Australian government tears up Victoria’s Belt and Road agreement with China, angering Beijing

The Australian government has canceled a Belt and Road agreement signed by China and the state government of Victoria, escalating trade and diplomatic tensions between Beijing and Canberra.

Victoria — the country’s second largest and wealthiest state — signed a memorandum of understanding on the Belt and Road Initiative (BRI) with the Chinese government in October 2018, the only government in Australia to sign up for Chinese President Xi Jinping’s signature global infrastructure initiative.

Part of Xi’s vision for China’s future economic growth, the BRI is intended to build new trade corridors between Europe and Asia, following the path of the historic silk road. While other countries that have joined the BRI have received large scale funding from Beijing, the deal between China and Victoria appeared to be aimed more at encouraging future investment and trade.

In a statement Wednesday night, Foreign Minister Marise Payne said the federal government had evaluated “more than 1,000” deals between Australia’s states and territories and foreign governments.

In total, four deals were canceled, two with China and one each with Iran and Syria, all signed by the Victorian government.

“I consider these four arrangements to be inconsistent with Australia’s foreign policy or adverse to our foreign relations,” Payne said in her statement.

The move was made under new a legislation passed last December, which experts saw as squarely targeted at the deal between Victoria and China.

Speaking to Australian radio on Thursday, Payne said the decision wasn’t directed at any particular country. However the Chinese embassy in Australia denounced the cancellation in a statement, expressing Beijing’s “strong displeasure and resolute opposition.”

“This is another unreasonable and provocative move taken by the Australian side against China. It further shows that the Australian government has no sincerity in improving China-Australia relations,” the statement said, adding that the cancellation will only “further damage” relations between the two countries.

China and Australia are already in the middle of a worsening diplomatic crisis, with relations between the two governments at record lows since Canberra’s call for an international investigation into the origins of Covid-19 in April 2020.

Since then, millions of dollars of Australian imports have encountered difficulties entering the Chinese market, including timber, beef and some types of coal. In March, the Chinese government confirmed that Australian wine would face tariffs of up to 218% for five years due to allegations of “dumping and [market] damage.”

Overall, Chinese investment in Australia dropped by 62% in 2020, down to just $775 million.