Anthony Albanese’s upcoming China visit will be the first by an Australian prime minister since Malcolm Turnbull in 2016.
Much of the media attention will be on irritants in the relationship, such as the four-year detention of the Australian writer Yang Hengjun and rising tensions in the South China Sea.
But economic ties will also feature highly, with the prime minister scheduled to attend the China International Import Expo in Shanghai.
How important is two-way trade?
China dwarfs all other nations when it comes to Australia’s trade, accounting for almost a third. China buys more Australian exports than the next three biggest markets combined.
In the year to June, two-way goods trade was $303bn, or 30% of Australia’s total, according to Department of Foreign Affairs and Trade data. It was up 11% on 2021-22. (Services trade is still being calculated; it was worth $21bn in pre-Covid 2019.)
Trade is typically heavily in Australia’s favour. Of the top five exports, iron ore and concentrates were worth $105bn in 2022-23 – almost the value of all imports from China alone.
Other big exports were gas worth $21bn, crude minerals worth $20bn, gold shipments worth $8bn and coal $4bn.
Topping the list of imports were $10bn of telecom equipment and parts (think smartphones), computers worth $8bn, and passenger vehicles tallying $6bn (many of them electric vehicles). There was also $4bn of furniture, mattresses and cushions, and a similar value of prams, toys and sporting goods.
China also ranks as Australia’s sixth-largest source of foreign direct investment, with $44.8bn invested as of 2022.
Chafta’s troubled chapters
The China-Australia free trade agreement – dubbed Chafta – came into force in December 2015, with the then Turnbull government boasting it would deliver “enormous benefits to Australia, [enhance] our competitive position in the Chinese market, [and boost] economic growth and creating jobs”.
Those hopes suffered a severe setback in 2020, when the Chinese government took offence at a call by the Morrison government for an investigation into the origins of the Covid pandemic.
Australia was labelled by state media as the “gum stuck to the bottom of China’s shoe”. Beijing also slapped restrictions on products such as barley, beef, cotton, coal and wine, and issued warnings to its citizens against travel to Australia based on claims of an elevated risk of racist attacks.
(April 1, 2020) China reacts furiously to Morrison's call for Covid-19 investigation
China's foreign ministry spokesman, Geng Shuang, says: ‘We advise the Australian side to put aside ideological bias and political games.’ Later in the month, China’s ambassador to Australia, Cheng Jingye, says: ‘Maybe the ordinary people will say, “Why should we drink Australian wine? Eat Australian beef?”’ The Australian government interprets the comments as economic coercion.
(May 1, 2020) China imposes 80% tariffs on Australia’s barley exports
The move follows an 18-month-long investigation by China’s commerce ministry into ‘dumping’ – when a product is sold into an overseas market at artificially low prices – and the effect of government subsidies.
(August 1, 2020) China floats the idea of tariffs on Australian wine
Beijing initiates an anti-dumping investigation. Wang Xining, the deputy head of mission of China’s embassy in Australia, says the Australian government had shown a lack of courtesy by failing to consult the Chinese government before calling for the Covid investigation. The Morrison government escalates, flagging new powers to stop state, territory and local governments as well as universities entering agreements with foreign governments that it considers detrimental to Australia’s foreign policy objectives.
(August 1, 2020) News breaks that Chinese-born Australian journalist Cheng Lei is detained in China
The Australian government is advised of that development on 14 August.
(November 1, 2020) Chinese officials in Australia detail a list of 14 grievances
A Chinese official is quoted saying: ‘China is angry. If you make China the enemy, China will be the enemy.’ Morrison rebukes Zhao Lijian, one of China’s high-profile ‘wolf warrior’ diplomats, for sharing a fake image of an Australian soldier slitting the throat of an Afghan boy, a reference to the Brereton inquiry into alleged war crimes by Australian special forces soldiers.
(March 1, 2021) China imposes tariffs of 116–218% on bottled Australian wine imports
The tariffs are set through 2026, shutting the door on Australia’s largest export market.
(April 1, 2021) Peter Dutton says the prospects of a battle over Taiwan should not be ‘discounted’
Dutton, the then defence minister, says: ‘I think China has been very clear about the reunification. If you look at any of the rhetoric that’s coming out of China, particularly in recent weeks and months in response to different suggestions that have been made, they’ve been very clear about that goal.’
(September 1, 2021) Australia, the US and the UK unveil the Aukus nuclear submarine pact
The agreement is a strategic response to China’s expansionist drive in the South China Sea and increasing belligerence towards Taiwan. China says the agreement reflects a ‘cold war mentality’.
(November 1, 2021) Peter Dutton declares Beijing wants to reclaim Taiwan
He also says all Australian major cities are within range of Chinese missiles.
(February 1, 2022) Morrison brands Labor deputy leader Richard Marles a ‘Manchurian candidate’
The phrase ‘Manchurian candidate’ refers to a politician being used as a puppet by an enemy power. Australia’s domestic spy chief, Mike Burgess, declares that the weaponisation of national security is ‘not helpful to us’.
(May 1, 2022) Labor wins the Australian federal election
Diplomatic sources say China sees ‘a good opportunity’ to ease tensions in the period after the vote.
(June 1, 2022) Australia's deputy prime minister Richard Marles meets China’s defence minister
The meeting is the first between Australia and China’s defence ministers in more than two years.
