Other BriefingsRecord High Australian Exports to China Ignite Optimism for Bilateral Trade (Updated)
In March, the trade partnership between Australia and China achieved a significant milestone with Australian exports hitting an all-time high. This remarkable feat comes amid a series of notable diplomatic engagements between the two countries, highlighted by the visit of Australian Trade Minister Don Farrell to China. As we delve into the significance of this data, we explore its implications for the recovery of both bilateral trade and diplomatic relations.
UPDATE (May 19, 2023): According to China’s ambassador to Canberra, Chinese imports of Australian timber have been scheduled to resume from May 18, 2023. Ambassador Xiao Qian announced that the Chinese customs authority has officially informed the Australian Minister of Agriculture about the change. Additionally, discussions are underway regarding a potential visit by Australian Prime Minister Anthony Albanese to Beijing. The timber trade between the two countries, which previously amounted to approximately A$600 million (US$399 million) annually, had been largely halted since late 2020. Thus, this comes as a positive development, in a series of events signaling a warming of relations between the two countries.
Australian exports reached a record high in March of this year, signaling the significant improvement in bilateral relations and underscoring the economic importance of the Australia-China partnership. According to recent data released by the Australian Bureau of Statistics, exports to China surged to a record-breaking value of AUD 19 billion (US$12.8 billion) during the month. This represents a remarkable 28 percent increase compared to the previous month and a substantial 31 percent growth compared to the same period last year. Notably, this achievement marks the highest monthly export value since record-keeping began in 1988, emphasizing its historic significance.
The surge in exports encompasses a wide range of Australian commodities, with a notable focus on the coal and iron ore sectors. In particular, thermal coal exports to China experienced an astounding 122 percent surge in March, reaching US$238 million. Additionally, shipments of iron ore lump and iron ore fines witnessed significant growth, with jumps of 28 percent and 22.5 percent respectively, reaching US$380 million and US$973 million. These exceptional figures highlight the strong demand from Chinese buyers for Australian commodities, further reinforcing the pivotal role played by this trade relationship in both nations’ economies.
This achievement in Australia-China trade comes at a critical juncture, as efforts to restore and strengthen bilateral ties are actively underway. Notably, Australian Trade Minister Don Farrell’s visit to Beijing on May 12, 2023, included talks with Chinese Minister of Commerce Wang Wentao, further signaling the commitment to dialogue and cooperation.
As China’s demand for Australian commodities continues to soar, this remarkable achievement paves the way for the full restoration of bilateral trade ties and opens up opportunities for expanded economic cooperation.
We examine the renewed focus on dialogue and cooperation between the two countries and its implications for growing their trade partnership.
China-Australia bilateral trade
China is one of Australia’s primary trade partners, engaging in substantial trade across a wide range of sectors, such as resources, agriculture, and services.
Over the past couple of years, despite geopolitical tensions, there has been a consistent upswing in economic and trade collaboration between the two nations. In 2021, the bilateral trade volume between the countries reached approximately US$231.2 billion, demonstrating a remarkable 35.1 percent year-on-year growth. Notably, China’s imports from Australia amounted to US$164.82 billion, marking a substantial 40.6 percent increase compared to 2020. In 2022, Australia’s exports to China amounted to US$102.35 billion. Concurrently, Australia’s imports from China reached US$83.73 billion, both signaling a substantial recovery from the 2020 data.
Nevertheless, the measures adopted by China on several Australian products, including barley, beef, cotton, lamb, lobsters, timber, and wine, resulted in the disruption of established trade patterns between 2020 and 2022. The restrictions on Australian coal, for instance, significantly affected the industry, leading to a decrease in coal exports to China and necessitating the exploration of alternative markets.
Recent developments
Despite the initial tensions, recent developments have indicated a positive shift in the trade relationship between Australia and China. Since the Labor Party came to power in Australia, there have been encouraging signs of improved bilateral relations. Earlier this year, China took a significant step by removing all remaining curbs on Australian coal imports, effectively ending an unofficial ban. This move was viewed as a positive development, suggesting a willingness to resume robust trade and restore economic ties.
