China offers Australia coercion, not commerce

On 6 August (Opens in new window), reports emerged that China Mineral Resources Group (CMRG) instructed Chinese steel mills to stop negotiating with Rio Tinto over shipments from September. With CMRG serving as the central purchaser for more than half (Opens in new window) of China’s annual iron ore imports – and China absorbs nearly 75% (Opens in new window) of global seaborne iron ore trade – so its conduct threatens even the largest mining companies.

Fortescue has been squeezed since June, its Super Special Fines product blacklisted (Opens in new window) at Chinese ports and buyers told to avoid new US dollar cargoes (Opens in new window). BHP settled in April (Opens in new window), after months of pressure, accepting a yuan-denominated Chinese portside index. Hancock Prospecting reportedly ended over a year of restricted spot sales by granting CMRG exclusive rights (Opens in new window) to sell Roy Hill ore into China. Staggered renewals let CMRG concentrate its full weight on one supplier while the others keep shipping, so each faces pressure alone with immediate revenue exposure. Half the major producers have already conceded.

When CMRG came for BHP, Prime Minister Anthony Albanese characterised (Opens in new window) it as a commercial disagreement. In June (Opens in new window), the Department of Foreign Affairs and Trade told Senate estimates the matter was best dealt with at the commercial level, describing CMRG as one importer among others.

But this is not commerce. It is coercion.

Australia has answered Beijing’s coercion before. In 2020, it neither conceded nor escalated. Facing trade impediments on around $20 billion of exports (Opens in new window), Canberra worked with industry to open new markets, maintained public support by explaining the government’s strategy, and took Beijing to the World Trade Organisation (Opens in new window) – all while giving China an off-ramp by working to stabilise the relationship. Australia outlasted Beijing, with the impediments lifted (Opens in new window) without a single Chinese demand being met.

Canberra needs to call CMRG what it is. A body that instructs firms it represents to freeze allocations and boycott suppliers until they concede is not a purchasing agent. It is a cartel. Australia supplies more than half (Opens in new window) of what China buys. But that leverage collapses because exports span four companies.

Canberra cannot treat coerced outcomes as market outcomes. Leaving companies to negotiate individually against a single state buyer is not free trade but an asymmetry Beijing has designed. Countervailing mechanisms must be built to renegotiate legitimate terms for future contracts, and dismantled if CMRG returns to fair commercial practices.

Canberra should convene a committee of Australia’s producers, with ACCC authorisation (Opens in new window) granted transparently on public benefit grounds. Its purpose is to settle in advance what Australian producers will not concede. This includes which index governs, how cargoes are denominated, and whether discounts granted to individual mills transfer to CMRG. BHP and Hancock belong in that room, too. Whatever Rio and Fortescue accept now becomes the benchmark they inherit at their own annual renewals.

Industry has also raised a single selling desk (Opens in new window). This could be a powerful alternative. While agricultural coordination schemes have frustrated trading partners (Opens in new window), iron ore already faces a single buyer on the Chinese side. There could even be carve outs for other partners.

The cost of allowing Beijing’s coercion to continue is twofold. Iron ore is expected to earn around $116 billion (Opens in new window) this financial year, underwriting a budget already under strain. Unfavourable contracts erode that revenue quietly. Coercion that meets no resistance also expands. Australia’s miners hold real leverage (Opens in new window), even with Beijing’s attempts to diversify (Opens in new window) iron ore imports. If China can strong-arm them without resistance, it will expand its demands on Australia.

While necessary, these moves will prompt Beijing to retaliate, and Australia needs to be ready to endure, not escalate. Using the same tactics that prevailed last time, Canberra needs to maintain a principled position on the issue, avoid responding to new impediments with countermeasures, and provide Beijing an off-ramp.

That posture only holds if three audiences are prepared first.

Industry and public support were decisive last time and will be again. Beijing knows which Australian businesses never diversified (Opens in new window) once the last impediments lifted, and the ready-made narrative is that Canberra defends wealthy miners at the expense of small exporters. Activating the networks built during the previous coercion enables Canberra to warn exposed businesses early and help them pivot (Opens in new window) into new markets. Messaging needs to be clear that this is not to defend specific companies; it is to preserve Australia’s economic driver and prevent expanded coercion.

To Beijing, the off-ramp stays open and explicit. End the boycotts and lift any further impediments, and Australian producers return to ordinary commercial negotiation. This can happen quietly during negotiations, avoiding the need for Beijing to make overt concessions.

Regional partners need to see the restraint. Australia must protect its regional standing by managing neighbours’ concerns (Opens in new window) that it is too confrontational with Beijing. This can be done by absorbing retaliation, which shows China to be the irresponsible actor and Australia to be simply defending its rights.

Collectively, these efforts build the leverage and support needed to endure. Beijing will test Canberra's resolve, and it will hurt. But Australia has endured worse and emerged stronger. The alternative is to cede gains made since 2020 and accept the erosion of Australia's willingness to defend its own.