Baby steps in China thaw offer hope for Australia’s export sectors

Australia’s largest wine company, Treasury Wine Estates, has steadfastly maintained ties with China, despite being hit by tariffs on its wine exports from Australia in November 2020.

As Australia looks with concern about whether it could face the same potential recession as other countries, the success of our export sector can make a huge difference in putting a floor under growth – as was shown in Australia’s relatively smooth sailing during the global financial crisis.

The business and food exporting sectors are now looking with cautious hope that there may be grounds for some thawing in political tensions with Australia’s largest trading partner, a two-way trade once worth more than $200bn a year.

As Anthony Albanese says, it will take some movement from China on the issue of tariffs for any real step forward to occur.

China’s tariffs on wine, barley and its informal action on exports of Australian coal, lobster, meat and other products have hit some companies in these sectors hard and encouraged a renewed focus on exporting to other countries.

Infant food company Bubs Australia, which was originally set up with a keen eye on the China market, has become a poster child for diversification with its new high-profile US export deals.

But as other companies have found, the sheer size of the Chinese market for their products and the appeal of Australian products to Chinese consumers dwarf most other potential markets.

Australia’s largest wine company, Treasury Wine Estates, has steadfastly maintained ties with China, despite being hit by tariffs on its wine exports from Australia in November 2020.

It responded to the tariffs by exporting its Penfolds and other brands from California, Europe, South Africa and South America into China while recently announcing plans to make Penfolds in China and become part of the nascent wine industry there.

TWE chief executive Tim Ford this week has cautiously welcomed last weekend’s meeting of Defence Minister Richard Marles with his Chinese counterpart, Wei Fenghe, describing it as “encouraging to see discussions between the two governments for the first time in several years”. Ford told The Australian: “We are hopeful of a restoration of the Australia-China relationship over time.

“We have found that business-to-business relationships continue to be constructive, recognising that collaboration and partnerships are important to building trust. Our commitment to China has never wavered.

“We remain optimistic about our ongoing, long-term commitment to the Chinese market, as ­evidenced by our continued ­investment in our local team and deepening relationships with the industry and our customers as we explore fine winemaking in China.”

While many in the Australia-China trade have become publicity-shy, given the sensitive political issues, the fact China has remained Australia’s largest trading partner, despite a severe deterioration in political ties, shows the power of the complementarity in the two economies.

“The Australia China Business Council and the business community is relieved and heartened that common sense has finally prevailed,” ACBC president David Olsson, China practice consultant with law firm King Wood Mallesons, told The Australian this week.

But he warned it was “still early days”. “A lot depends on what happens next,” he said. “We need to be clear-eyed about the challenges ahead.”

One of the big tests will be if there can be a meeting between Australia’s new Trade Minister, Don Farrell, and his Chinese counterpart, Wang Wentao.

It was significant the two did not meet during Farrell’s visit to Geneva this week for the ministerial meeting of members of the World Trade Organisation.

Iron ore exporter Fortescue Metals Group chairman Andrew Forrest is keeping a low profile on iron ore issues and Australia-China ties, focusing his public ­attention on his push for green energy.

China has little choice at the moment but to buy Australian iron ore but the big swing factor is food and agriculture, where there is significant potential for more co-operation as northern NSW beef farmer Robert Mackenzie – who has visited China 14 times – can testify. He wants to sell his high-quality Angus beef to China and the Chinese customers he had until the market was effectively closed to him last year still want to buy from him.

Last month before the election, the ACBC held a half-day Australia-China Agribusiness summit in Melbourne. Partly sponsored by supermarket giant Coles, its speakers included Mark Allison, the chief executive of agribusiness company Elders; Jason Strong, the managing director of Meat and Livestock Australia; Laura Mattiazi, regional general manager agribusiness with Westpac, as well as executives from Coles, Dairy Australia, the Costa food group, which has operations in China’s Yunnan province, and Austrade.

The combination video and in-person event also included China’s consul-general in Melbourne, Long Zhou, executives from China’s Bright Dairy & Food Co, and the China Meat Association. The summit showed the ongoing desire for business-to-business co-operation with China at a time when political ties were at a 50-year low.

Olsson described the May summit as “a powerful reminder that cross-border, people-to-people engagement between industry and enterprise is the foundation of our bilateral engagement with China”. Keen to look for non-politically sensitive common ground on both sides, the ACBC has ­chosen climate change as a potential area of co-operation and ­discussion.

It is developing what it calls a “green channel”, which looks for ways of business-to-business co-operation in areas such as green energy and clean-energy technology. Summing up the mood on that day, Coles executive Will Mullholland said the idea of the green channel of co-operation “was the first step in a long journey towards closer cross-border collaboration and greener food”.

Olsson says there are other ­potential areas of co-operation, including on the future of the WTO and the “rules-based order”, China’s application to join the new-look trade agreement with the CPTPP.

It’s a long way back to the heady days of 2019, when there was trade in agriculture, resources, tourism and education.

As the Prime Minister says, it is China that has changed substantially under a much more nationalistic president, Xi Jinping, who is now 10 years into the job.

However, the May election at least saw a change of tone from Australia with a government far more proactive on the regional diplomatic front.

But as the Chinese proverb says, “A journey of a thousand miles begins with a single step”.