Wang Wenbi
Chinese Foreign Ministry spokesman Wang Wenbin takes a question during the daily briefing in Beijing on July 24, 2020
China has warned Australia not to make relations between the two nations "even worse" on Thursday after Foreign Affairs Minister Marise Payne announced the cancellation of two trade deals with China the day before, saying the arrangements were "inconsistent with Australia's foreign policy."

The deals, between China and the Australian state of Victoria, were a part of China's Belt and Road Initiative, a massive, multibillion-dollar project aimed at expanding trade across Asia to Europe and connecting dozens of countries by building infrastructure such as railways and ports, according to the Associated Press.

"We urge the Australian side to abandon its Cold War mentality," Chinese Foreign Ministry spokesperson Wang Wenbin said Thursday. He urged the country "not to go further down the wrong path so as to avoid making China-Australia relations, which are already facing serious difficulties, even worse."

The first trade deal between the government of Victoria and China was signed in October 2018, and the second was signed in October 2019.

The clash between Australia and China adds to strains in relations that are at a multi-decade low after Beijing blocked imports of coal and other goods from Australia in retaliation for its call for an investigation into the origins of the coronavirus pandemic.

The two contracts with Victoria, where the major city of Melbourne is located, were vetoed under a law allowing the government to overrule agreements that violate the national interest, Payne announced Wednesday.

The signing of those agreements led Australia's parliament to enact the law permitting the national leadership to intervene. It took effect in December.

Payne also announced cancelation of contracts signed by Victoria's Education Department with the governments of Syria in 1999 and Iran in 2004. The four deals are "inconsistent with Australia's foreign policy or adverse to our foreign relations," Payne said.

The Chinese government criticized the decision, though Payne said Thursday she didn't expect Beijing to retaliate.

The decision "seriously damaged relations and mutual trust," Wang said. "China reserves the right to make a further reaction." He gave no details of possible retaliation.

China blocked imports of Australian coal, beef, wine, lobsters and other goods last year after Australia called for an investigation into the coronavirus, which emerged in central China in late 2019.

Chinese ministers refuse to take calls from their Australian counterparts.

China is Australia's No. 1 foreign market, but the sanctions impact has been limited, because Chinese steel mills still buy Australian iron ore, the country's most valuable export.

The decision "isn't about any one country," said Payne. "It is most certainly not intended to harm Australia's relationships with any countries."

The opposition leader in Victoria, Michael O'Brien, welcomed the decision.

O'Brien, who belongs to the same conservative Liberal Party as the foreign minister, complained the Victoria government had "given away major infrastructure contracts to Chinese-owned companies."

"In return, the Chinese government has smashed our farmers with tariffs on barley" and "smashed our wine exporters with trade sanctions," O'Brien said.

Observers describe the Victoria deals as vague and nonbinding. Some suspect their value to China's ruling Communist Party was to exploit disagreements in Australia over Belt and Road deals.

Defense Minister Peter Dutton expressed concern about Chinese military activity and possible cyberattacks.

Agreements with China "against our national interests" are "used for propaganda reasons, and we're just not going to allow that to happen," Dutton said.

The vast Chinese steel industry's need for iron ore is likely to restrain Beijing from taking drastic action, said Fitch Ratings in a report. It said blocking imports would hurt Chinese employment and economic growth.

Any further penalties are likely to target "smaller export categories," Fitch Ratings said.

Australian exports to China fell by 2 percent from a year earlier in the second half of 2020, the government says. Excluding iron ore, the decline would have been 40 percent.