50 Years of China-Australia Relations: Opportunities and Challenges

UPDATE (December 20, 2022): At the invitation of Wang Yi, member of the Political Bureau of the CPC Central Committee, State Councilor, and Foreign Minister, Australian Foreign Minister Penny Wong will pay a visit to China from December 20 to 21, Chinese and Australian officials announced on the same day. December 21 this year marks the 50th anniversary of the establishment of diplomatic ties between China and Australia. During Penny Wong’s visit to China, Wang Yi will hold talks with her and the two sides shall hold a new round of the China-Australia Diplomatic and Strategic Dialogue. It will be the first visit to China by an Australian foreign minister in four years. Analysts expect it to be a “landmark step in the reset of China-Australia relations”.

2022 marks the 50^th anniversary of China-Australia bilateral relations. Through the past half century, the two countries have grown to become close trading partners. China’s rapid growth has created both strong demand and market prospects for Australian businesses.

However, in recent years, bilateral ties have seen some tension. To improve relations, the two countries’ leaders met at the sidelines of the G20 summit, sending some positive signals.

This article takes a look at how the China-Australia bilateral relationship has developed until this critical juncture and discusses future possibilities and challenges.

Bilateral trade and investment

China is Australia’s largest trading partner – both import and export. Meanwhile, Australia is China’s fifth biggest source of imports and 10th biggest export market. In the past two years, economic and trade cooperation between the two countries has witnessed continuous growth, despite geopolitical tensions. In 2021, bilateral trade between the two countries amounted to approximately US$231.2 billion, a rise of 35.1 percent year-on-year, with China’s imports from Australia reaching US$164.82 billion, up 40.6 percent from 2020. In the first nine months of 2022, Australia’s exports to China reached A$172 billion (US$118 billion), a rise of 2.7 percent year-on-year, while its imports from China reached A$101 billion (US$69.5 billion ), a 16.5 percent increase.

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Australia imports 25 percent of its manufactured merchandise from China. The products transitioned from initial imports of textiles and clothing to household appliances in the 1990s to expand to engineering products and telecommunications equipment in the present. Chinese businesses are also keen to invest in Australia, particularly in infrastructure projects.

Australian commodities, especially food and agricultural products (beef, wine, barley, and sea food, to name a few), natural resources (coal and gas), and wool, have strong competitive advantages in China. Australia’s rich reserves in critical minerals, particularly lithium and iron ore, make it a strategic and significant trading partner for China. Chinese companies also have important stakes in key Australian mines.

Trade agreements and regional cooperation

China–Australia Free Trade Agreement (ChAFTA)

The two countries have established trade relations through a number of mechanisms. In 2015, the China–Australia Free Trade Agreement (ChAFTA) entered into force, paving the way for a close economic relationship for 10 years. The ChAFTA continues to elevate the competitiveness of Australian goods and services, by providing Australians with better access to China and securing the market.

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Regional Comprehensive Economic Partnership (RCEP)

An initiative to boost trade and investment in the Indo-Pacific region, the RCEP consists of China, Japan, South Korea, Australia/New Zealand, and Southeast Asia (ASEAN bloc countries) and came into force in January 2022. While still in its infancy, the RCEP holds significance for China and for foreign investors. It provides yet another platform for China to interact with major markets like Australia on trade.

Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

The CPTPP is another free trade agreement in the Asia-Pacific region. Its member countries represent 13 percent of global GDP. Australia ratified the agreement in 2018. While China is not an official member yet, it submitted its CPTPP application in September 2021. Possibilities remain that China will be accepted with certain reforms in its business sectors.

Political tensions and its impact on trade

Despite the scope of market opportunities, bilateral relations between China and Australia have not always been smooth. Tensions have cropped up on a range of issues related to technology, politics, and trade.

In 2018, Australia became the first country in the Five Eyes intelligence alliance to ban Huawei and ZTE telecommunications equipment, citing national security concerns. Following this, Australia has pursued various US-led initiatives aimed at countering China’s growing footprint in the Indo-Pacific region, including the Quadrilateral Security Dialogue, the Indo-Pacific Economic Framework, Partners in the Blue Pacific, and the AUKUS alliance.

More recently, in early 2020, bilateral relations experienced a sharp downturn amid tensions regarding the origins of Covid-19. After China imposed import sanctions on a wide range of Australian goods – including coal, barley, wine, beef and seafood – Australia followed up by taking the trade disputes with China to the World Trade Organization and cancelled a Belt and Road Initiative deal between China and the state of Victoria.

Such incidents have had a severe impact on trade. The Australian government estimated that the tariffs could cost its economy about A$20 billion a year, with wine, barley, lobsters, beef, and coal among the most-hit products. Similarly, Chinese businesses faced tightened scrutiny, especially on deals involving critical infrastructure.

2022 development: Xi-Albanese meeting at the G20 summit

On November 15, 2022, Chinese President Xi Jinping and Australia’s Prime Minister Anthony Albanese met during the G20 summit in Indonesia, after a long diplomatic freeze. This was the first formal meeting between the two leaders since 2016. They exchanged opinions on trade, acknowledging the economies were “highly complementary.”

Though the meeting was widely seen as a thaw in bilateral ties, no real breakthroughs were made, with the restrictions on A$20 billion (US$13.4 billion) worth of Australian exports still in place and no improvement in the conditions to create a better investment environment for Chinese businesses in Australia. The recent visit of Australian lawmakers to Taiwan in December cast an additional yet gloomy layer to the bilateral relationship.

Earlier this year, Albanese cautioned that Australia’s “relationship with China will remain difficult.” Given the country’s Labor government’s policy to rebuild Australia’s manufacturing industry, Canberra may even impose heavier tariffs on Chinese imports. With growing geopolitical tension between China and the West, Australia may also veer in the direction of US and Canada on critical minerals security, further limiting trade potential with China.

However, despite these tensions and trade restrictions on selected products, China still counts for more than 35 percent of Australian exports and 20 percent of imports. Moreover, iron ore, wool, and gas were not hit by the sanctions, and many of Australia’s largest companies continued to benefit from Chinese exports. The sheer size of trade with China was three times higher than that with the US. Australia and China also have shared interests in a range of trade-related matters, such as e-commerce, sustainability, and climate change. For example, Western Australia is working to step up its space research cooperation with China.

Investment prospects in China in 2023

With the size and diversity of its economy, China still stands as a major investment destination for Australia. With the gradual opening-up and relaxation of COVID restrictions in China, the Chinese public interest in tourism and overseas education will spring back.

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In addition to existing markets in agricultural goods, natural resources, and wool, there also exist more opportunities with changes in the Chinese economy. For one, the Chinese market for more advanced goods and services of high quality will likely expand.

Rising wages and growing consumer needs for quality products will increase demand for more sophisticated manufactured goods and services. Australia’s expertise in medical devices, human resources, urban development, and financing offer immense potential for exports and investments.

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