Political peace with China ‘takes time’

Australia will continue to benefit from a strong Chinese economy, but it will take time for political ties to improve, says UBS China head David Chin.

“It will probably take some time for the China-Australia relationship to resettle,” says UBS China head David Chin. Picture: Supplied

Australia will continue to benefit from a strong Chinese economy, but it will take some time for political ties between the two countries to improve, says UBS China head David Chin.

Mr Chin said it was “unfortunate” that national security concerns had blocked Chinese bids for Australian companies in non-sensitive areas such as mining, agriculture and dairy.

“It is very unfortunate that these have been caught up in national security concerns,” he said.

He was speaking from Hong Kong after the federal government blocked another takeover bid by a Chinese company — a $300m offer for the Australian arm of South African-owned construction company Probuild by China State Construction Engineering Corporation. This follows Canberra’s move to block a bid for Lion Dairy and Drinks by China’s Mengniu.

Mr Chin said he expected that there would not be any improvement in the China-Australia political relationship in the short term.

“It will probably take some time for the China-Australia relationship to resettle,” he said.

But he was “very hopeful” that relations could be repaired over time as the two countries had “a lot to complement each other” as evidenced by the strong levels of trade leading into the pandemic.

“The Chinese and Australian economies are non-competitive,” he said. “They complement each other very well.”

He said that Australia did not have any of the historical legacies of other countries much closer to China such as Japan, India, Vietnam and South Korea, which had long-term effects on the political relationship.

Mr Chin said UBS expected the Chinese economy to record strong economic growth in 2021, which would see continued strong demand for Australian iron ore.

“By most estimates we will see GDP grow at close to 9 per cent,” he said.

The year ahead would also see continuation of strong exports from China to the rest of the world as well as a robust domestic consumption sector.

Exports from China had remained strong as it was still seen as one of the few sources for exports of some products such as personal protective equipment.

“The export side has been very strong in 2020 and will continue into 2021,” Mr Chin said.

“A lot of the countries in the world are still disrupted. China is the only source of exports in some of the key areas such as PPE.

“Like it or not, many countries will continue to source exports from China.”

At the same time domestic consumption in China was playing a key role in its economic growth.

“The domestic consumption theme is unstoppable.

“The rise of consumption on the domestic side gives me a lot of confidence in the rise of China,” he said.

He said he expected the continued strong growth of the Chinese economy this year would see a strengthening of prices of commodities including gold, aluminium, iron ore and steel.

“That will be helpful to Australia,” he said.

“There might be much less room for growth (in demand) but demand will still be strong.”

He rejected suggestions that China’s continued strong demand for Australian iron ore was due to stockpiling.

He said China’s growth would still depend on its ability to manage the COVID pandemic.

“I am cautiously optimistic that China can get out of this still ahead of the pack,” he said.

Mr Chin said the rise of middle class consumers in China would continue to attract foreign investors such as US electric car company Tesla, Starbucks, European car companies and cosmetics companies from Japan and South Korea.

“Tesla is producing in China and looking to make a big splash,” he said.

“The car companies around the world are looking to China as one of their big growth markets of the next five to 10 years.

“In other areas like insurance products and cosmetics, the domestic consumption theme in China is going to be more and more important.

“All these companies will set up shop in increasing capacity in China.”

Mr Chin said he was confident China would continue to open up its economy to foreign investment, as evidenced by the recent agreement between China and the European Union.

He expected that relations between the US and China would become calm down under a Biden administration, which would focus on domestic issues, particularly managing the COVID crisis in the short term.

“There will be a relatively calm period in the period post the inauguration,” he said.

But he did not expect any “sudden reversal” of the US position on China.

“There are a lot of hawks out there and Biden will not want to appear to be weak,” he said.

He said he expected “a more systematic playing by the rules” under a Biden administration.