No gain for Malaysia from China-Aussie trade spat

Production outages elsewhere have propped up China’s exports, and concerns over renewed trade tension with the US may also be prompting rushed shipments (pic: Bloomberg)

by SHAHEERA AZNAM SHAH / Pic by BLOOMBERG

MALAYSIA is unlikely to be among the beneficiaries of the trade diversion, as business ties between China and Australia turn sour over trade sanctions and import tariffs.

With Australia’s barley and wine already on the list of products slapped with Chinese tariffs, global experts predict that Australia’s bauxite and iron-ore mining sectors could be hit soon.

Australia, the second-largest bauxite and iron miner, is hugely dependent on the Chinese importers as 40% of the average US$153 billion (RM621.18 billion) goods sent to China each year are made up of iron ores.

Some quarters believed Malaysia can fill the gap as it had notably led the sector in the past with major mining sites set near a sea entrance at Kuantan Port.

However, the possibility of the shift is thin as Malaysia’s bauxite mining activities are strictly regulated and currently being heavily scrutinised over its environmental impact, said Putra Business School associate Prof Dr Ahmed Razman Abdul Latiff.

“Bauxite mining activities are heavily regulated in Malaysia and even if there is an increased demand from China, I do not foresee that there will be an immediate expansion of bauxite production due to environmental concerns and limited capacity to sustain a higher volume of production,” he told The Malaysian Reserve (TMR).

Bauxite mining in Malaysia has been put on the backburner since January 2016 to allow for environmental impact studies to be conducted after an ecological disaster in Kuantan resulted in ecological damage and water contamination.

A moratorium imposed on mining activities, however, had expired on March 31 last year, allowing operators to resume their operations if they could obey the standard operating procedures (SOPs) set and complete their environmental impact assessments.

Countries in South-East Asia had been one of the biggest bauxite suppliers to China, which imported the deposits for its massive aluminium industry. In 2015, bauxite shipment to China from the region reached 3.5 million tonnes a month.

Last year, China dominated the world’s bauxite demand as it made up more than 70% of the total 166 million tonnes of bauxite seaborne shipment.

With China’s Belt and Road infrastructure connection, the economic giant is expected to seek bauxite replacements from sources that serve the Silk Road such as Guinea in West Africa.

Since Malaysia’s export fell through in 2016, West African countries have stepped in and contributed about 32% of the global bauxite resources, with Guinea acting as the centre of the mining activities.

Aside from bauxite, Ahmed Razman said Malaysia will see an insignificant impact on trade diversion opportunities for other products, as most of the tariffs imposed are explicitly targeted at exports from the two countries.

“On the other side of the coin, it is not similar to the US-China tariff war because the US had imposed tariffs on certain products regardless where it came from, which have also seen some Malaysian exported products being affected.

“Judging from the list of products that have been imposed with high tariffs by China and Australia, most of these products are not the main exported products by Malaysia, so there will be minimal impact to Malaysian export and import activities,” he added.

Sunway University Business School economist Prof Dr Yeah Kim Leng said both countries should take advantage of the recently signed Regional Comprehensive Economic Partnership (RCEP) to diffuse the spat and address the tension.

“On the surface, China seems to have an advantage from the RCEP as it has been pursuing a more regional approach in reducing trade tension and political differences to achieve a more harmonious and productive relationship with some countries.

“But I think RCEP also provides Australia an opportunity to reduce the tension with China, while the US’ involvement could play an important role backed by the Five Eyes alliance,” he said.

China’s and Australia’s trade relationship has deteriorated over time due to political choices, with Australia’s staples such as barley, wine, beef and coal being imposed with tariffs.

China has imposed an 80% tariff on Australian barley since May, while duties on wine are ranged from 107% to 212%.

In retaliation, Australia is expected to challenge the tariffs and sanctions, especially on the tariffs on barley through the World Trade Organisation, which marks its first defensive move against China.