Economics trumps politics with two-way trade at record levels

Trade is meant to bring nations together but it hasn’t quite worked that way for Australia and China.

Chair of the Foreign Investment review board, David Irvine, speaking at The Australian’s Strategic Forum: How should we manage our relationship with China? Picture: Nikki Short

Trade is meant to bring nations together. It hasn’t quite worked that way for Australia and China, which signed a major free trade agreement in 2015, after which relations went south fairly quickly.

Nevertheless, economics is trumping politics, as the business relationships between the two countries continue to strengthen. No nation since Britain in the 1950s has bought such a large share of our exports. Two-way trade was a record $215bn last year.

“The number of proposals knocked back from any source has been very small,” noted David Irvine, chairman of the Foreign Investment Review Board, speaking at The Australian’s Strategic Forum on Monday about Chinese foreign investment applications.

For all the bluster about getting tough on Chinese investment, it’s been the single largest investor in our economy in four of the past five years. The total stock of Chinese investment has grown from a negligible sum in the mid-2000s to more than $40bn by the end of last year. China is the fifth-largest holder of foreign direct investment — behind the US, Japan, Britain and The Netherlands.

Where Chinese investment ­improves our economic wellbeing, such as in the case of the Bellamy’s takeover, it should be welcomed. That company looks set to export more infant baby formula to China than it would have under Australian ownership.

Yet the government shouldn’t be afraid to block investment where it gives the Chinese government potential access to “critical infrastructure”, broadly defined. China can’t claim the moral high ground, having far more limits on foreign ownership in its economy than we do. Indeed, Chinese foreign direct investment in Australia is about three times the size of the stock of Australian FDI in China.

The vast cultural gulf between Australia’s and China’s political and economic systems will ­ensure differences erupt from time to time.

But if JPMorgan chief economist Sally Auld, who also spoke at the forum, is right about “peak China” — we’ve reached it — we might be over the worst.