Exporting to China

Since 2009, China has been an irreplaceable trading partner for Australia due to its demand for mineral resources and agricultural products.

In fact, China is by far Australia’s largest trading partner contributing $235 billion worth of imports & exports in 2018-19, compared to the Five Eyes partners’* $137.4 billion. *Five Eyes partners refers to Australia, New Zealand, US, Canada and UK.

In 2019, 38% of Australia’s two-way trade was with China. This makes it almost impossible to disconnect the economic relationship with China. Indeed, Australia’s resource exports to China are likely to continue to grow. These figures show how much Australia’s economy relies on China.

Can the Chinese market be easily replaced?

“There are no other options that come anywhere near to making up China’s number”. Professor Jane Golley, Australian National University

Jane was quoted in a BBC online article discussing Australia’s economic reliance on China. To investigate this, let’s look at Australia’s top two-way trading partners and foreign investment.

Australia’s top 10 two-way trading partners 2018-19

Rank	Trading partners	Goods ($ billion)	Services ($ billion)	Total ($ billion)	% share
1	China	213.0	22.0	235.0	26.4
2	Japan	81.4	7.1	88.5	9.9
3	United States	48.7	27.7	76.4	8.6
4	Republic of Korea	38.0	3.4	41.4	4.6
5	Singapore	21.4	11.3	32.7	3.7
6	New Zealand	17.8	12.8	30.6	3.4
7	United Kingdom	15.1	15.2	30.4	3.4
8	India	21.1	3.7	25.1	2.8
9	Malaysia	21.4	3.7	25.1	2.8
10	Thailand	20.7	4.0	24.7	2.8

Goods

($ billion)

Services ($ billion)

Total ($ billion)

% share

Total top 10 trading partners

498.8

116.3

315.1

69

Total two-way trade

692.9

198.7

891.6

100.0

Source: DFAT Trade and Investment At A Glance 2020

Foreign investment in Australia

Australia relies heavily on foreign investment. China ranks only ninth as an investor in Australia, with a 4% share of total foreign direct investment. Compared to the well-developed countries, China is relatively slow in outward foreign direct investment (OFDI). Most of the increase in China’s OFDI has taken place since 2000 when China officially initiated a ‘go global’ strategy to promote its OFDI. We have reason to believe that China is progressively increasing its OFDI. Hong Kong ranks fifth on the list. FDI from China together with Hong Kong cannot be ignored.

Australia’s top 10 investment sources 2018

Rank	Country	Direct investment ($ million)	Total investment ($ million)
1	United States	214,291	939,476
2	United Kingdom	98,747	574,788
3	Belgium	5,380	316,902
4	Japan	105,898	229,346
5	Hong Kong^#	16,350	118,761
6	Singapore	28,025	85,402
7	Netherlands	49,262	81,491
8	Luxembourg	8,918	78,439
9	China	40,105	63,588
10	France	28,741	50,193
Total all countries		967,505	3,514,406

^#Special Administrative Region of China

Source: DFAT Trade and Investment At A Glance 2020

Politically, there is evidence of push-back to Chinese investment recently. A $600 million deal to sell the maker of Pura milk, Dare iced coffee and Yoplait yoghurt to a Chinese company has been terminated, after Treasurer Josh Frydenberg announced the sale was “contrary to the national interest”. But the Treasurer did not provide any further information expanding on his concerns or explaining how the deal would damage Australia’s interest.

Nevertheless, FDI is not the short-term solution to the collapse of Australian economy due to COVID-19. The Bureau of Statistics confirmed the June quarter GDP went backwards by 7% together with the March quarter 0.3% decline, meaning Australia’s economy has gone backwards for two consecutive quarters. Australia is officially entering a recession.

Can Australia survive without China? The answer is in the numbers.