China yesterday said Australia's sudden scrapping of a Belt and Road Initiative deal risked "serious harm" to relations and warned of retaliatory actions, but Canberra insisted it would not be bullied.
The federal government pulled the deal with Victoria state late Wednesday in a move justified by the defence minister as necessary to prevent Australia hosting a giant infrastructure scheme "used for propaganda".
Australia overruled the state's decision to join the Belt and Road Initiative (BRI) -- the flagship of President Xi Jinping's geostrategic vision for the Asia-Pacific region -- by saying the agreement was inconsistent with Australia's foreign policy.
As relations nosedive -- following spats over the origins of the coronavirus and Canberra's blocking of Chinese telecoms giant Huawei -- Defence Minister Peter Dutton said Canberra was "worried" about local governments entering into such agreements with Beijing.
"We can't allow these sort of compacts... to pop up because they're used for propaganda reasons and we're just not going to allow that to happen," he told local radio.
Dutton said the government's problem was not with the Chinese people but rather "the values or virtues or the outlook of the Chinese Communist Party".
Australia last year enacted new powers -- widely seen as targeting China -- that allow it to scrap any agreements between state authorities and foreign countries deemed to threaten the national interest.
Canberra's first target was the BRI, a vast network of investments that critics say is cover for Beijing to create geopolitical and financial leverage.
Prime Minister Scott Morrison said the decision "followed through" on his government's pledge to ensure Australia had a consistent foreign policy which strives for a "world that seeks a balance in favour of freedom".
The schism between Australia and its largest export market widened yesterday as Beijing railed at the abrupt cancellation and warned it would damage trust between the two countries.
The move "has poisoned mutual trust... and seriously harms China-Australia relations", said foreign ministry spokesman Wang Wenbin at a briefing in Beijing.