Furthermore, the easing of trade restrictions extends beyond the coal sector. China’s increased demand for Australian commodities, including iron ore and other products, indicates a gradual relaxation of trade barriers. Marking a significant milestone in their trade relationship, in April 2023, the two countries also reached an agreement over barley imports.
These recent developments provide an optimistic outlook for the future of the Australia-China trade relationship, presenting potential opportunities for businesspeople and investors.
The importance of Australian commodities to China
Australia possesses a compelling edge in the Chinese market with its diverse range of commodities, particularly in the food and agriculture sectors. Products such as beef, wine, barley, seafood, and others enjoy robust competitiveness. Additionally, Australia’s abundant natural resources, including coal, gas, and wool, contribute to its strategic significance as a trading partner for China. Notably, Australia’s substantial reserves of critical minerals like lithium and iron ore further enhance its importance in the eyes of China. Moreover, Chinese companies hold significant investments in crucial Australian mines, solidifying the interdependency between the two nations in this domain.
Australian commodities play a vital role in supporting China’s economic recovery efforts. Among these commodities, coal and iron ore from Australia hold particular significance. As China embarks on extensive infrastructure investments to revive its economic growth after the pandemic, the demand for these resources has never been greater. For instance, iron ore is a critical component of China’s steel industry, which forms the backbone of its infrastructure development and construction projects. Australian commodities, including iron ore, are crucial in meeting China’s growing demand and supporting its economic resurgence.
Moreover, China heavily relies on Australian coal and iron ore to meet its energy and manufacturing needs. Prior to the trade restrictions, Australia was a major supplier of thermal coal to China, fulfilling over one-fifth of the country’s thermal coal imports.
Similarly, Australia remained the largest supplier of iron ore to China, even during periods of strained relations. In 2022 alone, China purchased 1.1 billion tons of iron ore, with 65 percent of it sourced from Australia. The high quality and abundance of Australian coal and iron ore make them crucial inputs for China’s industrial production and energy generation.
Improving bilateral ties
The increased trade between Australia and China comes at a time when relations between Beijing and Canberra have shown promising signs of improvement following a prolonged period of strain. Indeed, the relationship between the two countries has gradually begun to thaw.
On May 12, 2023, Australian Trade and Tourism Minister Don Farrell engaged in meetings and visited various businesses in Beijing, indicating a momentum towards trade reconciliation with China. Meanwhile, in Sydney, Australian Prime Minister Anthony Albanese stressed that both sides had to foster understanding and dialogue. Albanese expressed the commitment to cooperate with China in areas of mutual interest but acknowledged that disagreements may arise due to the importance of acting in the national interest.
In February 2023, Farrell took a significant step towards de-escalating tensions and advancing trade discussions between Australia and China. He held a virtual meeting with his Chinese counterpart, Minister of Commerce Wang Wentao.
Now, China’s Foreign Minister Qin Gang is expected to visit Australia in July 2023, which further signals a positive step towards the normalization of diplomatic relations between the two countries.
Key takeaways
Looking ahead, the long-term outlook for the Australian-Chinese trade relationship appears promising. China remains Australia’s largest trading partner, accounting for a significant portion of its overseas trade. The demand for Australian commodities, particularly coal and iron ore, is expected to remain strong due to China’s ongoing economic recovery efforts and infrastructure development plans.
While strategic issues and economic uncertainties may pose challenges, the complementary nature of the two economies and the mutual benefits derived from trade provide a solid foundation for continued cooperation and growth.
For businesses and individuals interested in engaging with China, the evolving Australia-China trade relationship offers opportunities for collaboration and expansion. As trade barriers gradually diminish, there is potential for increased market access and partnerships.
Remaining informed about the evolving dynamics and assessing the long-term outlook can enable businesses and investors to make well-informed decisions and leverage the emerging prospects within the Australia-China trade relationship.
This article was originally published on May 17, 2023, and updated on May 19, 2023.
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China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.
Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.
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