Australia’s trade relationship with China has been a cornerstone of its economic prosperity in recent decades. While this relationship is highly rewarding, it is fraught with difficulties and challenges. This blog by Sharp Blue delves into the historical facts, trade agreements, economic issues and recent tensions that have driven the ongoing trade boom between these two countries.
History
Australia has been trading with China for centuries. But it wasn’t until the late 20th century that the relationship really began. Australia and the Republic of China established diplomatic relations in 1972. Since then, the two countries have worked to deepen economic ties and significantly boost trade.
Key Trade Agreements
China-Australia Free Trade Agreement (ChAFTA)
One of the biggest wins for Australia-China trade is the China-Australia Free Trade Agreement (ChAFTA) which came into effect on 20 December 2015. ChAFTA has removed tariffs and opened up markets for Aussie exporters. Here are the key points:
- Tariffs: Elimination or reduction of tariffs on a huge range of Aussie goods including beef, dairy, wine and horticulture.
- Services: Increase access to Australian services in legal services, financial services and education.
- Investment: Greater investment protections and higher investment thresholds to allow more Chinese investment in Australia.
Regional Comprehensive Economic Partnership (RCEP)
Australia and China are part of RCEP which came into force in January 2022. RCEP is the world’s largest free trade agreement, covering 15 countries and 30% of global GDP. It’s about reducing tariffs, opening up markets and setting common rules among member countries to increase trade between Australia and China.
Economic Impact
China’s trade has had a significant impact on the Australian economy. Export earnings from China boosted Australia’s GDP, employment and regional growth. The mining industry grew rapidly because China could not acquire enough iron ore and coal. In agriculture, China benefited from consuming Australian beef, dairy and wine. Overall, China’s trade has contributed significantly to Australia’s economic prosperity. It gives GDP growth, jobs everywhere, and community development plans, it’s a win-win.
Trade Statistics
Australia’s relationship with China is built on huge trade volumes. China is Australia’s number one trading partner, accounting for a big chunk of our exports and imports.
Trade Data (2023)
- Exports: In 2023, Australian exports to China were worth AUD 218.8 billion, up 18.2% on 2022. Major exports include iron ore (AUD 115.5 billion), natural gas (AUD 20.4 billion), crude minerals (AUD 18.6 billion), coal (AUD 9.2 billion) and agricultural products like beef, barley and wine.
- Imports: Imports from China to Australia were AUD 108.1 billion in the same period. These included electronics, machinery, textiles and furniture, reflecting China’s role as a major supplier of consumer goods and manufacturing inputs to Australia.
Tensions and Trade Bans
Despite the benefits of the trade relationship, it’s not without its problems. In recent years the relationship has been strained and there have been trading disruptions and bans on certain Australian products.
Causes of Tension
- Political Differences: Political ideologies and policies, particularly human rights and national security, have caused friction.
- Foreign Interference: Chinese interference in Australian politics and Chinese investment in Australia have been a concern.
- COVID-19 Pandemic: Australia’s call for an independent inquiry into the origins of COVID-19 led to diplomatic fallout and trade measures from China.
Trade Bans and Restrictions
In response to these tensions, China has imposed several trade bans and restrictions on Australian goods across various sectors:
- Barley: In May 2020, China applied an 80.5% tariff on Australian barley. China accused Australian farmers were getting government subsidies and selling barley into China below market price, a practice called “dumping”. This stopped barley exports from Australia to China which was one of our biggest markets for barley growers.
- Wine: In November 2020 China imposed tariffs on Australian wine, ranging from 107% to 212%, citing dumping. This had a huge impact on Australian wine exports to China which was a big market for Australian wineries at the time
- Coal: In late 2020 China imposed an informal ban on Australian coal which was widely seen as a response to Australia calling for an independent inquiry into the origins of COVID-19. This ban affected a range of Australian exports including coal and led to a big decline in trade between the two countries.
- Seafood and Meat: Increased scrutiny and export restrictions on Australian seafood and meat products (beef bans) by China started to gain attention around 2020. This included additional inspections and changes to the approval process for exporting food products to China.
Timber: At the end of 2020 China banned the import of timbers (pine logs) from Australia. Not because of political or economic issues. China banned Australian timber because our exports were infested with rust beetles.
Current Situation
As of mid-2024 the Australia-China trade relationship is slowly improving but still sensitive. Diplomatic efforts and high-level talks have seen some trade restrictions eased:
- Coal: By early 2023 the coal ban was largely lifted and coal exports can resume but not back to pre-ban levels. Specific state-owned enterprises have been given the green light to start importing Australian coal again.
- Barley: By August 2023, China has removed 80.5% of tariffs on Australian barely that were placed in May 2020. The removal of these anti-dumping and countervailing duties is a big step towards normalizing trade between the two countries. Australian barley exporters can now reenter the Chinese market which was worth nearly $1 billion a year before the duties were imposed.
- Wine: As of March 28 2024 tariffs on Australian wine have been removed by China, a major move to improve diplomatic and trade relations between the two countries.
- Seafood and Meat: As of May 2024 China has lifted the bans on several Australian beef processing facilities, a big boost to the meat export sector.
- Timber: As of May 2023, China has lifted the ban on timber and Australian timber is back in the market for the first time in over 2 years.
What’s next?
The future of Australia-China trade is unclear but will have ups and downs. Watch out for:
- Diversification: Australia’s efforts to diversify its trading partners and reduce its China exposure will be key.
- Diplomacy: Diplomatic talks and engagement will be needed to resolve current disputes and get the trade environment stable.
- Global Trends: Global trends, including changes in supply chains and international trade policies, will also impact Australia-China trade.
Conclusion
Australia’s relationship with China has been the economic backbone of the country, with big growth and big challenges. While the recent tensions have tested this relationship, the economic links between the two countries are too deep to ignore. As Australia navigates this relationship, diversification and diplomacy will be the keys to long-term prosperity.
