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Australian-Chinese Economic and Trade Relations

Australian-Chinese Economic and Trade Relations

Introduction

The beginning of the XXI century was marked by the global economic crisis. It led to the rearrangement of emphasis in world politics by shifting the center of gravity from the West toward the Asia-Pacific region. The main players in the region are China, Japan, Australia, the United States, South Korea, and New Zealand. One of the main characteristics of the Asia-Pacific region is the presence of a broad range of international participants with various strategic objectives and capabilities. A bright feature of this region is also the fact that any bilateral relationship involves the interests of the third countries. Relations between China and Australia are a striking example since they are extremely strong. As a result, in bilateral exchanges in political, economic, cultural, and military fields, a great progress has been made. Both countries hope to further enhance cooperation in trade and economic spheres, as well as in the sphere of security. There are huge potential opportunities for the development of trade relations between Australian and Chinese enterprises that will benefit the two countries. Hereby, Australia will be able to export even more services to China. Moreover, the service sector has a significant share in the Australian economy, while trade promotes the economic growth of these countries. However, these days, the two countries have some economic difficulties. Since Australia and China has strong economic relations, currently, Australia experiences difficulties due to the slowdown in the Chinese economy. The purpose of the paper is to study trade and economic relations between the two countries and examine how the economic slowdown in China influences the situation in Australia.

Characteristics of Relations between Australia and China

Diplomatic relations between Australia and China were established in 1972 (Wang 2012, p. 10). “When relations were first established between Australia and People’s Republic of China in 1972, the mission of public diplomacy to promote closer social, cultural, scientific, and educational links with China was unambiguous” (Couchman & Bagnal 2015, p. 267). Nowadays, their trade and economic relations are extremely strong. “Many in Australia know from media reports that China is Australia’s most important trading partner” (Toohey, Picker & Greenacre 2015, p. 171). In fact, relations between these two countries are based on bilateral agreements in the economic field and consultations on how to manage the state. “However, doing business with China has not been an easy task which has been discovered by many international MNCs (multinational corporations)” (Pablos 2012, p. 125).

Three factors can explain the strategy of Australia in relation to China. Firstly, it is coherent and pragmatic foreign policy doctrine based on the understanding of the economic benefits and the need to promote human rights in China reflecting Australia’s political culture. In the case of disagreements or the emergence of conflicts due to non-compliance with human rights, the normative principles and liberal values prevail over pragmatic objectives in the political discourse of Australia. The second factor is a sense of vulnerability and remoteness from its traditional allies, namely US and Europe. Australia’s foreign policy doctrine takes into account possible changes in the security architecture in the region and tries to find a balance between political and economic benefits. The Prime Minister from the Labor Party Malcolm Fraser characterized China as a great mystery. However, in his memoirs, he noted that there was another reason to maintain friendly relations with this state. The third factor is the understanding of the asymmetry of relations with China. Australia’s status as a medium-strength state does not allow it to play a significant role in contemporary international relations, the agenda of which is determined by the great powers (Yee 2010, pp. 219-220).

Regardless of what political party is in power, namely the Labor Party or the Liberal-National coalition, there is the policy of continuity in relation to China (Couchman & Bagnal 2015, p. 268). Apparently, both forces use diplomatic rhetoric and seek to maintain a balance between liberal and pragmatic interests interpreting the above factors taking into account the circumstances. “Canberra has improved and will continue to improve its bilateral relations with Beijing, with trade ties clearly leading the charge” (Medeiros et al. 2008, p. 226). Hedging policy aimed at separating the economic sphere of activity from human rights has been successful and allowed one to gain the benefits from cooperation with China. It is significant that China has developed a flexible policy with regard to all political forces in Australia. Nevertheless, there are tense relations with the Conservative Party as it advocates for Tibet independence and supports the 14th Dalai Lama. The official Beijing actively influences the internal politics of Australia using lobbies. For example, in 2009 at the request of the PRC leadership, a biographic film about Rebiya Kadeer, a famous Uygur dissident and human rights activist, was not demonstrated at the film festival in Melbourne (Couchman & Bagnal 2015, p. 268).

At the same time, despite the benefits of establishing and developing trade with China, the Australian public opinion considers this country ambiguous. According to a survey conducted in 2010, 75% of respondents agreed that the growth potential of China is beneficial to Australia (Couchman & Bagnal 2015, p. 269). Nevertheless, another survey has showed that nearly 2/3 of respondents do not agree with the thesis that Australia has done enough to comply with human rights in China (Couchman & Bagnal 2015, p. 267). “China’s economic boom has directly contributed to Australian prosperity, and yet many Australians feel unease with China’s rising nationalism and assertiveness in regional affairs, tight political controls, and state-driven investment” (Reilly & Yuan 2012, p. 2).

