Positive signs with China trade, but risks remain

Optimism is in the air that trade doors to China are re-opening, following its decision to remove 80% of tariffs on Australian barley earlier this month.

 

Australia has also returned to China’s Approved Destination Status Scheme, enabling Chinese tour groups to come to Australia. 

Michael Carter, Head of CCIWA’s International Trade and Investment Centre says this is a “breakthrough” for Western Australia and China’s trade relationship. China is the State’s largest trading partner, worth about $146 billion.  

“It’s a move in the right direction and it demonstrates that the long-standing trade and investment linkages and people-to-people engagement that we’ve had for many years with China underpins the strength of that relationship,” Carter says.  

Federal Trade Minister, Senator the Hon Don Farrell told Sky News the Government is working towards having tariffs lifted on other commodities.  

“There’s still work to be done. We want to get wine back in. We want to get lobsters back in,” he said. 

“A number of Australian meat producers can’t get their products in, so there’s still more work to be done.” 

Consider China’s motivations 

“China is a lucrative market and businesses should make money there if they can … but businesses need to be eyes-wide-open and see that it’s a high-risk and new geopolitical environment,” says Dr Naoise McDonagh, ECU Senior Lecturer in International Business.

“China is willing to use tools to politicise and pressurise governments for non-trade issues, and so business is now at a permanent higher level of risk with China.” 

McDonagh believes one of China’s motives for broadening its trade with Australia may be to support its application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which was submitted in September 2021.  

“I think China wants to build goodwill with Australia and that’s a key driving factor for its current willingness to relax trade restrictions because, with other countries, it has left those in place long-term when there’s been no desire from China to improve the relationship,” he says. 

Australia’s change of Prime Minister from Scott Morrison to Anthony Albanese is also likely another factor of the positive trend with China, McDonagh says. 

However, history has shown China can be reactive to foreign government – including Australia – policies.  

McDonagh expects China’s dislike of the AUKUS partnership and other defence activities to be an ongoing source of tension in the years ahead. 

China’s bruised economy 

Another factor affecting China’s reliability as a trading partner is its fragile economy, McDonagh says, having struggled to recover since it lifted its COVID zero policies in December 2022. 

Its rapid build-up of debt, being one of the only countries in the world to be experiencing deflation and a declining population have led to China’s struggling economic state. 

“China has passed its peak in terms of growth, so that dynamic should also encourage businesses to think about continuing their diversification push as much as they can,” McDonagh says. 

Remember lessons learnt: diversify 

The past few years proved to businesses and economies the importance of diversification. 

“The main lesson I think that needs to be at the forefront is that China can no longer be considered a reliable trading partner,” McDonagh says. 

“China’s modus operandi is that it will use any tool that provides leverage against a foreign government – including trade, private business – to get whatever it wants. 

“So, if there’s any country that’s likely to have ongoing tensions, their trade relationship is continually vulnerable to further instances of economic coercion.” 

Carter understands that several CCIWA Members are keen to resume trading with China but echoes the diversification sentiment to “not have all your eggs in one basket”.  

“The talk on the street is that for those businesses that have looked to de-risk and diversify to alternative or additional markets, they recognise and are motivated to re-enter the Chinese market because of the long-standing business and people-to-people linkages that are established over the years,” he says. 

“That long-term investment in relationship building is important and those business relationships are still there, whatever may happen with quotas and tariffs and the like.”  

Opportunities within China sub-markets 

Historically, WA’s trade with China has focused on regions such as Shanghai, Beijing and Guangzhou, but Carter encourages exporters to consider other areas such as Nanjing, the capital of the Jiangsu province.  

Nanjing’s economy is valued US$227b and has a population of more than nine million people. Its two-way trade is vibrant, worth about US$88b.  

Jiangsu was China’s leading province for foreign investment in 2022, with a 5.7% year-on-year increase, China Daily reports.  

“There is great opportunity for WA businesses to pursue trade with Nanjing and look at the potential for investment into Nanjing and vice versa,” Carter says.  

CCIWA’s International Trade and Investment Centre (ITIC) helps businesses reduce the time, cost and risk of going global. Contact the team for a free consultation on (08) 9365 7620 or via [email protected].

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