(July 1, 2022) Australia’s foreign minister Penny Wong has discussions with her counterpart Wang Yi in Bali
Wong says Canberra and Beijing have taken the ‘first step towards stabilising the relationship’ after the first face-to-face meeting between the two countries’ foreign ministers since 2019.
(November 1, 2022) Australia's prime minister Anthony Albanese meets the Chinese premier Li Keqiang at a gala dinner in Cambodia
It is the first leader-to-leader dialogue between the two countries since 2019. A few days later, Albanese meets Xi Jinping. He tells the president Australia will continue to assert its values and principles, but makes clear his government wants to steady the fractured relationship with Beijing. He also raises objections to the damaging trade sanctions and concerns about the detentions of Cheng Lei and Yang Hengjun.
(April 1, 2023) Australia announces ‘a pathway’ agreed with China over barley tariffs
While China conducts an expedited review of the measures, Australia agrees to temporarily suspend its challenge against the tariffs through the World Trade Organization dispute process.
(August 1, 2023) China agrees to remove the barley tariffs
Australia says it will press for the removal of wine tariffs.
(October 1, 2023) Cheng Lei is freed and reunited with her family in Australia
Albanese confirms he will visit Beijing and Shanghai in November – the first visit to China by an Australian prime minister since 2016. Albanese also confirms China has agreed to review its wine tariffs. The two countries agree to suspend their long-running WTO dispute while Beijing undertakes an ‘expedited review‘ of duties. The Australian government rules out cancelling a Chinese company’s lease over the strategically important Port of Darwin.
(November 1, 2023) Yang Hengjun's children plead with Albanese to negotiate his release
They say his situation is critical and their father, who has been detained for more than four years in China, risks ‘being left to die’. Albanese says in response he has raised the case before, and will raise it again.
Initial estimates put the cost to Australian exports of about $19bn a year, although big-ticket commodities such as iron ore and gas were little affected.
Sino-Australian relations began to thaw after the election of the Albanese government in May 2022. Export restrictions have gradually eased, with lobster restrictions among the remaining hurdles.
Cause to whine
Australian wine shipments to mainland China reached almost $1.2bn in 2021 before tariffs reaching 218% were abruptly imposed. Exports tumbled to just over $7m in the most recent year to September, WineAustralia data shows.
Last month China agreed to review the wine tariffs – but said it would take five months to do it – in exchange for Australia holding off on taking the dispute to the World Trade Organization.
Local producers are gearing up to re-enter the Chinese market but are cautious about the prospects.
“It’s unlikely we get back to $1.2bn [a year] any time soon,” Lee McLean, the chief executive of Australian Grape & Wine, told Guardian Australia. French, Chilean and American suppliers have moved in and local producers had expanded, while China’s weak domestic demand meant “the market has changed”, he said.
Australia is not without its own trump cards, though. China will need Canberra’s support (and that of other members) if it is going to be allowed into the region’s biggest trade pact, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
How do China’s future prospects stack up?
Chinese officials encourage Australian suppliers to focus on the long run.
“It is expected that by 2035, China’s current 400m middle-income population will have doubled to 800m, adding advantages to China’s market scale,” said Xiao Qian, China’s ambassador to Australia, to a gathering in Sydney in September.
Xiao dismissed international reports that China’s economic outlook had lately dimmed, weighed down by a weaker-than-expected rebound from Covid and a deflating – if not imploding – property bubble. A shrinking population doesn’t help.
“China’s economic data have presented some fluctuations, yet some western media selected certain data to judge the overall situation of China’s economy, exaggerated the challenges faced by China’s economic development, and even chanted China’s collapse,” he said.
The International Monetary Fund last month listed a further slowdown in China’s growth (now at about 5% a year) as its top risk to global growth.
“Recent developments shift the distribution of China’s growth forecast risks to the downside, with negative implications for trading partners,” it said.
Kristy Hsu, director of the Taiwan Asean Studies Centre at the Chung-Hua Institution for Economic Research in Taipei, said China needed better relations with nations like Australia, not least because its exports had been falling.
China faces “a huge potential economic decline”, with significant outflows of capital as foreign investors exit and private Chinese money flees.
“It has to find a way to get back the momentum for economic growth,” a task made harder as the US and other bigger importers scramble to find alternative suppliers, Hsu said. “You should take advantage of this timing to get as much as you can.”
Iron ore ‘confusion’, trade pacts and all that
Gerard Burg, a senior NAB economist, noted China was also responsible for “an outsized share of activity within Asia”, so any sustained slowdown “would really have a ripple effect” on a region taking 80% of Australia’s exports.
NAB predicts China’s GDP will expand by 4.5% next year, a “pretty poor” outcome by historical standards. As a major part of households’ wealth, falling property prices mean Chinese consumers could be in a funk for years.
About 80% of Australia’s iron ore is exported to Chinese steelmakers, with about 55% of their metal ending up in buildings, Burg said. A lot of other uses will have to be found for the red dirt.
However, iron ore prices have so far remained about $US110 ($A173) per tonne, or higher. “[W]hat’s been happening with iron ore prices has been completely baffling to me,” he said. “I really don’t know what’s happening there.”
In the meantime, there is a side benefit for Australia as the price of Chinese exports tumbles. “As the [Reserve Bank] is seeking to see rates returning to come normal, it’s good to have a few deflationary pressures,” he said.
