The business ties that bind: focusing on trade dialogue will ease tensions with China

The Australian embassy in Beijing in 2017 with banners marking 45 years of diplomatic relations. Source ATN via Twitter

At the Australian embassy in Beijing on Saturday night, some 500 Chinese students and their family members celebrated their graduation from Australian universities.

The celebration, organised by the China-Australia Chamber of Commerce (AustCham China), was a testament to the fortitude of the students, most of whom have spent the past two years trying to finish their degrees online, unable to be in Australia because of Covid-19 travel restrictions.

Commenting on the event, AustCham China chief executive Nick Coyle said it was his “sincere hope they will all go on to make their families proud and to continue to enrich the already close and warm China-Australian business and people-to-people ties.”

It was a world away from the events in Washington, where Prime Minister Morrison was hailing the first meeting of AUKUS as an organisation which could be prepared to counter the rise of China, as well as the first in-person meeting of leaders of “the Quad” – Australia, US, India and Japan.

In the thorny thicket which is Australia-China relations as of 2021, Coyle is right – despite political tensions and Chinese official and unofficial action against Australian imports such as barley, wine, coal and beef, there is still considerable goodwill on both sides when it comes to business to business relations and people to people ties.

Unable to return to Australia to complete their studies, thousands of Chinese students have diligently continued to study online.

Just what is the future is yet to be determined. Chinese students are not in the first batch of overseas students now under consideration to return to Australian campuses as Covid-19 travel restrictions gradually ease, apparently due to the fact that Australian authorities do not recognise the efficacy of the two main anti-Covid-19 vaccines made in China.

At its height, in calendar 2019, according to the Australian Bureau of Statistics, Australia education exports to China generated some $12.7bn in student fees and living expenses.

Interestingly, despite the travel restrictions due to Covid-19 and political tensions, the figures held up remarkably well last year, generating export income of some $7.6bn.

Australian government data showed that last year there were 160,000 Chinese students studying at or with Australian universities, only slightly down on the 164,311 in 2019.

The total number of Chinese students starting new courses which was running at 54,220 in the year to July 2019, fell to 40,110 in the 12 months to July last year. But it actually rose slightly to 40,224 in the 12 months to July this year.

Given all the obstacles, it is a testament to the popularity of Australian education and the fact that again — despite all the political tensions — Chinese students still seem to be interested in Australian universities.

While Chinese investment into Australia has declined in recent years, partly due to increased foreign investment restrictions — and exports to China such as tourism and education have been hit by Covid-19 restrictions — some other sectors of Australia-China trade, which was once running at a record $200bn a year, have held up reasonably well — so far at least.

The high prices of iron ore, Australia’s major export to China, has helped to boost export figures. Future trade statistics may show a different story as the slump in iron ore prices, from $US200 a tonne in May to below $US100 this month, flows through into export data.

The barley trade has dried up, but wheat sales have been strong, with Reuters reporting a few days ago that China was “snapping up cargoes of Australian wheat” in the wake of a global shortfall in output.

Separately, China watchers around the world are watching the Biden administration closely.

The White House denies there was a “deal” to exchange Huawei chief financial officer Meng Wanzhou for two Canadians who had been arrested in China soon after her arrest in Canada in December 2018 — a line which few believe.

Subsequent events are leading some to wonder if there might be other measures underway to cool China-US tensions.

The South China Morning Post this week broke the story of discussions between Wall Street veteran, John Thornton, the former head of Goldman Sachs who is now the executive chairman of Barrick Gold, who travelled to China earlier this year meeting senior Chinese officials.

According to the report, Thornton relayed a message to Chinese officials that there were opportunities for China and the US to sit down and discuss trade and for some repairing of relations as a result of personal ties between Presidents Xi and Biden.

More significant are the comments made in an interview with the Wall Street Journal and in other media by US Commerce Secretary Gina Raimondo.

Raimondo talked about wanting to lead a delegation of US business to China to push for more access to the China market.

“Once travel opens, Asia and China are very important markets,” she said, confirming her desire to lead a trade delegation to the region.

“The Chinese market is huge and growing,” she said.

She criticised China for “not living up to the rules” including not living up to its agreement to buy more US goods under Phase 1 of the trade deal with the Trump administration.

“They rip off intellectual property. There are all kinds of barriers they put in place which prevent American businesses from accessing that market.

“I plan to be a forceful advocate on behalf of American business and to ramp up my direct engagement with my counterparts in China and bring businesses there.”

She strongly rejected the idea that the Chinese and the US economies should decouple.

“I don’t think that is an option. The size and scale of their economy is such that we need access to that market, and they need and want access to this market.”

“We need robust commercial engagement with China that does not, in any way ever, compromise our national security.”

She said the US was prepared to take on China when it came to unfair trade practices including dumping steel and aluminium, but she declared that “we need to do business there. That is something which is an economic fact.”

“Robust commercial engagement will help to mitigate any potential tensions. If we can continue our commercial engagement, it will help prevent unintended conflict which can come from lack of communication.”

Raimondo is being criticised by China hawks in the US, but she is making it clear that US business still wants to trade with China and that the Biden government can want more trade with China while still having concerns over issues such as security.

Hosting a graduation for Chinese students at the Australian embassy at a time when political relations are at rock bottom highlights the complex ties with the world’s second largest economy.