Australian exports could be damaged amid escalation of tensions in south china sea

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IT’S one of our greatest assets, but Australia’s remoteness could prove a major Achilles heel amid escalating tension in the South China Sea.

Two thirds of Australian exports are shipped through critical routes in the disputed region which has become a source of tension in recent months.

Now experts fear a flare-up could see freedom of navigation blocked by an aggressive China in a move that could lead to a $5 trillion meltdown if global trade flows are disrupted.

Chatham Houses Asia Programme Associate Fellow Bill Hayton said the impact of such a worst-case scenario would be massive for Australia and is currently the subject of back room meetings between world leaders.

It could have massive impact. If Australia was to do something that displeased China, China has the capacity to impose blocks on Australian exports to Japan, Korea or Taiwan, he said adding that it could hamper the ability of Australia as a trading nation.

It may be that ships could find other routes but these things would add costs to food in the shops and other things. Its all a bit theoretical at the moment but . How much do you value independence or do you want to put your trust in China being nice for the next 30 years? Its a tough one to call really.

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Australia exported $318 billion worth of goods in 2015, with 99 per cent of those shipped. The government has claimed two thirds of those pass through the South China Sea, meaning access to the region is of critical economic as well as military importance.

While much of those goods may be destined for China itself, obstruction of the routes could cost around $20 billion a year, according to one report. The economic impact of having to divert $5.3 trillion worth of annual trade through the region would be unprecedented.

Its a particularly thorny issue for Australia which is economically tied to China but defensively tied to the US. Mr Hayton said the overwhelming concern is that Chinas vagueness about its intentions has leaders rattled.

China is obviously a critical trading partner for Australia. I think China hopes to use its economic weight to try to keep Australia quiet really, and stop it speaking out on issues like the South China Sea.

It can be very difficult for the countries concerned about Chinas rise to take concrete steps to do something about it.

On Wednesday Foreign Minister Julie Bishop slammed China for creating an environment of tension and mistrust in the region.

This is not in the interest of any state and will lead to reputation and other costs for claimants engaging in such behaviour, she said.

Her comments came after the US-based Asia Maritime Transparency Initiatives Greg Poling said buildings shown on satellite images meant China was clearly prepping for a future conflict.

This is militarisation, he told Reuters. They (China) keep saying they are not militarising but they could deploy fighter jets and surface-to-air missiles tomorrow if they wanted to.

A spokesman for Chinas defence ministry said the building was normal and nothing to do with militarisation. However a verified social media account tweeted that they were for self-defence, saying: If someone were flexing his muscles outside your door, wouldnt you get a slingshot ready?

Mr Hayton said the skirmishes are part of a broader debate over who gets to write the rules when it comes to territory and navigation playing out between China and the US.

There have been various closed door meetings but everyone has to be careful because they dont want to provoke an open row but at the same time everyone is very concerned, he said. The sense is that we dont know what Chinas intentions are. We dont like what we have seen therefore we have to make plans for the worst.

Australia has recently committed to spending $50 billion on 12 submarines from French company DCNS as part of a plan to build a regionally superior weapon. It comes as Chinas Navy grows to more than 70 submarines making it comparable with the US.

The submarine project starting now but starting production in 2022/23 will be a significant part of the contribution we make around the world to peace and security and the support for our values because Australia has a values based foreign policy, he said.