China to Lift Restrictions on Australian Coal Imports (Updated)
China has reportedly removed all the remaining restrictions on Australian coal imports, signaling an end to trade restrictions imposed in late 2020. The move will further enhance the business confidence of those engaging in bilateral trade between the two countries. In this article, we discuss the latest developments and their impact on Sino-Australian bilateral trade and future relations.
UPDATE (May 19, 2023): According to China’s ambassador to Canberra, Chinese imports of Australian timber have been scheduled to resume from May 18, 2023. Ambassador Xiao Qian announced that the Chinese customs authority has officially informed the Australian Minister of Agriculture about the change. Additionally, discussions are underway regarding a potential visit by Australian Prime Minister Anthony Albanese to Beijing. The timber trade between the two countries, which previously amounted to approximately A$600 million (US$399 million) annually, had been largely halted since late 2020. Thus, this comes as a positive development, in a series of events signaling a warming of relations between the two countries.
All domestic companies in China are allowed to import coal from Australia, indicating the end of trade limitations that have been in place since late 2020, Bloomberg reports. Sources who are familiar with the matter say that ports and customs offices have been instructed to allow overseas cargo into the country, including Australian coal.
Earlier this year, the restriction had already been partially eased when four major state-backed importers were granted permission to buy Australian coal, which began to be shipped in January. At that time, China’s National Development and Reform Commission (NDRC) reportedly discussed with several government-backed utilities and a steelmaker to explore the possibility of resuming coal imports from Australia.
Why does it matter?
The move, if turns out to be true, will be a significant development in Sino-Australian relations, as the de facto ban on coal and other product importation from Australia has a negative impact on relevant businesses in both countries.
The significance of Australian coal to China
High-quality Australian coal is highly desired by China’s steelmakers and power plants, and as per Bloomberg’s informers, imports of Australian coal may reach 1 million tons in the first half of March itself. China, which is the largest producer and consumer of coal worldwide, imported more than 290 million tons of the fuel last year.
After the Bloomberg report, Australian coal mining stocks, including Yancoal and New Hope, reduced their losses.
China was a significant consumer of Australian coal until a non-official ban was imposed due to heightened political tensions between the two countries. Australian officials have stated that lifting the ban would be a crucial move in the process of rebuilding relations between the two nations.
As of March 13, 2023, a total of 1.35 million tons of coal had been shipped from Australia to China, which marks a significant increase from 0.82 million tons the previous month. It is further projected that coal imports will hit 2.6 million tons by the end of March, which will clearly cement the recovery of coal imports in the country.
Although the resumption of imports may indicate a thaw in relations between the two countries, the volume of coal imported is significantly lower than before the downturn in diplomatic ties in mid-2020. Indeed, in February of that year, China had imported 3.4 million tons of thermal coal and 3.9 million tons of coking coal from Australia.
Boosting business confidence
Coal is said to be the first of several Australian products, including lobster, wine, logs, cotton, and barley, which could potentially be permitted to enter China again, even though an official announcement is still pending.
The relations between the two major powers have been strained for many years and this tension boiled over into a full-blown trade embargo on several products, most significantly coal. The country’s manufacturing industries have long relied on Australian coal in their production process, which is considered affordable and reliable. China is the leading consumer and producer of coal and as of last year, it imported more than 290 million tons.
Based on the numbers, the ban has created a supply gap in the manufacturing and energy industry in China, which recently experienced an energy crisis. This has forced Beijing to look elsewhere to countries like Mongolia, Russia, and Indonesia, among others, to source coal supplies.
News of a potential lift of the ban is a welcome boost to confidence as businesses gear up for the resumption of trade and investment in both China and Australia. The relations between the two countries have been on a mend since May 2022 when the Labor Party, under Anthony Albanese, formed government in Australia. The Labor Party has traditionally had cordial ties with China, and it is expected that the relationship between the two major markets will be restored.
Although this news is still speculation, it is cause for optimism; businesses are eager to resume trade between the two markets, including import of Australian products, such as beef and wine, by China, following coal.
What’s next in China-Australia relations?
China-Australia relations have already been on the path to recovery since late 2022 and the Australian government has been engaging in discussions with Beijing about lifting the trade restrictions imposed due to political tensions.
In November 2022, Chinese President Xi Jinping and Australia’s Prime Minister Anthony Albanese met during the G20 summit in Indonesia, which was the first formal meeting between the two leaders since 2016.
Last month, Australian Prime Minister Anthony Albanese expressed his desire for a meeting between the country’s trade minister, Don Farrell, and Chinese commerce minister Wang Wentao. The goal of this meeting would be to address and resolve the trade issues between the two nations.
With the political tension between the two countries eased and China moving away from zero-COVID and deciding to focus on economic growth once again, the bilateral trade relationship between the two countries is expected to improve further in 2023.
Businesses engaging in relevant areas should gear up for the coming opportunities.
This article was originally published on March 22, 2023, and last updated on May 19, 2023.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at firstname.lastname@example.org.
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