New optimism about China trade but dispute shows importance of diversification

At a dinner in Sydney on Tuesday night several business leaders met with the former Chinese ambassador to Australia, now the Deputy Foreign Minister, Ma Zhaoxu, making the first visit to Australia by a senior Chinese Minister since 2017.

Those at the table – many of whom had known Ma from his former days as ambassador – discussed the importance of boosting trade between the two countries, maintaining personal links and keeping open avenues of dialogue which were largely shut down for several years.

Those in attendance included former federal Minister and business adviser to Kerry Stokes, Warwick Smith, a former chair of the Australia China Council; former Australian ambassador to China and company director Geoff Raby; former federal Minister for Trade and now business consultant Andrew Robb; the chief executive of the Group of Eight top universities Vicki Thomson; King & Wood Mallesons Australian chair David Friedlander; the national president of the Australia China Business Council David Olsson; ACBC national vice president Jingmin Qian; and ANZ economist Richard Yetsenga.

Ma spent the day on Wednesday in Canberra in discussions with Department of Foreign Affairs officials.

The dinner, and his visit, come at time of improving trade ties between the two countries amid ongoing tensions over other issues such as the use of the Chinese-owned social media platform TikTok and Australia’s membership of the AUKUS partnership with the US and Britain, as well as concerns over China’s intentions in the waters around Taiwan.

Olsson was upbeat about the dinner, described it as an “historic meeting” that reflects “a pivot point in an improved bilateral relationship between Australia and China”, which “reflected a new approach by Beijing in the management of its relationship with Australia”.

Ma Zhaoxu’s message, he said, was “crystal clear: China is ready to move forward”.

“His mission in Australia is to help drive forward the relationship in a more sustainable way in the future – building on the desire expressed by PM Albanese and President Xi at Bali last year to improve the relationship.”

The visit comes as contacts are increasing on both sides, with trips to China in recent weeks by Australian business people and representatives of universities to China and now travel to Australia by Chinese officials and business people.

Those who have travelled to China recently include Fortescue Metals executive chair Andrew Forrest, Fortescue Future Industries chief executive Mark Hutchinson, Treasury Wine Estates chief executive Tim Ford and Blackmores chief Alastair Symington. Many have not been there for more than two years.

“We are starting to see a return to a normalised relationship – one characterised by diplomacy, government dialogue, business to business conversation and social and cultural exchanges,” says Olsson.

The news of progress in the dispute between Canberra and Beijing on the tariffs imposed on Australian barley has given hope to local farmers whose product is still valued by Chinese beer makers. The agreement by China to take another look at the tariffs on barley has also given hope to wine makers who would love to re-enter the China market, which has been closed to them over the past few years due to tariffs of more than 200 per cent.

And, in another example of how fast things can move fast in China, NSW beef farmer Robert Mackenzie, a long enthusiast of selling high quality Angus beef to China, found himself playing host to three Chinese women from the state-owned Sichuan Port and Shipping Investment Group over the Easter weekend who had come to check out his farm, paving the way for beef sales once those issues are resolved.

Those keen to sell their wares to China – one of the biggest markets in the world for products such as iron ore, beef, wine, barley, coal and educational services – are eager to see a removal of the official and unofficial trade sanctions.

The bans were imposed from around 2018 in the wake of the deterioration in the political relationship under the previous government and there is also a hard-headed realisation that the relationship will not be going back to what it was in the past.

Even Olsson, who is usually based in Hong Kong and is a regular visitor to China, admits that the relationship on many fronts will not be the same as it was before the pandemic.

While business does not need lectures on the risks involved with global trade, there is a clear message – even under the Labor government – of the importance of not putting so many eggs in the China trade basket as Australia has done in the past.

The chief executive of wine industry body, Australian Grape and Wine, Lee McLean, was understandably hopeful that this week’s agreement for another look at the tariffs imposed on barley could lead to a lifting of tariffs on Australian wine.

In its heyday, China was the biggest market offshore for Australian wine, a trade worth more than $1.2bn a year and rising, before tariffs were imposed.

McLean says Australian wine companies have been keeping up good relations with their former customers in China in the hope that the tariff issue might be resolved.

“There is still strong demand for premium Australian wine in China,” he says.

But he doubts that, even if the tariffs were dropped, there would be a return to a trade of $1.2bn in the near future.

“We have been out of the market for a couple of years,” he says.

Other nations like Chile and France have stepped up their wine sales in the China market.

But McLean also warns that Australian companies going back into China have learned the lessons of trade sanctions imposed on some $20bn worth of exports – from coal to beef, wine, barley and lobster.

“There is a risk premium that some businesses will be placing on that market,” he says. “Companies will be looking to spread their risk across more markets.”

This is the clear message being delivered by the Albanese government, including Foreign Minister Penny Wong and Trade Minister Don Farrell this week.

A similar message about the importance of trade and investment diversification was delivered at the meeting of state and federal trade and investment Ministers in Townsville on Wednesday.

As those like Olsson and Forrest argue, there are significant new opportunities for Australia-China co-operation such as green energy and climate change.

The basic complementarity between what Australia has to sell and what China wants to buy (and vice versa) will drive a new wave of trade once barriers are lifted, but lessons have been learned, times have changed.

Trade with China brings many opportunities but it comes with an evolving risk premium which each business will need to evaluate.