Coface report looks at China and Australia’s trade relationship

HONG KONG SAR – Media OutReach – 14 April 2021 – The China-Australia bilateral relationship
deteriorated sharply over 2020, with China imposing both formal and informal
trade restrictions on a number of Australian exports, including coal, barley,
beef, wine, cotton among others. However, Coface expects that Australia’s GDP
to be back to 2019 level as soon as this year. But there are growing concerns
that an escalation of bilateral tensions will see China hardening its stance
towards Australia and possibly start targeting Australian services exports,
particularly in tourism and education which could see 2% of Australia’s GDP at
risk.

 

The reasons for bilateral tensions between China and
Australia

The China-Australia bilateral relationship is multi-facet, ranging from
national security, economics and trade to foreign policy and domestic politics.
Trade relations between China and Australia deteriorated when Australia’s
Anti-Dumping Commission extended anti-dumping duties on Chinese stainless steel
sinks on 28 February 2020 following an investigation into Chinese aluminium
extrusions. Between March and July last year, there were a further eight
anti-dumping actions against Chinese products, such as steel[1].
On 19 April 2020, Australia pushed for a call for an investigation into the
origins of coronavirus, adding to pressure on China over its handling of the
Covid-19 outbreak. During May 2020, China imposed anti-dumping and anti-subsidy
duties on Australian barley imports into China, citing investigations that
started in 2018. China subsequently imposed tariffs on other Australian
exports, such as wine, as well as formal and informal bans on products ranging
from beef and timber to cotton and coal.

 

A resilient Australian economy

With China taking more than
one-third of Australia’s total exports, rising trade tensions are seen as a
potential threat to Australia’s economic outlook. However, iron ore, the
mainstay of Australian exports to China, has been spared in the ongoing trade
dispute, due to a lack of suitable alternatives. Meanwhile, despite China’s
trade action, the Australian economy continued a solid recovery from the
pandemic, registering two consecutive quarterly GDP growth in the second half
of 2020 as business conditions move towards normality following an easing of
containment measures.

 

Bilateral relations
may worsen further

Chinese trade restrictions
so far have a muted impact on the broader Australian economy due to two main
factors: first, the ability of some affected sectors to find alternative
markets, such as Saudi Arabia for barley, and Southeast Asian countries for
cotton, and second, top exports such as iron ore and natural gas were not
targeted by China. With both sides interpreting the dispute through the lens of
national sovereignty, the situation is unlikely to improve any time soon. We
expect Australia’s GDP to be back to 2019 level as soon as this year. Future
development of China-Australia tensions will be closely monitored by Asian
countries for guidance as to the extent of economic damage potentially suffered
should they be caught in a similar situation. Furthermore, amid the ongoing
strategic competition and political differences between the US and China, Asian
countries will be hard-pressed if they are forced to choose between the two
sides.

 

The full study is available here.