The relief was palpable among business leaders in Australia when prime minister Anthony Albanese met China’s president Xi Jinping last week at the G20 summit in Bali.
The first bilateral meeting between the leaders of China and Australia since 2016 raised hopes that acrimonious tensions between the countries might be easing, leading to the eventual lifting of trade sanctions imposed by Beijing.
It will be two years this month since China’s shock and awe campaign was launched on the Australian economy. That followed a call by former Australian prime minister Scott Morrison for an inquiry into the origins of Covid-19, increasing tensions that had been building since Australia banned Huawei kit from being used in 5G networks.
Australian wine, barley, lobsters, beef and coal were among the products that were hit by tariffs, some as high as 200 per cent. The government has estimated that the move has cost the economy about A$20bn a year. It underlined Australia’s economic dependence on its largest trading partner.
Resentment towards Morrison and his administration grew among business leaders who feared that the geopolitical brinkmanship had backfired. Chief executives, off the record, would lament that national security concerns, while paramount, threatened to overwhelm an economic partnership that had not only boosted Australia’s terms of trade but was also a mainstay of domestic sectors including education and tourism.
But the Australian economy proved to be more resilient than had been feared. Iron ore, wool and gas were not hit by the sanctions, meaning many of Australia’s largest companies continued to benefit from Chinese exports.
The sanctions might also have spurred the diversification of Australian exports. China accounted for 42 per cent of exports in 2021 as the effect of the sanctions started to surface, but fell below 30 per cent in August, according to the Australian Bureau of Statistics, amid clear signs of trade expanding across the Asean region.
The need for such diversification was driven home after Russia’s invasion of Ukraine forced Australian companies to sever ties with sanctioned businesses and oligarchs. If Beijing launched a similar move on Taiwan, it would have a catastrophic effect on businesses still reliant on China’s markets, if similar sanctions were applied.
Albanese, elected in May as prime minister, was clear that the meeting with his Chinese counterpart was only a first step in improving relations. But the promise of further meetings and his statement that Xi had said the two countries had “highly complementary economies” was a cause for celebration among Australia’s business community.
Andrew Forrest, the ever vocal billionaire behind iron ore miner Fortescue, said the meeting represented “the groundwork for a much more positive relationship”.
Jennifer Westacott, chief executive of the Business Council of Australia, said the resumption of diplomatic relations was “hugely important” despite the complexity of the relationship. “That’s a very big signal to business. It’s a big signal to the rest of the world,” she said.
Whether the tentative steps towards a more stable relationship between China and Australia will reopen the trade barriers remains to be seen. Deliberations around the Asian country’s desire to join the trade pact known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership could provide further friction points. But the diplomatic freeze has clearly started to thaw.
For some Australian companies, the opportunity for growth in China has been too significant to wait for tensions to ease. One is Bubs, a baby formula company that has grown rapidly on the back of exports to China after an infant formula scandal there more than a decade ago opened the market to its imports. This year it has gone further and formed a joint venture to produce Chinese-labelled goat milk formula.
The Bubs company’s chair Dennis Lim, whose family sent him to Australia from Taiwan when he was 11 owing to fears China would invade the island, said the trade tension in the past two years had not deterred its high-risk expansion plan. “If you just sit there and read the tea leaves then you’ll never get anything done,” Lim said.
If Australia succeeds in convincing Beijing to end the sanctions, then the steady flow of Aussie lobsters to mainland China will no doubt resume. But the experience of the past two years should serve as a warning that a future geopolitically driven clampdown on trade could be even more painful.