Exports from Australia to China increase

Exports from Australia to China increase

The value of Australia's exports to China has grown 24 per cent year-on-year, reaching more than $180 billion ($135 billion), according to the latest August data from research firm Oxford Economics. Monthly data showed that goods arriving in China hit a record high of A$19.4 billion in July, up 72 percent year-on-year, according to Reuters.

Relations between the two countries have deteriorated since 2020, after Australia backed a  global call to investigate China's handling of the first Covid-19 outbreak. 

Since then, tensions have turned into sanctions on Australian goods. The sanctions range from imposing tariffs to imposing other bans and restrictions, affecting Australian commodities such as barley, wine, beef, cotton and coal.

"Australia's increasingly strained trade relationship with China is the main risk to the outlook for the past year," said economist Sean Langcake at Oxford Economics. from Australia were imposed and continuously escalated as diplomatic tensions increased."

Oxford Economics noted on October 22 that despite the tensions, overall, Australia's exports to China have increased significantly. Australia is one of the few developed countries can achieve  a trade surplus with China, the largest trading partner of this country.

Iron ore boosts export growth

As key figures show exports skyrocketing, the bulk of that increase is iron ore, a commodity on which China relies heavily on Australia.

According to analysis by investment strategist Neil Newman on SCMP, Australia's mining activity is not driven by domestic consumption but rather exports abroad, with about two-thirds of Australia's total export revenue in the past year. 2020 comes from minerals shipped abroad. In 2020, iron ore alone accounted for 41% of total exports with a value of about AUD 149 billion.

“Record iron ore prices and strong demand for steelmaking inputs in China accounted for most of this increase,” Langcake said.

However, according to Neil Newman, 2021 has seen big changes, when China is no longer interested in importing iron ore, copper and coal from Australia. Partly due to the risk of default of Chinese real estate giants such as Evergrande, Sinic and Fantasia causing ghost cities to begin to be demolished, freeing up large amounts of iron and steel to be recycled. On the other hand, China has seen new opportunities in abundant supplies such as Central and West Africa.

 

Iron ore from China at a port in Tianjin, China.Photo: Reuters

However, in the field of food exports, some products go against this trend. Mr. Langcake said live meat and animal products remained stable and were exported to China despite the restrictions. According to Oxford Economics, the worst-affected commodities include timber, seafood, beverages, cooking oil, coal, fabrics, footwear, grains and sugar.

Australian officials have criticized China for its trade sanctions. In a statement to the World Trade Organization (WTO) last week, Australia said: "China says these actions legitimately reflect trade concerns, but more and more additional information is available. demonstrate that China's move is motivated by political reasons".

According to Reuters, on October 27, the WTO said it had agreed to set up a panel to review China's tariffs on Australian wine imports.

Australia finds a new direction

Expert Neil Newman says it's too dangerous to rely on a single client in business or finance. He said Australia needs to find a way, either by rebuilding the manufacturing industry, creating semiconductors or a new strategy, replacing the revenue streams that disappear when exports slow down.

Despite the sanctions, Australia is trying to redirect its exports of banned goods to other countries , according to Oxford Economics.

"If faced with barriers to exporting to China, the key question throughout this period for exporters is the ability to shift to alternative export locations," Langcake said  . is that we find evidence of a fragmentation in trade, not a collapse in exports."

One example is coal. Although China's worst electricity crisis in years was caused by a coal shortage, China maintained restrictions on Australian coal. Australia has increased coal exports to India, Japan and South Korea.

Refer to CNBC, SCMP

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