COAL and iron ore are Australia's two biggest export earners, with coal earning the nation about $70 billion last year, with about $20 billion of that amount being shipped out of Newcastle.
Australia also vies with Indonesia as the world's biggest coal exporting nation, exporting almost 400 million tonnes last year, or 35 per cent of a market valued at more than $US110 billion. Domestically, by comparison, Australia uses about 50 million tonnes a year of black coal, with a similar amount of brown coal going into Victorian power stations.
As big as the Australian coal industry is, it pales beside the size of the Chinese industry, which produces almost 4 billion tonnes of coal a year, or about eight times the size of the Australian industry.
China has become the biggest buyer of Australian coking coal in recent years, and now takes about 25 per cent of our exports. Its electricity industry has followed suit, and now accounts for about 15 per cent of our thermal coal exports, most of it through Newcastle. Even so, China's imports of almost 300 million tonnes a year are less than a tenth of its overall consumption.
As we explained on Friday in the first part of this article, this makes Australia a "swing" producer for China, meaning it can largely come and go from the market as it chooses, depending on influences that go beyond price.
We saw this a few years ago, when the Chinese government forced the closure of some older less efficient power stations and mines, which tended to benefit Australian producers.
But now, with China locked into a series of trading battles, if not outright wars, with a number of Western nations, the Australian coal industry is again looking warily for signs from Beijing as it responds to the Morrison government's call for an independent inquiry into the origins of the coronavirus.
Much is made of Australia's reliance on China as our major export destination, and this is true. But similar debates are being played out around the world, as even a cursory Google search will reveal.
Never publicly criticise or contradict anyone, refer to a mistake, show anger or disagree with a business contact - this is known as losing faceAustrade advice on business dealings in China
China's "One Belt, One Road" program has seen its companies invest in ports and other infrastructure all over the world, including a recent 25-year deal to build a cargo terminal at the Israeli port of Haifa: the US Sixth Fleet is a regular visitor to the port, and the US are not happy.
As we have previously reported, Port of Newcastle management insist they are being left alone to manage as they see fit, by their 50 per cent shareholder, China Merchants Port Holdings, and there is no reason to doubt what they say.
But in Chinese and Hong Kong media, China Merchants and its chief executive Bai Jingtao talk of Newcastle as being part of a global portfolio, with aligned interests.
In March 2018, China Merchants said it saw Newcastle as part of its "port-park-city" model of development - which port management said was simply their version of an industrial park on port land, linking to the city.
In March 2019, Mr Bai told Belt & Road News: "We consider ourselves the natural executor of the Belt and Road Initiative. In recent years, we have actively expanded business along the Belt and Road countries, and have become an important participant and promoter of the Belt and Road Initiative."
Australia's coal export industry was built around relations with Japan, as Denis Porter, chief executive of the NSW Minerals Council from 1998 to 2001, recounts in the first volume of a two-book history titled Coal: The Australian Story.
Japanese steel mills had sourced most of their imported coking coal from the United States after WWII but from about 1960 Japan turned increasingly to Australia, developing a close trading relationship that also included thermal coal for power stations. A formal trading system built on an annual conference to set prices for the following year underpinned the market in the years when Japan was far and away our biggest customer.
In tonnage terms, Australia exports as much, if not more, to Japan than it ever has. But as the industry has grown and diversified its customer base, Japan is not as dominant as it was, in percentage terms. That said, it still tends to buy the best quality coal, and pay top prices to preserve the "security of supply" that was central to the relationship in the first place.
International trade must always account for cultural differences, and while Japan and China are neighbours, geographically, their approach to coal buying is said to be very different.
Nobody wanted to be quoted on the record about their difficult dealings with Chinese buyers but one source referred to Austrade advice as a reference point.
"Japanese buyers are drawn to premium, high-end goods and services offering higher returns on trade investment," is Austrade's opening assessment of the "current business situation".
The corresponding advice for China highlights its status as our largest trading partner. On "business culture", Austrade says: "Never publicly criticise or contradict anyone, refer to a mistake, show anger or disagree with a business contact - this is known as losing face."
Would-be market entrants are told: "China is a complex and challenging market with an often uncertain regulatory environment."
Coal sources say that this means in practice that a sale is never made until the money is in the bank.
"Yes can mean no," as one person who worked with Chinese coal buyers said. "Yes does not mean yes until it is written down and even then you have to be sure who has done the writing."
The West tends to see such tactics as unfair or dishonest, and it criticises China for not adhering to the Western rule of law. The other side of the coin is to look at a nation that had 4000 years of dynastic history before the Communist Party dictatorship began in 1949, with an embedded knowledge of trade and war that would make Machiavelli blush. A classic Chinese text, Thirty-six Stratagems, believed to be about 2000 years old, is famous for its final dictum: "If all else fails, retreat."
Before then, however, are 35 ways to defeat an opponent using intelligence rather than brute force: whether its fending off a US President intent on shifting blame for his domestic coronavirus failures, or buying Australian coal using centuries of skill to get what you want, at the lowest price.