China’s Economic Squeeze on Australia Extends to Cotton

SYDNEY—China’s top economic-planning body is targeting Australian cotton, Australian industry groups say, the latest escalation in a diplomatic and trade row between the countries.

“It has become clear to our industry that the National Development Reform Commission in China has recently been discouraging their country’s spinning mills from using Australian cotton,” said a joint statement Friday from the growers organization Cotton Australia and the Australian Cotton Shippers Association. China buys around 65% of Australia’s cotton crop, according to industry figures, a trade worth some $600 million a year.

The cotton concerns come on the heels of similar suspicions that China is discouraging use of Australian coal.

China is Australia’s biggest two-way trade partner and top export destination, but tensions between them have reached new heights in recent months. After Australia began seeking support from European leaders for an investigation into China’s response to the coronavirus—which first spread widely in the Chinese city of Wuhan—China slapped restrictions on imports of Australian beef, barley and wine. It also warned its people against traveling to Australia, whether as a tourist or a student, saying racial discrimination against Chinese people was rising there.

Australia’s economy, under heavy pressure—with the country’s second-largest city in lockdown and its international border closed—is experiencing its first recession in 28 years. One was avoided during the global financial crisis a dozen years ago thanks in part to China’s stimulus efforts: Its infrastructure spending spree created demand for Australian iron ore and other minerals to build bridges and skyscrapers.

China, the largest trading partner for nearly two-thirds of the world’s countries, is increasingly willing to use its significant economic leverage. A recent study by the Australian Strategic Policy Institute, a security think tank, found that of 27 countries subjected in recent years to what it calls Chinese coercive diplomacy—including state-issued threats as well as trade and tourism restrictions—Australia suffered the highest number of recorded cases, followed by Canada and the U.S.

On Wednesday, Ken MacKenzie, the chairman of BHP Ltd., the world’s largest miner by market cap, said that some Chinese customers are asking to defer their cargoes of coal, which is second only to iron ore among Australia’s exports by value.

Traders say Chinese import curbs on Australian coal have the potential to shake up the international market.

The government said Tuesday it is asking Beijing to clarify whether it has told several state-owned steelmakers and power plants to stop importing Australian coal. On Friday, trade minister Simon Birmingham said he has likewise asked about possible changes in export conditions for cotton producers.

“Our cotton exporters have worked hard to win contracts and establish themselves as reliable suppliers of high-quality cotton in the Chinese market, which is an important input for many Chinese businesses,” Mr. Birmingham said.

He added that impeding the ability of producers to compete on a level playing field “could constitute a potential breach of China’s international undertakings,” which he said would be taken very seriously by Australia.

China’s foreign ministry didn’t immediately respond to a request for comment Friday.

Write to Rachel Pannett at rachel.pannett@wsj.com

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