China-Australia trade is still growing despite covid.
Remember the “14 grievances” last year? China delivered Australia a big list of reasons it was very cross. We, for example, banned Chinse company Huawei from our 5G network, and spoke out about human rights abuses in Xinjiang province.
“If you make China the enemy, China will be the enemy,” a Chinese diplomat said.
China was also furious we called for an investigation into the origins of the coronavirus. So they started up a trade dispute, completely ignoring the fact we signed a very friendly free trade agreement with them not long ago. Beef, wine and barley were targeted.
So how’s that turning out for China? Are they really delivering us a big trade smackdown? Matter of fact, nope.
As the next chart shows, Australian merchandise imports to China are skyrocketing to new record levels. In May 2021 they ordered, accepted and paid for a cheeky $16.5 billion of Aussie exports. A record!
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Exports to China from Australia.
They talk smack. But when it comes to the crunch they buy what we’re selling. Lots of it.
Of course, some industries have been hurt. Australian beef sales to China are down 50 per cent compared to last year, for example. If you don’t hear beef producers complaining too much that’s because beef prices are high. Despite a big customer dropping off, they can still fetch excellent prices on their meat.
Winemakers have more to be upset about, with wine sales to China down 96 per cent in the four months from December last year to March this year, compared to the same period 12 months prior. But we’re helping make up for it by exporting more to the UK, USA and Canada. Aussie Wine sales to Hong Kong were up 55 per cent, and to South Korea, up 72 per cent over the past year.
Australia’s coal exports are also down by about half from their peak, in part because of China turning its back on Aussie coal.
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Chinese President Xi Jinping plan to cut off trade with Australia hasn’t gone to plan.
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You might think everything in Australia is made in China, but in fact we run a substantial trade surplus with China. They buy far more from us than we do from them.
What’s driving it is raw materials. Iron ore especially. This is sold in huge volumes, and at the moment it commands a high price. China might want to quit our iron ore, but for now it can’t.
Australia sold $19 billion in iron ore and related products in the month of May alone, and much of it went to China. That $19 billion flows into the Aussie economy and helps support our jobs and our incomes.
China is in a situation where it can deliver pain to certain Australian industries but is still propping up the Australian economy as a whole.
The relationship
Australia’s relationship with China was reasonably good just a few years ago. But since Chinese President Xi changed the rules to make it impossible to remove him as President, the relationship has changed. China is now angrier on the world stage. Other countries are being inspired to stand up to them.
The departing head of Australia’s Department of Foreign Affairs recently delivered a big backhander to China, using her farewell speech to call the country “brittle” and “insecure”.
Many Aussies are worried we could be pulled into a war with China. According to a recent poll by the Lowy Institute, Australians suddenly see China as a security threat, as the next chart shows. And when asked if we should side with the US or China in the event of a war over Taiwan, a majority of Australians said we should stay neutral.
A lot of Aussies see China as a security threat.
The irony of China’s recent actions in banning trade in certain Australian products is it showed us we can diversify our trade relationships. Meanwhile they seem unable or unwilling to diversify their imports of iron ore. Do we have the upper hand?
Of course, the power balance is obviously in favour of a larger country, the one with fifty times as many people, and a much bigger economy. We’re the small fry in this relationship with China. But their recent attempts to act tough are not going that well, and there is even talk of countries boycotting China’s Winter Olympics, in 2022.
Sending people a list of your grievances is actually a dumb way to manage your relationships when you want to buy their iron ore and you want them to come to your Olympics. Hopefully China realises this soon, and decides it’s once again time to be – if not friends – then at least respectful partners.