China: the Elephant in the Room at Australia’s Africa Week
This week the capital of Australia’s Indian Ocean-facing state Western Australia, Perth, hosts Africa Week. Africa Week is an annual event drawing together policy makers, business communities, academics and the citizenry on all things Africa-Australia related.
Mining typically plays a big role – Perth is Australia’s leading mining hub, and its leading connectivity point to Africa, being five hours closer by plane to the continent than east coast cities. The elephant in the room this year is China and the dynamics of the global iron ore market specifically. Yet, Australia’s China-Africa iron ore fears could become a blind spot.
First, Australia fears that China will imminently gain access to the world’s largest untapped high-grade iron ore deposit, West Africa’s Simandou deposit in Guinea’s far north-east. Should this supply one day land on global markets - and head China’s way - not only might the iron ore price fall but China could substitute Australia’s quality ore with similar or higher quality Guinean ore. Moreover, subject to secondary emissions such as those linked to transportation, higher quality ore in the first instance is less energy-intensive to process and so less carbon-intensive – a win-win outcome for China.
Additionally, a predatory take-over of West Australian miner Sundance’s Mbalam-Nabeba iron ore project in west-central Africa in early 2021 has added fuel to Australia-China-Africa nexus fears. Sundance spent years investing in Africa to get the project to near fruition - only to find a later and invited entrant minority partner from China claimed its prize - some 1bn of high-grade ore. Australian media reported the case mainly as proof of China’s determination to avoid reliance on Australia.
During Africa Week 2021 discussions on and off the record will undoubtedly include the implications of China in Africa, for Africa and for Australia. There is a risk, however, that Australia’s Africa interests more broadly, and iron ore trade, also get lost in all the attention going to the ongoing spat between the two countries. For example, it could mean missing the bigger story of Xi’s ecological civilization agenda and its iron ore-related implications and also missing the importance of building independent Australia-Africa ties at a ripe time to do so.
On the first point, in a September 2020 speech to the UN China’s President Xi Jinping announced China’s aim to hit peak carbon emissions before 2030 and a goal to be carbon neutral by 2060. China’s 14th Five-Year Plan (2021-2025) also set longer-term climate goals and introduced the idea of a carbon dioxide emissions cap. Those include an 18 percent CO2 intensity reduction target and a 13.5 percent reduction target for GDP energy intensity. With China responsible for 28 percent of global emissions realising these goals is fundamental to the global fight against climate change.
For Australia, Xi’s speech was generous notice. Two recently published journal articles offer the details. First, Victor Nechifor of University College London’s Institute for Sustainable Resources and co-authors detailed the likely implications of China’s ‘ecological civilisation’ push in the journal World Development. They elaborate China’s comprehensive industrial policy mix that includes aims to improve recycling practices together with more adaptive downstream sectors. Also, that those could increase China’s GDP gains by USD819 billion. The article notes Australia, Brazil, and India – today’s iron ore exporters – as the losers.
The second article, in Journal of Cleaner Production goes further. Authors Lulu Song and co-authors from Chinese Academy of Sciences identify that China’s steel stocks had reached 5.9 (+/-1.5) tons per capita by 2018 alongside a significant gradient decline in steel stocks from eastern coastal regions to western inland regions. They estimate that by 2050 steel stocks will reach around 12.3 gross tonnage. These projections are red flags for Australia. First, that level of steel absorption will be met by steel demand peaking around 2016-2022. Second, that after 2030 China will experience a boom in scrap. By 2030 they expect that in China’s east scrap supply will exceed demand, and in central and western provinces from 2040.
Alongside the intent to optimise scrap, China’s “National-Local Joint Engineering Research Center of High-Efficient Exploitation Technology for Refractory Iron Ore Resources”, in Shenyang has a team of scientists working on how to efficiently utilise China’s own refractory iron ore resources. The work of the Center’s scientists has the backing of the National Development and Reform Commission, China’s most important policy-making agency. If it succeeds the related technologies are expected to realize the exploitation of 10 billion tons of domestic refractory iron ore resources - almost ten times the country's 2020 iron ore imports.
Given Africa’s own development aspirations and rich iron ore supplies, and China’s technological ambitions, it seems Australia best accept each remaining year of iron ore export boom to China as an economic bonus - and a window for buying adjustment time. That adjustment process would, for example, support the private sector to develop new areas of comparative advantage. And also an agenda to evolve new independent ties between Australia and African nations, as well as rebuilding relations with China also.
Failure to do so risks a next decade double-whammy. First, poorer ties with a more technologically advanced and potentially iron ore-independent China. Second, missing the potential to frame independent ties with Africa that would allow Australia to prosper from the greater integration of African economies into world markets over coming decades. Indeed, if China is a threat to Australia today, that double whammy – un-avoided - would mean it is a vastly bigger threat tomorrow.
Dr Lauren A. Johnston is Visiting Senior Lecturer, Adelaide University Institute of International Trade and Founding Director, New South Economics
The views expressed here are the author’s alone, and do not represent the views of the Institute for International Trade.
This work is licensed under Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
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