DIPLOMATIC BEEF ‘NO REFLECTION ON CHINA TIES’

15th May 2020

Fourth-generation Australian beef farmer Robert Mackenzie did a deal on Friday to sell a shipment of more than $150,000 worth of grain-fed Angus beef to a buyer in Shanghai.

While Canberra has been the centre of a white-hot diplomatic dispute as the Chinese ambassador to Australia, Cheng Jingye, ­reacted angrily to the Morrison government’s call for an inquiry into the origins of the COVID-19 virus, Mackenzie says it has been “business as usual” with his Chinese customers.

“I speak to 20 or 30 people in China a day,” Mackenzie told The Australian from his farm in Gloucester, north of Newcastle in NSW.

“We have been selling high-quality Australian beef to China since 2015. I have visited China 14 times.

“We have just taken an order for 150 grain-fed Angus beef which we will ship next week. Nothing has changed.

“My customers in China are asking me when I am coming to visit them and I am asking them when they are coming here to see me. My relationship with my customers in China is as strong today as it was last week, as it was last year.”

Farmers such as Mackenzie are behind last year’s record $3bn in Australian beef sales to China, a level partly due to increased demand because of China’s swine flu problem, which decimated the country’s pig herds, and partly due to the increasing popularity of high-quality Australian beef with affluent Chinese consumers.

Meanwhile rising tension, and the Morrison government’s insistence on calling for an inquiry into the origins of the COVID-19 crisis, has put the government on a collision course with two leading Australian businessmen with strong ties to China — Perth-based Fortescue Metals chairman Andrew Forrest and Seven’s Kerry Stokes, who have both argued that any inquiry should be deferred until Australia has got through the crisis.

Despite the unprecedented war of words between the ambassador and the Morrison government, Mackenzie’s continued dealings with his Chinese customers are symptomatic of a broader trend in the $200bn-a-year ­relationship with Australia’s largest trading partner.

While there have been many outbreaks of diplomatic tensions between Australia and China in recent years, particularly since the Turnbull government, business-to-business ties — in sectors except the education and tourism industries, which are affected by travel bans — have continued to be strong and have yet to be affected by any fallout from last week’s dispute.

China has shown it can use trade as a retaliatory measure to make a political point, as it did in 2017, when it temporarily suspended tourism to South Korea, and there are real concerns in the China-Australian business community that continued diplomatic tensions could affect economic and business ties.

In the lead-up to the 2008 Beijing Olympics, Chinese consumers boycotted French super­market chain Carrefour, ­accusing it of supporting pro-Tibetan independence groups.

Last year Chinese consumers boycotted Italian fashion brand Dolce & Gabbana for an advertisement featuring a Chinese model having difficulty eating pasta with chop sticks — an ad that was seen as racist.

While it is not out of the question that the Chinese could choose to make a point to Australia over the events of last week — as was evident last year with the slow processing of Australian coal imports to China — so far the fundamental forces driving the China-Australia trade continue to be strong.

Suggestions by the Chinese ambassador that Chinese consumers might react to the Morrison government’s call for a COVID-19 inquiry by boycotting Australian goods, including wine and beef, and services such as education have not materialised.

China’s relative share of Australian exports has increased in recent months — from a record high of 38.1 per cent in December to 38.4 per cent in February.

Demand for Australian iron ore — Australia’s biggest single export to China — has continued to remain strong during the coronavirus crisis, while demand for Australian goods such as beef and wine is picking up again as China’s economy begins to recover from the COVID-19 shutdown that began in January.

Those in the China-Australia trade business argue that China’s economic recovery will play a key role in helping to cushion the impact of the COVID-19 recession this year and next, just as it did in the years post the 2008-09 global financial crisis.

Tony Battaglene, the chief executive of Australian Grape and Wine, the peak body for the Australian wine and grape industry, admits that he always gets worried when Australia has diplomatic disputes with China, including last week’s stoush.

But he also argues that there is no sign of Chinese consumers turning off Australian wine, a trade that was worth a record $1.1bn — with China the biggest single customer for Australia’s $3bn-a-year wine exports.

“I don’t think Chinese consumers are going to change their purchasing habits because of it,” he told The Australian. “We have a good relationship with Chinese consumers. They like our products and they respect the integrity of our products.”

Battaglene says demand for Australian wine in China was hit by the shutdown in the Chinese economy that began in January when the COVID-19 virus broke out in the city of Wuhan. But he says new orders are now picking up as consumers get back to work and restaurants reopen.

Others with an interest in business with China are cautiously watching the outbreak of Australia-China tensions, as China reacts to rising anger around the world — from the US to Europe — at the death and economic devastation the coronavirus pandemic has wrought.

KPMG’s China practice consultant, David Olsson, the president of the Australia China Business Council, supported the arguments of Forrest and Stokes that any inquiry into the origins of the pandemic should be delayed until later.

“Everyone wants to know what has happened, why it happens and to take lessons from that,” Olsson says.

“It’s right to flag this now, but for the moment our efforts should be focused on managing the pandemic, managing the economic impact and preparing for the COVID-19 recovery.”

Olsson has called for Australia and China to “step back and take the heat out of the debate”.

“Right now is not the time for antagonism and finger pointing,” he says. “It’s time for governments and business to do what we can to strengthen communications and co-operation. No one is better off by what is happening in the world economy and how COVID-19 is impacting communities and people around the world. Too many jobs depend on our relationship with China.”

Olsson says the spat between the Morrison government and the ambassador is “not an accurate reflection of the bilateral ­relationship”, saying: “Business leaders are well aware that we have differences … but the relationship is mutually beneficial.”