This article was authored by APCO’s Beijing office intern, Ciara Morris.
Current Challenges in Sino-Australia Relations
For decades, Australia has prospered from an interdependent positive commercial relationship with China. Australia was one of the first OECD countries to recognise the enormous business opportunities in the country and was an early destination for Chinese investment. The high point was marked by the successful adoption of the China-Australia Free Trade Agreement (ChAFTA) in 2015. ChAFTA provided Australian businesses with major advantages over competitors in agriculture, resource commodities, pharmaceuticals, among many others. Together, Chinese trade and investment fuelled Australia’s record growth until recent times.
Since 2017, the bilateral relationship has taken a nosedive, with amplifying concerns about Chinese state-owned enterprises seeking strategic Australian assets, worries that Australia has become too dependent on one export market, and instances of China employing economic coercion when the relationship hits troubles. This has been made more complex by the growing pressure to “take sides” in the spiralling decline in U.S.-China relations and, most recently, the COVID-19 pandemic.
As things stand, the Australian Foreign Affairs Minister has not spoken to her Chinese counterpart since January, and China’s Foreign Ministry has accused Australia of politicising COVID-19 by the manner in which it advocated for an “independent” inquiry into the origins of the pandemic. At the same time, China has imposed tariffs of up to 80% on over AUD 600 million (USD 441.4 million) worth of Australian barley, launched several trade investigations on Australian beef, and announced an anti-dumping probe on Australian wine. This has impacted over AUD 1 billion (USD 735.6 million) worth of trade and placed thousands of jobs under threat. Beyond trade, we have seen the alarming detention of an Australian journalist and tit-for-tat raiding of journalists on both sides in a “diplomatic standoff.” China has also warned against rising hostility towards its students in-country, risking billions in revenue for Australian universities.
The latest COVID-19 impact report from the Australian Chamber of Commerce (AustCham) shows that 72% of 87 Australian businesses surveyed see the top risk facing their business as “tensions in Sino-Australia relations”, causing uncertainty and an inability to make decisions. However, despite this tense climate, Australian products and services remain attractive to Chinese consumers. China’s share of Australian exports reached an all-time high of 48.8% in August, driving the 30th consecutive monthly trade surplus to AUD 8.2 billion (USD 6 billion). Overall Australian trade with China is up almost 4% year-on-year to AUD 74.2 billion (USD 54.6 billion), driven by increases in the iron ore, wool, and grain sectors, supporting Australian producers through the pandemic.
Opportunities for Australian Businesses
China’s dual circulation model, unveiled at the 2020 Two Sessions meeting, is a re-focus on domestic drivers of growth such as increased consumption, whilst at the same time relying on building a stable foreign trade and investment environment. This presents opportunities for foreign businesses to contribute to China’s economic recovery, as the government aims to sustain growth by reducing corporate burdens, providing jobs, and continuing its program of alleviating poverty. Australian businesses can continue to be a voice for pragmatic engagement with China, bringing economic benefits to both countries, even during times of political tension.
Unlike the U.S., Australia is export dependent and has strong economic complementarity with China, demonstrated by its trade surplus. More than 70% of Australian exports to China are resource commodities that are vital for China’s steel construction and other industrial sectors central to its post-pandemic economic recovery. In the services sector, Australian education and tourism will remain attractive to Chinese consumers because of objective quality factors as well as the geographic, historic, and cultural connections between Australia and China. These realities should enable Australian businesses with the right strategy to survive and even thrive in a post-COVID-19 Chinese economy.
Australian businesses should consider pursuing a comprehensive public affairs and communications strategy to help them navigate these rough waters and maximise medium-long term advantages in the China market. Below are some high-level recommendations:
1. Align Your Business with Key National Priorities: Businesses should keep a watchful eye on the upcoming publication of China’s 14th Five Year Plan (2021-2025) and look to identify synergies with key development priorities. This can be used as a blueprint to pursue areas of opportunity and mutual benefit, as well as develop coalitions within industry segments to facilitate more effective engagement with government stakeholders.
2. Identify and Engage Key Chinese Stakeholders: With commercial relations more important than ever to the bilateral relationship, now is the time for Australian businesses to deepen their understanding of partners, clients, suppliers, and customers in the market. Specifically, companies should dedicate time to mapping out key political and commercial stakeholders in China, and assess how they can engage and build long term strategic relationships with these groups.
3. Assess and Address Potential Risks to Company Supply Chains: It is essential that Australian businesses keep abreast of the major political and economic developments both in and outside of China. These include national policies alongside actions by foreign governments, including U.S. export controls and multiple nations reassessing their commercial relations with Hong Kong. Businesses should assess how these geopolitical and economic shifts could impact their China supply-chain and take proactive steps to ensure the efficient continuity of operations.
4. Conduct an Internal and External Communications Audit: With divergent narratives in both Australian and Chinese media, now is a critical time for Australian businesses to refresh their external messaging to investors, consumers, and media stakeholders, as well as internal communications, to ensure it is sensitive to new political and economic conditions. Businesses need to be especially sensitive to how a message lands in China compared to their home market.
5. Engage the Business Community: Along with maintaining close links with the Australian diplomatic network in China, there are multiple organisations that act as forums for networking and dialogue for Australian businesses, such as AustCham, the Australia China Business Council, the Business Council of Australia, the Australia China SME Association, and the Australia-China CEO Roundtable, to name a few. They are especially useful for identifying business sentiment on the ground.