, by far Australia’s most valuable export to China, worth more than A$100bn a year, has been unaffected by the turmoil, owing to Beijing’s inability to source the vital steelmaking ingredient elsewhere. But analysts warn that China’s plans to build greenfield iron ore mines in west Africa could reduce its reliance on Australia.

“This year or next year China has few alternative sources of supply of iron ore but if we look forward a decade or two decades then Beijing has plenty of options,” said Mr White.

The rise in trade tensions has come just a month before East 33 planned to list on the ASX and raise A$32m to finance its Asian expansion.

Mr Garton said the board had taken the advice of Mr Gao to delay a launch in China — where oysters can sell for up to A$20 each — owing to “geopolitics” and would instead focus on Singapore, Japan, Taiwan and South Korea. But he is hopeful that the bilateral relationship will stabilise and China will reopen.

“The big story here is around the subtle context of the geopolitical [fight] between Australia and China. And we are not seeking to be a participant in that game . . . Let’s let the big boys sort out what they’re doing there, and we will come in behind that.”

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