Deeming that the dust has finally settled on the US presidential election, China has altered its passive diplomacy and has gone on the offensive. In its first move, it has trained its fire on Australia, which is at the forefront of the containment of China in the Asia-Pacific. China has imposed sanctions on Australia by hiking tariffs on main Australian imports such as coals, trying to make an example of the country to intimidate other nations.

On the surface, it seems that China, which in the past was sanctioned by Western countries from time to time, has gained the ability to turn the tables on Western countries and impose sanctions back on them now. However, the sanctions and preemptive move have actually exposed the Achilles’ heel of China’s economic development.

The extent of the economic impact on Australia caused by China’s sanctions remains to be estimated. However, Australian Prime Minister Scott Morrison has pointed out that its biggest coal-exporting countries are Japan and India, and that China is not a major importer of its thermal or metallurgical coal. Take last year as an example. Of Australia’s total coal exports, which were worth US$500 billion last year, Japan, China and India accounted for 27%, 21% and 16% respectively. On the face of it, China’s share was not small, but the combined share of Japan and India was twice that of China. In other words, the sanction has dealt a blow to Australia, but it does not seem to be fatal.

Then what is the price that China has paid? First, the relations between China and Australia will deteriorate further. On top of India (with which China has had a near falling-out) and Japan (whose friendly relations with China are only a façade), China will continue to face Australia’s serious challenges when it seeks to expand in the Indo-Pacific and join regional trade organizations. Diplomatic speaking, this has been a very unwise move.

On the other hand, China’s ban on Australian coal imports backfired almost immediately. Its resources have paid the price. Over the past few days, China has been hit by electricity blackouts and rations in different parts of the country, and the situation continues to spill out. Guangdong, Shenzhen, Dongguan, Foshan, and parts of Zhuhai experienced a power outage of one hour in the small hours of Monday on the heels of Shanghai. According to the media, some urban areas were plunged into darkness, and people’s lives were severely affected.

By the time this article was due for submission, the latest news had been that power outages had also occurred in some parts of Beijing, including the districts of Xicheng, Dongcheng, Fengtai and Changping. It has come as no surprise that the Beijing authorities have claimed that the electricity blackouts were caused by malfunctions rather than a government attempt to pull the plug on the power supply and ration electricity. However, as power outages have happened in large cities like Beijing and Shanghai one after another, and the consequences could be damaging, how can people from outside believe that the blackouts were caused by malfunctions?

What is the most ridiculous is that the officials are trying so hard to explain that the electricity rations were the result of a booming economy, which they claim has led to an unexpected surge in factory orders. To people from outside China, this really stretches credulity to the limit, given the widespread distribution of regions hit by outages.

An entrepreneur with long-time interest and participation in China’s economic activities tells me that, given China’s industrial configuration, Australia has long been a supplier of China’s raw materials with its top-notched iron ores and coal. Baoshan Iron & Steel Co., Ltd, a major manufacturer of steel, designed all its steelmaking equipment according to the standards of the coal imports of Australia. If the company switches to other types of coal, its main furnaces and equipment will have to be altered. Other steel manufacturers face a similar situation.

Back when Baoshan was being built, there was already skepticism about such a practice: what if Australia and China’s relations sour one day? It now appears that the nagging doubts back then have become real challenges. Apparently, the power outages across the country triggered by the sanctions on Australian coal have all of a sudden exposed an important “shortboard” of China’s economic development, i.e., its short supply of energy.

As everybody knows, China’s economy is underpinned by its role as the world’s factory. As the US has begun to throttle China’s technological development, China, to keep its economy running, faces an increasing need for energy and is under the pressure of a widening energy shortfall.

China’s resource configuration problem was not visible back when globalization was allowed to run unimpeded, since it did build a supply chain that was excellent value for money. Now that the chains of globalization are rusted thanks to all kinds of changes of international factors, the “shortboard” of China’s economic development has been exposed. As China’s model of economic development remains reliant on its role as the world’s factory, it still needs the depletion of huge amounts of energy to drive its economic development. If China wants to support its aggressive diplomacy with economic sanctions against others, it might inflict considerable harm on itself.

(Wang Dan, founder of the think tank Dialogue China.)

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