How Important Is Australia-China Trade?
Australia-China Trade: How Important Is It? China is a growing economic power in the world right now. This can be seen by the fact that China is the major trade partner of many countries including the USA, Korea, Japan, Australia and Pakistan. Be it a developing country or a developed country, Chinese trade has captured the world.
This partly happened because China has been able to create economies of scale of local production as a result cost of production in China dropped very low compared to other countries. This resulted in China having a comparative advantage in the trade of many goods.
1. Australia – China Bilateral Trade
For this article, we will limit our discussion to trade and economics without touching the political aspect. China is a major trading partner of Australia and both countries have a free trade agreement. If we look at both countries then China is the biggest trading partner of Australia. Australia is the 7th biggest trading partner of China. In 2018 the two-way trade between both countries topped AUD 215 billion.
Australia exports 36% of total goods and services to China whereas it imports 25% of goods and services from China. This gives roughly a 9% trade surplus to Australia over China. The value of Australian exports to China was recorded at $87.7 billion in 2918. The total value of imports from China was recorded at $57.78 billion.
2. Iron Ore, Coal and Gas – Exports to China
Iron ore, coal and gas are the biggest export of Australia to China. Australia is not a heavily industrialised country and therefore its chief exports are raw materials. For China, Australia is an important trade partner because the raw materials imported from Australia are all utilised in further manufacturing.
This means that China is to some extent dependent on Australian raw material and to keep its huge industrial machine running. The iron ore, coal and gas from Australia in many ways fuel the Chinese economy.
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3. Agriculture – Exports to China
Almost a third of the Australian agricultural produce is exported to China. This means China buys almost 25% of Australian agricultural produce and this makes China a significant buyer for Australia. In 2018 the total exports of the agricultural, forestry and fishing industry amounted to AUD 13.5 billion.
4. Manufacturing Goods – Imports From China
Australia on the other hand mainly imports manufactured goods from China. In 2018 the import of goods from China amounted to AUD 21 billion. These manufactured goods include telecommunication equipment, furniture, IT equipment and homewares.
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5. Education Sector
Australia-China Trade: How important is it? In addition to this China also invests in the Australian education sector, specifically the Australian universities. The Confucius centre is collaborating with universities in Australia to promote Chinese culture and language in an attempt to bridge the gap between these two nations and allow greater people to people contact.
This seems like a policy of China to focus on people to people contact. It is almost the same strategy as being seen in Pakistan where China is building its flagship CPEC project. This is part of the greater One belt one road network, that aims to revive the silk route. Also to facilitate faster trade at a reduced cost.
Australia is also home to a large number of Chinese students who visit Australia to study and as a knock off effect, this also increases tourism as Australia which is already famous for its wildlife and natural beauty is also the destination of choice for many Chinese travellers. In 2018, the Australian education sector saw AUD 11.7 billion flow in the form of tuition fees and other grants to universities from China.
Almost 29% of all international students in Australia are of Chinese origin. This creates an important revenue source but also a perfect opportunity to open up Australian culture to international students. Particularly to those from China. These students return to their countries they become goodwill ambassadors for Australia in their home countries.
6. Services Sector and Free Trade Agreement
The free trade agreement signed between Australia and China also opened China for many Australian businesses. Recently a growing trend has been seen where Australian entrepreneurs are shifting their manufacturing bases to China because of lower costs and greater economies of scale.
In addition to this, the free trade agreement has opened China for the Australian services sector. Australian law and accountancy firms for the first time gain access to the Chinese markets. This presents an opportunity that was never there before.
Australian services sector can increase the export surplus of Australia with China. This happens by entering and strengthening their foothold in the Chinese markets.
At present, the trade statistics between Australia and China dropped because of the strict lockdown imposed in China due to the Covid-19 breakout but they expect these numbers to get better as China opens up its economy gradually.
It must however be kept in mind that the pandemic is far from over. As long as it persists it may not be possible for trade between these two countries to return to normal levels.
Conclusion
Australia-China Trade: How important is it? It turns out that both Australia and China stand to benefit from this trade relationship. While China relies on Australia mainly for its raw materials, Australia relies on China for its manufactured goods. But the future can see expansion in this trade relation as the Australian services sector makes inroads into the Chinese economy as a result o the free trade agreement.
China presents Australian entrepreneurs and businessmen with a very attractive opportunity to capture the high demand that is present in China across various sectors.
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Fun Fact
Why is China so important to Australia?
25 per cent of Australia’s manufacturing imports come from China, while 13 per cent of its thermal coal exports are to China. Australia is China’s sixth largest trading partner; it is China’s fifth largest importer and tenth biggest exporter.
