China begins to unwind ban on Australian coal imports

Reports suggest that China’s National Development and Reform Commission (NDRC, a state planning body) has permitted four domestic companies to resume imports of Australian coal, ending an unofficial ban that was imposed in 2020 in response to political disagreements on a range of topics.

The move is the first concrete step taken by either country to improve ties following the resumption of dialogue under Australia’s Labor Party government. That it comes from China suggests the country is seeking ways to mend ties with Western countries, with which relations have frayed amid intensifying US-China competition. The NDRC’s decision follows a meeting between the Chinese president, Xi Jinping, and the Australian prime minister, Anthony Albanese, at the G20 summit in November, and a visit to China by Australia’s foreign minister, Penny Wong, in December.

The resumption of Chinese coal imports is a boost for Australia’s mainstay resources sector. Before the unofficial ban, China was one of the largest markets for Australia’s coal exports. The ban therefore significantly suppressed Australian coal shipments in 2021‑22, although its impact on the country’s export revenue was masked by high international prices and modest success in terms of market diversification. Renewed interest from Chinese buyers will lift shipments and prices, bolstering output from Australia’s mining sector, as well as the profits of resources firms in Australia and the government’s tax take. This will be valuable as the country enters a more difficult economic period.

The move also offers some economic benefits to China. It will help the country to maintain a diversified range of coal supplies, with energy security concerns having risen up the agenda following Russia’s invasion of Ukraine. It will also help to supplement stocks ahead of an anticipated strengthening of local power demand as the country’s economic reopening gathers pace over 2023. In addition, high-quality Australian coal offers efficiency benefits that domestic and international alternatives—from sources such as Indonesia and Mongolia, on which China has relied more heavily during the ban—may struggle to match.

The NDRC’s move is provisional at this stage and will still rest on implementation at customs. The resumption of imports will probably begin at low volumes and there may be hesitancy. The decision opens the possibility that China will rescind higher tariffs that it introduced on a range of Australian agricultural products at the same time as the coal ban. However, EIU believes that such a step will require a meaningful concession from Australia, such as its adoption of a more flexible position on China’s application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (a mega-regional trade deal). This currently seems unlikely.

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