International trade: Can Australia survive economically without 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 20.7 116.3 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.

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