{"id":50281,"date":"2019-09-03T06:00:01","date_gmt":"2019-09-02T20:00:01","guid":{"rendered":"https:\/\/www.aspistrategist.ru\/?p=50281"},"modified":"2019-09-03T06:03:32","modified_gmt":"2019-09-02T20:03:32","slug":"australias-booming-trade-with-china-will-shape-strategic-policy","status":"publish","type":"post","link":"https:\/\/www.aspistrategist.ru\/australias-booming-trade-with-china-will-shape-strategic-policy\/","title":{"rendered":"Australia\u2019s booming trade with China will shape strategic policy"},"content":{"rendered":"
<\/figure>\n

Diplomatic relations may have been strained, but Australia\u2019s trade relationship with China is growing ever closer. The latest trade report<\/a> shows that China was the destination for a record 40% of Australia\u2019s exports in June.<\/p>\n

It was only a little over three years ago that China\u2019s share of Australia\u2019s monthly exports hit 30%. A decade ago it was just 20%.<\/p>\n

The last time a single country took such a large share of Australia\u2019s merchandise exports was in 1952 when it was the United Kingdom. Japan\u2019s share of Australian exports peaked at a third in the mid-1970s and is now down to 14%.<\/p>\n

Supported by soaring sales of LNG and high prices for iron ore and coal, Australia\u2019s earnings from the Chinese market rose by 27% in the year to June.\u00a0That\u2019s almost double the growth rate of other markets.<\/p>\n

While the China trade balance is massively in Australia\u2019s favour, imports of Chinese goods are also growing rapidly. Over the past financial year, our imports from China rose by 15%, while imports from everywhere else fell by 2%. Businesses on both sides of the trade are making big profits.<\/p>\n

The intensity of the trade relationship worries strategists. ASPI Executive Director Peter Jennings has argued<\/a> that China\u2019s \u2018economic dominance\u2019 is having an impact on the government\u2019s strategic thinking. \u2018[W]e urgently need a strategy to diversify economic relations\u2019, he says. There are concerns that China could exercise economic coercion over Australia.<\/p>\n

China has a track record of bullying on trade. Lowy Institute China analyst Richard McGregor notes<\/a> that Norway suddenly lost its Chinese salmon market when the Nobel Prize was awarded to a Chinese dissident, Philippine mangoes were left to rot after its government won an international court case over the South China Sea, Chinese tourism to South Korea was restricted after it agreed to host US missiles, and, most recently, Canadian canola has been penalised following Canada\u2019s arrest of Huawei\u2019s finance director.<\/p>\n

There were suggestions Australian thermal coal exports to China were being restricted earlier this year as punishment for the Turnbull government\u2019s foreign interference legislation. However, the customs delays soon spread to all thermal coal exporters and it was hard to isolate a political intent.<\/p>\n

China is trying to both lift self-sufficiency in thermal coal (it already supplies 95% of its own coal for power stations) and reduce coal\u2019s share in the overall energy market.<\/p>\n

One result of Beijing\u2019s push for reduced carbon pollution has been absolutely stunning growth in Australia\u2019s sales of LNG to China. Commonwealth Bank commodities analyst Vivek Dhar says Australia\u2019s LNG exports to China rose by 37% last year, compared with growth of 10% in sales to Japan and 13% in sales to South Korea. In June, China is overtook Japan as Australia\u2019s biggest LNG market, something Dhar says he didn\u2019t expect to happen for years.<\/p>\n

This points to an important strategic truth: China is heavily dependent on raw material and energy supplies from Australia. China\u2019s steel industry wouldn\u2019t function without Australian iron ore and metallurgical coal. LNG has become an essential source of energy for the Chinese economy and the quick sea route to Australia makes it the preferred supplier. China\u2019s industry would soon face a crisis in the event of any lasting disruption to the Australian shipping route.<\/p>\n

Education\u2014Australia\u2019s fourth-largest export to China\u2014is more vulnerable. The dependence of major universities, including the University of Sydney and the University of Melbourne, on Chinese enrolments for up to a third of their revenue leaves them exposed.<\/p>\n

China values its access to Western universities and its middle classes place a premium on English-language education, giving a resilience to Chinese demand.<\/p>\n

Education highlights the implausibility of any strategy to diversify the economic relationship. Sydney University vice chancellor Michael Spence claims that government funding is a bigger risk than foreign enrolments. However, even in a hypothetical world where government boosted education funding, a university would still take an enrolment from the next foreign student if it could. No business will readily turn away a customer.<\/p>\n

One of the most striking features of Australia\u2019s trade with China has been the growth of non-traditional exports. While the big three\u2014iron ore, coal and LNG\u2014account for more than two-thirds of merchandise exports to China, the combined value<\/a> of the next 20 largest Australian exports has risen by more than 70% over the last five years and is more than Australia gets in total from any other market except Japan.<\/p>\n

Some of these gains\u2014for example, barley and beef\u2014have been helped by the China\u2013Australia free trade agreement, while others\u2014such as pharmaceuticals, crayfish, wine and baby formula\u2014reflect middle-class Chinese demand.<\/p>\n

For both sides, it is good business, and that\u2019s the driving force behind the entire trade relationship.<\/p>\n

While the mercantilist approach of the US administration regards exports as good and imports as bad, economists concerned with consumer welfare emphasise the value of imports: it is access to goods and services of the best value that lifts living standards. Australian consumers have benefited from low-cost Chinese technology and household goods, while business competitiveness has been enhanced by access to low-cost Chinese industrial supplies.<\/p>\n

The strength of the economic relationship does shape the government\u2019s strategic options. Australia hasn\u2019t followed the US\u2019s freedom-of-navigation operations close to the Chinese-constructed islands in the South China Sea, for example. However, prosperity is in the national interest and the relationship has delivered that over the past 15 years.<\/p>\n

The most immediate risks are more economic than strategic. The Chinese government faces a supremely challenging task in achieving a controlled slowing of an unsustainable growth rate without imperilling the ability of its state-owned companies and local governments to service their massive debts. The trade conflict with the US makes that task all the more difficult. Attempting to sustain growth with resource-intensive infrastructure investment may be reaching its limit.<\/p>\n

Through nearly all of the past 15 years, it has been a sellers\u2019 market for most of the things Australia supplies China. Australia\u2019s terms of trade (export prices compared with import prices) have been sustained at a higher level than at any time in the last century. Although both sides are dependent on each other, the balance would shift in a downturn. It would become a buyers\u2019 market and Australia could become more vulnerable to pressure from its largest customer.<\/p>\n","protected":false},"excerpt":{"rendered":"

Diplomatic relations may have been strained, but Australia\u2019s trade relationship with China is growing ever closer. The latest trade report shows that China was the destination for a record 40% of Australia\u2019s exports in June. …<\/p>\n","protected":false},"author":955,"featured_media":50284,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"footnotes":""},"categories":[1],"tags":[2212,433,365],"class_list":["post-50281","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-australia-china-relations","tag-economics","tag-trade"],"acf":[],"yoast_head":"\nAustralia\u2019s booming trade with China will shape strategic policy | The Strategist<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.aspistrategist.ru\/australias-booming-trade-with-china-will-shape-strategic-policy\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Australia\u2019s booming trade with China will shape strategic policy | The Strategist\" \/>\n<meta property=\"og:description\" content=\"Diplomatic relations may have been strained, but Australia\u2019s trade relationship with China is growing ever closer. 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