These days, the Australian government continues the traditional policy is aimed at providing a hedge against unexpected problems with the United States and China. Australia trie to seek a balance between China and the United States without giving preference to any of the states. “Australia should keep its alliance with the United States” (Horesh & Kavalski 2014, p. 106). According to numerous experts, for Australia, it is undesirable to be in a position where it would be necessary to choose between the United States and China (Horesh & Kavalski 2014, p. 106). Thus, the dual approach to economic and political-strategic relations remains a major feature of modern Sino-Australian relations. Critics argue that Australia implements a policy of double standards (Horesh & Kavalski 2014, p. 106). Moreover, the statements at the highest level of concern about the growing role of China in Asia are incompatible with high economic interdependence (Shambaugh & Yahuda 2008, p. 229). However, the position of Australia and the United States on security issues in the region coincide with Japan and Canada. The same as Australia, these countries build the strategic line in relation to China seeking to maintain a balance between the support of friendly relations with the United States and the establishment of mutually beneficial economic relations with China (Roy & Chatterjee 2007, pp. 32-33).

International Relations between Australia and China

Australia is the largest isolated island in the world. There is nothing except the deep blue sea. However, from an economic point of view, Australia has an impressive strength. Many countries do not fully understand that Australia is not a developed economy. In fact, it is a mixture of the developing market economy with a highly developed economy. It is associated with the fact that Australia is very dependent on the mining sector (Taylor 2008, p. 5).

For the past several years, Australia was a clear example of the influence of economic processes of China on its economy (Zhu 2013, p. 203). Moreover, 2005-2006 show the further strengthening of this trend. In those years, there was further rapid development of trade relations between the two countries. In 2005, China reached the second place in both exports and imports of Australia (Sutter 2012, p. 205). In this year, Australia’s exports to China totaled 16.1 billion dollars in contrast to $ 7.9 billion in 2001. In such a way, it is evident that export sales have doubled. Furthermore, the strong demand of China for Australian products remained in the first quarter of 2006. In 2005, taking into account the services, exports of Australia to China rose compared with 2004 to $ 18.6 billion or 42%. In fact, it is a huge breakthrough considering that in the past five years, its exports grew by an average of 20%. In 2005, this figure was largely connected with the unusually high world prices for raw materials (Sutter 2012, pp. 206-207).

Shaun Breslin (2010, p. 220) affirms that “In the first decade of the XXI century, bilateral interests consolidated an increasingly strong relationship.” During the first five years of the XXI century, the import of Australia from China has doubled to $ 21.3 billion in 2005 in comparison with $ 10.3 billion in 2001. In view of the Australian purchases in Hong Kong, China occupied the first place in the world due to the supply of products to the Australian market (Zhu 2013, p. 203).

Chinese and Australian economies are largely complementary. Australia is a competitive supplier of agricultural, energy and mineral resources as well as some capital-intensive products. At the same time, China is a manufacturer of exclusively labor-intensive products. With the development of China’s economy and the growth of urban population, China consumes Australian raw materials in a growing volume. Thus, Australian services have considerable potential, particularly in connection with the development of medium-sized businesses. It is manifested primarily in the fields of education and tourism and supported by the expansion of the scope of professional services (Li 2009, p. 200).

Ronald Huisken (2009, p. 181) states that “There is a high level of complementarity between Australia and China, and China is increasingly important in world trade.” The complementarity of Australian and Chinese economies, particularly in infrastructure, mining, and agricultural production, is a solid basis for trade and economic cooperation. “Bilateral trade will remain highly complementary: China will continue to need Australia’s raw materials, with uranium and natural gas exports poised to grow substantially” (Medeiros et al. 2008, p. 226). In this regard, the Australian business opportunities in various sectors of China’s economy continue to expand, especially in the service sector, infrastructure, high-tech manufacturing, and the environment.

It is a well-known fact that more than 3/4 of merchandise exports of Australia in China comprise wool, wheat, sugar, barley, cotton, iron ore, liquefied gas (propane and butane), aluminum oxide, and carbon. Apparently, there are significant prospects for the expansion of exports of manufactured goods, food, and services. The Chinese market is open to a wide range of mineral and energy resources. There are also favorable opportunities for the sale of the recycled food and beverages in agricultural raw materials, telecommunications and information technology, means of transport (railway rolling stock, fast ferries, and aircraft equipment), auto parts, mining, and energy equipment (Smith, Vromen & Cook 2012, pp. 371-372).

Australia attaches great importance to the export of liquefied gas and wool in China. It attracts Chinese investment in steel production, improves conditions for the sale of wheat, and expands species and scale of services. In fact, restoration and development of China’s manufacturing industry as a result of economic reforms and trade liberalization makes Australia an even more important source of high quality raw material. It intends to diversify its trade to the extent that an increasingly significant part of the Chinese market will bring the demand for high quality food and sophisticated manufactured goods and services (Mattock 2014, p. 43).

