Improving trade relations between China and Australia

Trade relations between China and Australia are improving after a period of diplomatic standstill. The Australian Trade Minister, Don Farrell, had a virtual meeting with China’s Minister of Commerce, Wang Wentao, in February 2023, which Farrell described as an important step towards stabilizing Australia’s relations with China. The meeting comes after a period of tension between the two nations, triggered by Australia banning Chinese tech giants Huawei and ZTE from its telecom infrastructure on national security grounds. In early 2020, China responded by imposing import bans on Australian exports including coal, barley, wine, cattle, and seafood. Australian Foreign Affairs Minister Penny Wong visited Beijing in December 2022 to discuss an array of issues with her Chinese counterpart, Wang Yi. Despite the tensions, bilateral trade between the two countries has continued to grow, reaching almost one-third of Australia’s international trade, with Australia being China’s fifth-biggest source of imports and tenth-largest export market.

Australian Prime Minister Anthony Albanese meets President Xi Jinping in Bali

Following a prolonged diplomatic impasse, Australian Prime Minister Anthony Albanese and Chinese President Xi Jinping finally convened on November 15, 2022, at the G20 Summit in Bali, Indonesia. During the meeting, the leaders discussed their trade relationship and recognized the complementarity of their economies. They also pledged to bolster the steady growth of Australia-China relations and cooperate on vital matters such as climate change, economy, and trade.

Earlier in 2022, Albanese had cautioned that relations with China might remain “challenging,” which could have resulted in more tense trade ties. Nevertheless, despite prolonged tensions and trade restrictions, China still accounts for over 35% of Australian exports and 25% of imports. Moreover, the limitations did not impact the export of crucial commodities such as iron ore, wool, or gas, and many of Australia’s largest companies continued to benefit from Chinese imports.

Thus, as highlighted during the Bali meeting, both governments remain committed to strengthening trade negotiations and stabilizing diplomatic ties.

Australian Foreign Affairs Minister Penny Wong visited Beijing

Australian Foreign Affairs Minister Penny Wong visited Beijing on December 21, 2022, as a sign of Australia’s efforts to restore diplomatic relations with China. This visit was especially significant because Wong was the first Australian minister to visit China in more than three years. During the visit, Wong met with China’s Foreign Minister and State Counsellor Wang Yi to discuss various issues, such as consular matters, regional and global challenges, climate change, trade and economic issues, and defense.

In another step towards de-escalating tensions, Australian Trade Minister Don Farrell and China’s Minister of Commerce, Wang Wentao, held a virtual meeting in February 2023. This was the first meeting between trade ministers from the two countries since 2019, and it marked a crucial development in the relationship. Wang expressed China’s readiness to revive the communication channels between the two countries on economic and trade matters, and to expand cooperation in areas such as climate change and new energy industries. He also invited Farrell to visit Beijing soon.

These trade negotiations have opened up possibilities for further diplomatic exchanges, such as an official visit by Prime Minister Anthony Albanese to China later this year, according to some analysts.

Australia China Bilateral trade in 2022

According to the Australian Department of Foreign Affairs and Commerce, China is Australia’s largest two-way trading partner, accounting for almost one-third of Australia’s international trade. Meanwhile, Australia ranks fifth among China’s import sources and tenth among export markets.

Despite ongoing geopolitical tensions, the economic and trade cooperation between the two countries has continuously grown in the last two years. In 2022, the bilateral trade between the two countries amounted to US$220.91 billion, a decrease of 3.9 percent year-on-year, with Australia’s exports to China amounting to US$142.09 billion, a decrease of 13.1 percent compared to 2021.

China continues to be a primary export market for many Australian products, such as coal, iron ore, and wine. However, due to the thawing of ties between the two countries, several of these products lost their market share as domestic businesses sought substitutes to reduce risks.

As of December 2022, Australia’s top exports to China were iron ore (US$5.48 billion), petroleum gas (US$1.65 billion), other minerals (US$1.08 billion), gold (US$742 million), and wheat (US$214 million).

Meanwhile, China accounts for 25 percent of Australia’s manufactured product imports, with the nature of these products changing over time, from textiles and clothing to home appliances in the 1990s and engineering items and telecommunications equipment at present.

Australia has a competitive edge in China, especially in natural resources such as coal and gas, wool, and food and agricultural products such as beef, wine, barley, and seafood. Additionally, Australia’s abundant reserves of critical minerals like lithium and iron ore make it a strategic trading partner for China. Chinese companies have substantial shares in crucial Australian mines.

As of December 2022, China’s top exports to Australia were refined petroleum (US$496 million), computers (US$403 million), telephones (US$352 million), cars (US$324 million), and other furniture (US$157 million).

Bilateral investment between China and Australia

Australia’s investment in China increased significantly in 2021, reaching a total of US$5.9 billion, making China the eighth largest recipient of Australian investment. In a survey conducted by the Australian Chamber of Commerce in 2022, 58 percent of Australian businesses and organizations indicated that China remains their top or one of their top three priorities for global investment over the next three years, citing optimism about future market opportunities and profitability.

Despite challenges posed by the COVID-19 pandemic, many businesses localized their sourcing and sales within China, resulting in a 19 percent growth from 2018. Australian businesses are keen to maintain or even increase their investment in China, with most planning to return to or exceed pre-pandemic levels.

On the other hand, Chinese investment in Australia dropped by 69.8 percent in 2021, with only US$0.6 billion invested compared to the previous year’s US$1.9 billion, representing a 69 percent decrease in Australian dollars.

China lifting restrictions on Australian coal imports

China has officially lifted its remaining restrictions on coal imports from Australia, signaling the end of the trade restrictions imposed in late 2020. The move will have a significant impact on Sino-Australian bilateral trade and future relations. According to Bloomberg, all domestic companies in China are now permitted to import coal from Australia, and ports and customs offices have been instructed to allow overseas cargo into the country. In the first half of March alone, imports of high-quality Australian coal are expected to reach one million tons, significantly increasing China’s coal supply.

Before the trade restrictions, China was a significant consumer of Australian coal, with the high-quality coal in demand among Chinese steelmakers and power plants. As per Bloomberg’s sources, Australian coal imports may reach 1 million tons in the first half of March alone. China imported over 290 million tons of coal last year and is the largest producer and consumer of coal worldwide.

The lifting of the ban will further enhance the confidence of those engaging in bilateral trade between the two countries. Although the volume of coal imported is significantly lower than before the downturn in diplomatic ties in mid-2020, the resumption of imports may indicate a thaw in relations between the two countries. The move is crucial in the process of rebuilding relations between the two nations, according to Australian officials. In March 2023, a total of 1.35 million tons of coal had already been shipped from Australia to China, with further projections indicating that coal imports will hit 2.6 million tons by the end of the month, cementing the recovery of coal imports in the country.

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