China’s informal curbs unnerve trading partners

06.03.2019

When Canada detained Huawei’s chief financial officer last year following a US extradition request, Chinese retribution was swift: two Canadians were arrested and a prisoner from the country was sentenced to death.

This week, following Ottawa’s move to proceed with Meng Wanzhou’s extradition to the US, Beijing blocked shipments of canola, an oilseed that is one of Canada’s largest exports. The block was calibrated: it applies to the largest Canadian-owned exporter, but not to US companies that also ship the Canadian crop.

Across the Pacific, businesses in Australia and New Zealand are also grappling with concerns over economic retaliation for the country’s policies towards Huawei. Canberra has blocked the company from selling 5G equipment and New Zealand has raised security concerns over its role, raising concerns that Beijing is deploying a more subtle form of economic coercion.

Last month it was reported that China had been subjecting Australian coal imports to extra customs checks, resulting in lengthy delays for an industry that was forecast to generate A$67bn ($47bn) in export revenue in 2018-19, according to Australian government projections. This follows disruption to Australian wine imports to China and an anti-dumping investigation by Beijing into barley imports last year.

Beijing last month also put on hold plans to launch jointly a China-New Zealand Year of Tourism while a state visit by Jacinda Ardern, New Zealand prime minister, has failed to materialise. Last month, an Air New Zealand jet turned round in mid-air after being refused landing rights in Shanghai because of a paperwork error.

Beijing has denied these events relate to political tension over Huawei. Wellington and Canberra have also played down the incidents, saying there is no evidence to indicate they are tit-for-tat measures. But some business leaders and analysts suggest the measures are probably calibrated to pressure policymakers.

Peter Harrell, a senior fellow at the Center for a New American Security, a Washington-based think-tank, said the type of trade and tourism hiccups seen over recent weeks in Australia and New Zealand were consistent with how Beijing had used economic coercion in the past decade.

“China tends to impose economic costs through informal measures, such as selective implementation of domestic regulations, including stepping up customs inspections,” he said. “It often does not link a foreign policy dispute to the coercive measure, which gives it plausible deniability and greater optionality to escalate or de-escalate a situation.”

“The view from Beijing is that if you want to remain one of its trusted trading partners, then you can’t join a western alliance aimed at containing China,” said New Zealander David Mahon, founder of Mahon China Investment Management in Beijing. He believes the decision to block Huawei is at the heart of the tension between Beijing and Wellington.

A report by the Center for a New American Security warns that Beijing’s use of coercive measures is growing in frequency and scope. It concludes China will gain greater leverage over a more diverse set of countries as its economic power expands.

Previous examples include administrative harassment of Lotte, the South Korean retail group, and the cancellation of Korean pop concerts following Seoul’s deployment of the US Thaad missile system in 2017.

Beijing has also used punitive import curbs on bananas to punish the Philippines amid territorial disputes in the South China Sea, and banned Norwegian salmon imports following the award of a Nobel Peace Prize to dissident writer Liu Xiaobo in 2010.

Credit rating agencies have begun to take note. Last month, Moody’s Investors Service warned that the intensification of political tension between Ottawa and Beijing posed a credit risk for Canadian universities, which were heavily reliant on Chinese students for revenue.

New Zealand and Australia also have large numbers of Chinese students, which has led to concerns in the university sector that deteriorating political ties could dent international admissions.


“To misinterpret this to mean that something had gone wrong in our relationship in terms of trade is not only far fetched, it’s fake news,” he said.

Richard McGregor, analyst at the Lowy Institute, a Sydney-based think-tank, said Beijing had in the past been willing to “weaponise trade” in a way that damaged businesses in target countries and alarmed their citizens. He added there was a whiff of panic in New Zealand about possible trade sanctions, but no sign of a concerted campaign of economic coercion directed at the country or Australia, saying the reason for the coal delays remained unclear.

“We haven’t seen anything like the worst from Beijing. It is busy fighting Trump over trade and doesn’t want to take on too many battles at once,” said Mr McGregor. “These incidents may just be efforts to keep the potential threat of economic coercion uppermost in policymakers’ minds.”

There are signs that New Zealand’s Labour government, however, has taken note. Last month, Ms Ardern said no final decision had been taken yet on whether Huawei could be used in its 5G mobile rollout and reassured Beijing that New Zealand “placed a very high priority” on its relationship with China.



The Financial Times

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