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Australia's Economy on Edge: Iron Ore Price Drop Impact
Iron ore, can it support Australia's ambitions? Australia, this land isolated from the mainland, boasts enviable natural resources. Iron ore is buried underground, flocks of sheep run on the surface, and plump lobsters swim in the sea; even the sunlight seems like a magician brewing top-tier wines.
"The country riding on a mining cart," "The country riding on the back of sheep" – these labels accurately summarize Australia's position on the global resource map. Especially iron ore, this black gold, supports half of Australia's economy. Data doesn't lie; Australia controls nearly 30% of the world's iron ore production, with high grade and low impurities – it's as if it were a gift tailor-made by God for the steel industry.
China, this infrastructure maniac, with its massive demand for steel, naturally became the largest buyer of Australian iron ore. From 2015 to 2021, Australian iron ore prices took a roller coaster ride, soaring from $60 per ton to $183 per ton, making a fortune. The huge wealth brought by resource exports allowed Australia to live a life of winning without effort. But the problem is, lying down for too long can easily make one forget that a crisis is just around the corner.
The global economic growth slows down, the demand for iron ore decreases, and price fluctuations are more capricious than the Australian weather, causing Australia's fiscal revenue to shrink as well. What's more critical is that China's economic development is transforming, and its demand for Australian resources has changed. Once, China needed a large amount of iron ore to build houses, roads, and factories, but now, China has started to focus on high-quality development, and the demand for steel is not as strong.
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When it rains, it pours; Australia, at this critical moment, follows the United States in foreign policy and is unfriendly to China. It meddles in the South China Sea issue, fans the flames on the Taiwan issue, and has joined the U.S.-led "Indo-Pacific Strategy" and the "AUKUS" military alliance, clearly intending to confront China.
China is not a pushover, to be bullied at will. Faced with Australia's provocations, China decisively took action, reducing imports of some Australian goods and strengthening security reviews of investments from Australia.
This move hit Australia right where it hurts. Lobsters, wine, beef – these once best-selling Australian specialties in China became unsellable overnight. Australian fishermen, farmers, and winery owners all complained bitterly. The pressure of economic downturn, coupled with the shrinking Chinese market, has led to introspection within Australia: Is following the big brother of the United States really sweet?
The answer is obviously no. The importance of the Chinese market to the Australian economy is self-evident; without the Chinese market, the Australian economy cannot thrive. After realizing the seriousness of the issue, Australia's new prime minister took office and made a 180-degree turn in attitude towards China, sending various friendly signals, hoping to repair Sino-Australian relations and return to the track of cooperation.
However, some scars are not so easily forgotten. For Australia to be accepted by China again, it is not enough to just talk; it must take concrete actions.
Resource Curse: Undercurrents Behind the Honeymoon PeriodAustralia, a land blessed by God, is endowed with abundant natural resources, seemingly destined to be a protagonist on the global resource map. However, like a coin with two sides, the wealth brought by resources could also become a "curse" that hinders its development.
Since the establishment of diplomatic relations between China and Australia in the mid-1970s, the relationship between the two countries entered a honeymoon period. As China's reform and opening up led to economic takeoff and its demand for resources grew day by day, Australia's rich resources such as iron ore, wool, and coal perfectly met China's needs. The huge demand in the Chinese market provided strong momentum for Australia's resource exports and economic development. As a result, Australia has been dubbed the "country riding on a mining cart."
However, over-reliance on resource exports has made Australia's economic structure singular and its risk resistance insufficient. Once there are fluctuations in the global economy and resource prices fall, the Australian economy will suffer a heavy blow. From 2015 to 2021, the roller coaster-like fluctuations in Australian iron ore prices provided a vivid lesson in risk education for the Australian economy.
More importantly, as China's economic development enters a new stage, China has started to focus more on high-quality development, and its demand for resources has also changed. China is no longer satisfied with being just a supplier of raw materials but is actively promoting industrial upgrading and developing high-tech industries. This means that China's demand for Australian resources will no longer be as strong as in the past.
Faced with the transformation of China's economy, if Australia cannot adjust its development strategy in time and break away from over-reliance on resource exports, it is likely to be overshadowed by the "resource curse."
In fact, as early as during the honeymoon period of Sino-Australian relations, some insightful people in Australia realized the risks of over-reliance on resource exports and called on the government to adjust the economic structure and develop diversified industries. However, these voices were drowned out by the huge profits brought by resource exports at the time.
It was not until the turning point in Sino-Australian relations, when China began to reduce imports of some Australian products, that Australia truly felt the power of the "resource curse."
The cost of betting on the United States
If the "resource curse" is a structural issue facing Australia's economic development, then the wrong choice in policy towards China is the spark that pushed Sino-Australian relations to an ice point. With the rise of China and changes in the international landscape, the "China threat theory" has been rampant in Australia. Some politicians and media, for their own political interests, have been constantly hyping up the threat from China, trying to tie Australia to the United States' anti-China chariot.The Australian government, ultimately choosing to align itself with the United States, has frequently challenged China on issues such as the South China Sea and Taiwan. By joining the U.S.-led "Indo-Pacific Strategy" and forming the "AUKUS" military alliance, Australia has positioned itself on the frontline of confrontation with China. These actions have severely undermined the political trust between China and Australia and cast a shadow over the economic and trade cooperation between the two countries. There is an old Chinese saying, "Good wine for friends, and a hunting rifle for jackals." In response to Australia's unfriendly actions, China has decisively taken countermeasures to protect its own interests and development space.
Reducing imports of some Australian goods is only part of China's countermeasures. More importantly, China has begun to re-evaluate its economic and trade cooperation with Australia, seeking more reliable partners. The vast potential of the Chinese market attracts the attention of countries around the world. If Australia wants to maintain a share in the Chinese market, it must show sufficient sincerity, rather than profiting from China while harming its interests.
Australia's political gamble will eventually come at a heavy cost. The visit of Australian Treasurer Jim Chalmers to China sends a signal that Australia is trying to break free from a passive situation and seek to improve relations with China. However, improving Sino-Australian relations cannot rely solely on words; concrete actions are needed. Ceasing all actions and words that harm China's interests is a prerequisite for improving relations.
On some key issues, Australia must make the right choices instead of continuing down the wrong path. For Australia, China is both an important trade partner and a potential competitor. How to handle the relationship with China tests Australia's political wisdom.
For China, the door to cooperation is always open. China is willing to engage in mutually beneficial cooperation with countries around the world, including Australia, on the basis of mutual respect and equality. Only by adhering to win-win cooperation can China and Australia achieve common development and shared prosperity.
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