Complementarity not dimmed by political rows

China’s ambassador Xiao Qian. Picture: Martin Ollman

While Treasury Wine Estates is understandably cautious about the lifting of tariffs on wine exports to China – awaiting a formal declaration expected by the end of the month that China’s Ministry of Commerce will drop the tariffs – the business relationship with Australia’s largest trading partner continues to repair.

Relations will be given a further boost next week with the visit of China’s powerful Foreign ­Affairs Minister, Wang Yi, who is expected to meet with both politicians and business leaders.

This is expected to be followed up by a visit of more than 100 business people from China planned for April led by China Council for the Promotion of International Trade chairman Guo Huaigang.

The Chinese delegation will be looking for potential business opportunities and trading partners in Australia. Despite political ­tensions under the previous Liberal-National government and Chinese sanctions on some $20bn worth of Australian exports, the total two-way trade in goods between the nations reached a new high of more than $300bn last year – an 8.2 per cent increase on the previous year. This more than double the two-way trade with Australia’s second largest trading partner, Japan, and outstrips the total of Australia’s trade with Japan and the US combined.

Thanks to the continued strength of the prices of commodities such as iron ore, LNG, gold and other minerals, Australia’s two-decade trade surplus with China is now $98.5bn – making up almost 80 per cent of Australia’s trade surplus with the rest of the world.

These facts were highlighted by China’s ambassador to Australia, Xiao Qian, in a speech on Monday. He said discussions on outstanding trade issues, including wine, were “moving in the right direction”.

The lifting of tariffs of up to 200 per cent on Australian wine, which will, hopefully, be confirmed by the end of March, will be another important milestone in repairing the relationship.

With last year’s lifting of tariffs on barley and removal of other ­restrictions on the exports of cotton and timber, the dropping of the tariffs on wine will leave ­restrictions on the trade in lobster and beef as the two remaining ­issues to be resolved.

The period of trade sanctions over the past few years has highlighted several themes. While it has hurt the Australian wine industry, which once sold more than $1.3bn worth to China, and had some specific impacts on sectors such as the lobster industry, the sanctions on a range of Australian products have not inflicted major harm on the broader Australian economy. If anything, it has delivered a lesson – which has been heeded by other countries watching sanctions on goods from Australia – that Australian companies should not have all their eggs in the China basket and needed to look at diversifying export ­destinations. The idea of having strategies that reduce dependence on China for both exports and imports for a range of reasons is now broadly held globally.

Treasury Wine Estates chief executive Tim Ford. Picture: Aaron Francis

While China may have used trade sanctions to deliver a political message to Canberra, one could argue that it has not been a good look for China globally and has helped make companies around the world more wary of doing business, particularly investing in the country for fear of the potential political risk.

But the fact that the Australia-China trade has continued strongly despite the political tensions, is also a reminder of other more fundamental countervailing forces.

Our economies have a complementarity that is not replicated anywhere and has driven continued strong trade despite very different political systems.

Australia has what China needs – from iron ore, LNG, minerals, wool and high-quality food (and wine) – while China has the lower cost manufactured goods of increasing quality that Australia cannot afford to make at home with its small market of 27 million people – from Covid tests to solar panels, from clothing to furniture, cars and manufactured goods.

The big increase in sales of electric cars from China to Australia, led by its flagship BYD, which has been backed by Warren Buffett’s Berkshire Hathaway, is another example of this.

Despite the risks involved, the sheer size of the Chinese market remains a major attraction. While Australian companies, including TWE, have sought to diversify their exports including into the countries of Southeast Asia, the massive market in China by far outweighs the opportunities in any other market.

While there was much discussion last week about the potential opportunities for business with ASEAN, it is made up of 10 different countries with much smaller markets than China – each with their own different languages, cultures, regulations and sensitivities.

How much easier is it to navigate one big market of 1.4 billion people – a middle class of 400 million people headed to 800 million people – than many small ones?

Another theme, as highlighted by the fact that China is going to send a 100-strong delegation of businesspeople to Australia next month, is the fact that people on both sides can see opportunities to do business with each other and are ready, willing and able to do so.

In other countries, such as India or Indonesia, for example, there is a strong political will for Australian companies to do more business and trade, but less practical enthusiasm as the forces of complementarity are not as powerful. The number of people in Australia who were born in mainland China or who have a Chinese background have also helped underwrite trade and business.

Much has changed in China since the tariffs on Australian wine were mooted in late 2020. The Chinese economy has become weaker and its wine drinkers have shifted to products made in Europe, the US and South America.

But China is one of the most adaptive markets in the world and its consumers have had a strong interest in goods from Australia.

TWE had kept a staff of more than 100 people in China for the past few years despite the Covid shutdowns and the tariffs on Australian wine, demonstrating its own faith in the long-term potential of the China market.

While the political relationship will not go back to what it was in the heady days when the China-Australia Free Trade Agreement was signed in 2015 and many lessons have been learned along the way, business people on both sides will look for more opportunities if the politics can be put to one side.