- The Australian economy relies on China in high percentages, resulting in having the strongest trade relationship.
- Since the early 2000s, Australia has been criticised for calling out China for its political decisions.
- Chinese investors saw an opportunity in buying properties on the Australian soil, escalating in the 2014-2018 period.
- Every year, the Australian educational system gets stimulated by billions of dollars spent directly from the Chinese students.
- The war began after Australian Prime Minister Scott Morrison backed scientific research about finding a real origin of the COVID-19 outbreak.
The successful trade relationship between China and Australia dates way back to the early 2000s. Ever since 2007, China has been Australia’s biggest trade partner. The countries were mostly collaborating when it came to exporting coal and other fossil fuels to China but also expanded to seafood and wool export.
Australia became even more reliant on China over the upcoming years. Importing over 8 million tons of barley (about half of the total production), China pays a lot of money for the main ingredient of beer and pig food on a regular basis.
Not only did it become the biggest importer of Australia, but China also contributed to the Australian economy by promoting and sending its students to Australian universities, making it one of the largest educational businesses in the world. So, the main question about the two countries’ relationship is, what caused China and Australia’s trade relationship to evolve into a trade war?
How it all started
It is no secret that China has not always been welcoming of Australian input. Former Australian Prime Minister Kevin Rudd called out China in 2008 for having unpopular opinions. At the time, China was resolving questions regarding human rights in Tibet, which left it in an undesirable position.
It was no surprise that China was not pleased with Rudd’s speech in Peking. It took them a year to forgive Australia for its indirect political saying, but the trade became the most successful than ever, leading to a free-trade agreement in 2015.
Later that year, Canberra decided to become a part of the Asian Infrastructure Investment Bank that was helping the infrastructure sector with financial aid. By doing that, Australia sent a message that it was supportive of their biggest trade partner, alongside building a relationship with America. Some experts argue that trying to build two associations at once cost Australia a great deal with China later on.
Many Chinese buyers wanted to get properties on Australian soil, as their relationship began to reach its peak. Having money and power, the Chinese caused fear within domestic people, because they were anxious about losing the privilege of buying houses on their land to foreign investors.
The property situation peaked in a 2014-2018 period when house prices rose so they could be less available to the Chinese people. Some Australian media outlets even went as far as proposing an anti-Asian policy. There were speculations about the increase of Chinese spy intelligence, but they were not proven, or at least publicly published.
Recently, there was news circulating in the Australian mainstream media that some Chinese investors bought more property on Sydney’s CBD, and that seemed to stir the old anger. The situation seemed to be worse for the people because the city’s CBD is empty due to the coronavirus pandemic, as more employees are urged to work from home.
Education and tourism
As Australian universities are globally famous, there are many international students that decide to move to the land down under. Even though that is a fact, Chinese students fill most of the university spots, bringing billions of dollars to the Australian economy.
In 2019, there were over 200k Chinese students that enrolled in Australian educational system across the continent. Many students from China are forced to move and study abroad because their universities do not have enough places for everyone.
What was most significant in 2020 was the coronavirus outbreak in the Chinese town of Wuhan. Australian close proximity to the centre of the pandemic and having many Chinese permanent residents currently living in Australia resulted in racist nature and calling coronavirus a Chinese virus.
Australian Prime Minister Scott Morrison backed Australian independent scientists that wanted to find out how the coronavirus originated, as well as many other world countries agreeing with the approach. That was the moment when China threatened to cut 80% of the trade ties with Australia, propagating that it is a racist country where Chinese people and students are treated with disrespect. After those harsh allegations, Australian officials made it clear that those accusations have no basis and are untrue.
As previously mentioned, Australia exports half of its barley harvest to China. After the independent research was announced, it was possible that farmers jobs could come at a risk, as China wanted to put barley import in danger.
Chinese Minister of Commerce Zhong Shan has not been answering Australian queries about the trade problem, leaving them in fear of what a highly likely war trade could mean for not only the Australian economy but also the people of Australia.
There seems to be a way out of this situation, but Australian companies do not like it. Over the years, they have been urged not to rely on China as much, but that has been hard because Chinese labour is significantly cheaper compared to Australian. The most obvious solution would be to find another trade partner, but that task is not as easy as it may seem to be.
The trade agreement with China is bigger than the rest of Australia’s partners combined. That puts its economy in a great danger in case China decides to pursue its plans in the future. Some experts suggest that India should be the next trading partner, with possible exports of A$45 billion by 2035. It sounds like a big number, but not when it is compared to the Chinese export figure, A$160 billion in total.
Another issue could be that Beijing is becoming more authoritative, compared to Canberra’s democracy. PM Morrison stated that Australia did not change its approach to China. He is aware that their partnership may be non-existent in a few years but is willing to accept new changes, as the pandemic started altering the world as we know it anyway.
There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.
Are you wondering if the year 2020 might not have taken the right start? Dividend stocks could be the answer to that question.
As interest rates in Australia are already at record low levels, find out which dividend stocks are viewed as the most attractive investment opportunity in the current scenario in our report.