In 2005, Australia was the China’s largest supplier of iron ore and nickel, the second largest source of imported aluminum ore, and the third purveyor of copper ore. The cost of Australian mineral exports to China rose for the year to $ 7.5 billion, or 117%, while iron ore exports rose to $ 5.8 billion or 129% (Saee 2012, p. 108). In the import of the industrial production of complex processing, cars were confidently in the lead. In 2005, their export was estimated at $ 153 million compared with only $ 6 million in 2004 (Saee 2012, p. 108). “Australia is China’s fourth largest supplier of cotton, representing 6.3 per cent of China’s total cotton imports” (Saee 2012, p. 109).

However, in the Chinese market, Australia is facing severe competition from other countries, especially the United States, Canada, and New Zealand. The advantage of Australia is that it is geographically closer to China and has a reputation as a reliable supplier of high quality products, especially wool, sugar, seafood, and charcoal. Australia is also perceived as a manufacturer of process equipment and an accumulator of knowledge in such important areas for China as agribusiness, training, infrastructure, and ecology. Supplying food and beverages, Australia is not influenced by seasonal fluctuations and can quickly deliver products to markets. However, its competitors have to make considerable efforts to deliver fresh agricultural products in proper time. Participation in major trade exhibitions, development of the distribution network, and product labeling contribute to the promotion of Australian products to the Chinese market (Saee 2012, p. 110).

Several years ago, the economic rise of China opened wide opportunities for Australia in the provision of its comparative advantages, namely the presence of the rich and diverse natural resources, high quality products, and a variety of services. However, these days, the situation is different. Due to the slowdown in the Chinese economy, Australia experiences economic difficulties as well. However, many experts affirm that despite a hard situation, in several years, Australia will continue to benefit from not only China’s growing demand for various natural resources but also the changing consumption patterns of its population in the process of the growth of real incomes in the country. According to them, there is no doubt that there are also great opportunities for the Austrian industrialists in the future (Mattock 2014, pp. 44-45).

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A few months earlier, Australia and China signed a landmark free trade agreement after ten years of negotiations. The parties expect that the agreement will contribute to the economic growth in both countries and the creation of new jobs due to the elimination of tariffs in a number of sectors. In fact, leaders of the two countries attach great importance to the signing of this document. It is an important milestone in bilateral relations. The document requires the highest degree of liberalization in trade, which China has ever agreed in the bilateral relations. Under the agreement, Australia will receive duty-free import of 99.9% of the goods and services in China for four years. Apparently, the growth of exports of agro products to China is of the greatest interest to Australia. At the same time, China expects that there will be the increase in sales of electronics and automobiles due to its cheapening for Australians (China-Australia Free Trade Agreement (ChAFTA) n.d.).

The Slowdown in the Chinese Economy

The peak of the growth of Chinese GDP came in 2007, and it was 14.2% (Irvine 2015, p. 28). Since that time, the Chinese economy is slowing. Moreover, in recent years, this process has accelerated. Many experts suggest that the growth of the Chinese economy has significantly slowed (Irvine 2015, p. 40). With regard to the growth in demand for electricity, it has decreased especially sharply. During the first eight months of 2014, it grew by less than 4% (Irvine 2015, p. 58). Such a low level was last recorded in the midst of the global financial crisis in 2008 (Irvine 2015, p. 58). During the current modernization race, China’s energy consumption generally grew faster than GDP and not slower. As a result, the weakening of demand for electricity has provoked the crisis in the coal industry in China. Thus, many mines went bankrupt. Another sign of problems in the economy is the drop in housing prices. Apparently, it is difficult to estimate the exact level of incidence because the main house price indices take into account only the bid price rather than real transactions. In this way, exports have also slowed due to the sluggish economic growth around the world. Since China’s growth rate is extremely high, space for the fall is great. It creates enormous potential vulnerability for the western stock markets and exporters (Irvine 2015, pp. 60-61).

The Impact of the Slowdown in Chinese Economy on Australia

Despite the developed economy, Australia experienced the same influx of capital as the BRICS countries when in the United States and recently in Europe, monetary policy stimuli have been implemented. China is one of the largest consumers of raw materials in the world, and, accordingly, it should be the second largest economy in the world. However, these days, there is the slowdown in the China’s economy. Since Chinese stock markets continue to fall, the shares have lost trillions of dollars. In fact, Chinese stocks fell by 40%. It has a direct impact on the Australian economy. When China’s demand falls, it affects all countries that are its suppliers. Since the fall of Chinese stocks, the Australian index S & P / ASX 200 was not able to remain stable and fell by 42.4 points (Australia is the clear loser 2015). Although fundamentals of the Austrian economy are strong, the recent market decline by 4.1% shook the country and led to the utmost since 2009 sale of shares. It should also be noted that the impact of the weakening of the Chinese stock market is limited as Chinese investment in Australia constitutes only 10% – 15% (Liu & Hao 2014, p. 367). It must be admitted that the fall of China’s GDP is the lowest in 25 years (Liu & Hao 2014, p. 367). During that time, China has transformed its economy from export-oriented to customer-oriented. Thus, this fundamental transformation in macroeconomic terms of China has an extremely strong effect on Australia.

 
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