Australia’s new budget commits funding to help diversify supply chains and support domestic manufacturing as disruptions stemming from the coronavirus outbreak and continued trade frictions with China have reinforced the need for self-sufficiency.

The Australian government will spend A$107.2 million (US$76.7 million) on a Supply Chain Resilience Initiative that will map out existing vulnerabilities and offer solutions to strengthen them, Canberra announced on Tuesday.

The scheme is paired with a A$1.3 billion (US$930 million) so-called modern manufacturing strategy budget aimed at supporting domestic manufacturing in six key sectors – namely mining resources technology and equipment, food and beverage, medical products, clean energy, defence and space. The funds will also support the commercialisation of new products for export.

Get the latest insights and analysis from our Global Impact newsletter on the big stories originating in China.

During the ongoing six-month-long political row with its largest trading partner, China has hit Australia’s barley sector with a high anti-dumping duty, blocked beef exports from certain abattoirs, and initiated investigations into whether wine is being sold in China at artificially low prices and whether winegrowers are supported by excessive subsidies.

Australia is heavily dependent on China for both imports and exports, with two-way trade between the two countries worth around A$240 billion (US$172 billion), an increase of nearly 60 per cent over the last five years.

While China was not mentioned in the budget, which focused heavily on economic stimulus and job creation as part of the post-pandemic recovery, the need for more resilience of supply chains and diversification away from old markets was a running theme.

“Covid-19 has reinforced the importance of Australia’s sovereign manufacturing capability,” Australian treasurer Josh Frydenberg said in his budget speech.

In a pre-budget preview to the schemes last week, Prime Minister Scott Morrison said Australia was ramping up its search for new markets for Australian products, with free trade agreement negotiations with Britain and the European Union on track.

“We cannot ignore the obvious. The efficiency benefits of hyper-globalisation and highly fragmented supply chains can evaporate very quickly in the event of a major global shock like the Covid-19 pandemic as we have seen,” said Morrison.

“The government will invest A$107 million in a new Supply Chain Resilience Initiative. This will support Australian manufacturers investing in capabilities to address areas of identified acute vulnerability domestically, and to ensure they are in a position to contribute to the supply chains of trusted partners and like-minded countries.”

The Supply Chain Resilience Initiative mentioned by Morrison appears to focus more on domestic rather than international supply chains, therefore different from the Supply Chain Resilience Initiative involving both Japan and India.

Separately, an Australian parliamentary inquiry into trade diversification is also ongoing.

“We welcome the investment to pursue new free trade agreement opportunities around the world, and the development of our relationship with India,” said Tony Battaglene, chief executive of industry group, Australian Grape & Wine.

“Together with the Joint Ministerial Taskforce on Simplified Trade, making trading simpler and cheaper by reducing red tape and increasing the resilience of our supply chains, this investment will help our longer term objectives of growing exports and diversifying markets.”

The government also sought to support exports, laying out A$317 million in air freight assistance given most flights are still grounded due to Covid-19.

The latest budget also revealed how badly coronavirus-related international travel restrictions have dented the domestic tourism and education sectors, with visitor arrivals between April and July falling 98 per cent compared with the same period last year.

In response, the government has committed A$51 million to help regions that are highly reliant on international tourism to focus on attracting more domestic tourists.

Chinese visitors have previously formed a large part of Australian tourist numbers, with nearly 1.5 million Chinese tourists visiting Australia last year, making them the biggest single group ahead of New Zealand, according to Tourism Australia.

Large numbers of Chinese students who have not yet commenced studies in Australia have been concerned about delays in the start of classes due to the pandemic, but also about cases of discrimination in reaction to the deterioration in China-Australia relations, a study by Australia’s Swinburne University of Technology in July said.

In another survey undertaken by the Australian Chinese Debating Association, Chinese-language news platform Sydney Today and migration firm S&W Consulting Group last month, around 67 per cent of nearly 7,000 Chinese student respondents said they felt insecure about being a foreign student in Australia during the pandemic.

The shift to online learning and a lack of a social life amid the pandemic, as well as the potential for racist incidents, reduced the appeal of studying in Australia, the respondents said.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.