Australia’s risk from China in trade
Executive Summary
In this paper we will discuss on the trade relations of China with Australia. The country from which Australia can face the most risks is China which is presently the largest business partner in iron ore exports. But, it was due to Australia’s support toward the United States decision towards a call for inquiry on the mismanagement of China in handling coronavirus; the Chinese embassy has threatened the government of Australia by handing them a list of grievances to Canbe
a. Also there were several harsh steps initiated by China towards Australia through restrictive trade policies due to which the Australia’s exports and GDP suffered in 2020. But, there was no restriction imposed by China on import of iron ore from Australia. So, if Australia wants to get tough, it will be export of iron ore which they can restrict. We will try to analyse more on the background of China’s economy, political and regulatory norms presently applicable in the country.
Introduction
China is the biggest trading partner of Australia. Australia’s exports to China are more than its imports. China’s export is one-third of Australia’s exports. It’s the iron ore which is exported by China from Australia at large. Due to the ongoing trade and bilateral tension between the two nations combined with the impact of covid-19 the trade started to decline significantly from the first half of 2020 (Pete Carpenter, 2021).
The present trade disputes between China and Australia is with respect to the restrictions on trade imposed by China and war of words. In the year 2020, the bilateral relationships between Australia and China have deteriorated sharply. This was due to formal and informal trade restrictions on several trade exports of Australia which consisted of lobsters, timber, beef, cotton, coal, cotton and barley. On the contrary any reciprocal restrictions in the form of increase in tariffs on the Chinese imports could damage the trade relationships with Australia and China further (Coface, 2021).
The relationship between China and Australia deteriorated as a result of Australia’s supporting a call for an inquiry in handling of the covid-19 pandemic by China. Subject to this issue China threatened Australian embassy by handling over a list of grievances to Canbe
a. China took several measures which will hamper the trade with Australia like imposing bans, levying high tariffs and restriction on many imports (Pete Carpenter, 2021).
Also, there are raising concerns for Australia as China is trying to harden their stand by targeting the service exports of Australia. This risk will impact the Australian education and the tourism industry which could reduce the GDP of Australia by 2%. Due to this trade disputes it has cost Australia $3 billion loss in exports. It can harm the national sovereignty of the two nations at risk with both the countries engaged in disputes on trade and bilateral issues.
Background of China’s Business Environment
Economy: China’s economy remained unaffected due to restrictions imposed by them on the imports over Australia. This is due to the fact that the Australia’s imports to China consists of less than 1% of China’s GDP which suggests that the recent Chinese trade actions on Australia by restriction imports of coal, timber, lobster, wine, cotton etc. will have minimal impacts on Chinese economy. The growth rate of GDP in China was 2.3% in 2020 despite the impacts of covid-19. In the year 2021, the analysts predict the rate of GDP in China to be 6%. After restricting the imports from Australia on items like coal, China was able to diversify the affected imports of coals from alternative market by purchasing coals from US. They also purchased beef from Argentina at higher prices. The cotton imports by Chinese farmers were done by enhancing the demands of Vietnam, Thailand and other Asian countries. China has also find an alternative for its wine imports by increasing the purchase of wine from the two big markets of wine which are USA and UK. Finally, the imports of barley in China were replaced by purchasing barley from countries like France and Canada (Saheli Roy Choudhury, 2020).
Political: The overall situation of China under the leadership of President Xi Jinping. The Chinese government in order to make alterations in the terms and conditions of its foreign policy reinforced its official political rhetoric and rule. The changes were made in the foreign policy keeping in mind the weak global demand and strained foreign relations. As per the new foreign policy importance is given to upgradation of the domestic markets and intensifying the calls for economic self-sufficiency. In 2020 & 2021, the most important challenge for China is to control the impacts of covid-19 on its businesses and trades (Nordea, 2019).
China’s present dispute with Australia is based on some vague issues which are complicated and are with respect to the sovereign rights which are unlikely to be resolved immediately. Also, the bonding between Australia and the US as a member of the Quad countries and its informal alliance with the US to contain China is expected to raise tension in the political relationship with Australia. Further, in June, 2020 there were warnings issues by the Chinese Ministry of Culture & Tourism for travelling to China along with Chinese Ministry of Education warning on Fe
uary, 2021 not to send Chinese students to study in Australia (Coface, 2021).
Regulatory: In 2020, the inflation in China was 2.4% and was very high compared to the previous years. Analysts state that the inflation rate is expected to decline to 1.2% in 2021 and 1.9% in 2022. The inflation rate is high due to huge public debts in China. The Institute of International Finance illustrated that the total stock of government debts, households and corporate in China is expected to increase 303% of the gross domestic products and will account for 15% of the global debt. The Chinese government is trying to cut the spending in its budget. Due to covid-19, the government spending on budget was -9.7% of GDP in 2020 compared to -5.9% in 2019. But, it’s the large reserve of foreign cu
ency which China has which amounts to $3.15 trillion as on 2020. The consumption rate has taken a hit mainly due to the impact of covid-19. There has been recovery in purchase of luxury goods and box office revenues but it’s the unemployment and the declining household income average the situation of which is not
ight (OECD, 2021).
References
Saheli Roy Choudhury, (2020); Here’s a list of the Australian exports hit by restrictions in China; CNBC; https:
www.cnbc.com/2020/12/18/australia-china-trade-disputes-in-2020.htmlc
Pete Carpenter, (2021); Intuition; Australia China Trade War and Its Implications; https:
www.intuition.com/australia-china-trade-war-and-its-implications
Nordea, (2019); China: Economic and Political Overview; https:
www.nordeatrade.com/en/explore-new-market/china/economical-context
Coface, (2021); COFACE REPORT LOOKS AT CHINA AND AUSTRALIA'S TRADE RELATIONSHIP; https:
www.coface.com/News-Publications/Publications/No-easy-end-to-ongoing-China-Australia-tensions#:~:text=The%20China%2DAustralia%20bilateral%20relationship,%2C%20wine%2C%20cotton%20among%20others.&text=and%20second%2C%20top%20exports%20such,were%20not%20targeted%20by%20China.