Ross Stitt assesses Australia's awkward trade relationship with China and how it might emerge from its current deep freeze

November was a good month for Prime Minister Anthony Albanese, at least in the realm of foreign affairs. On the sidelines of the G20 summit in Bali, he became the first Australian PM to meet with Chinese President Xi Jinping since Malcolm Turnbull way back in 2017.

For many, it was a case of ‘Goldilocks’ diplomacy – not too hot and not too cold.

Not for Albanese the public reprimand from President Xi endured by the Canadian Prime Minister Justin Trudeau. Or the warm invitation for a visit to Beijing enjoyed by kiwi Prime Minister Jacinda Ardern.

The former would have sent a cold shiver down the spines of Australia’s exporters. The latter would have caused nervousness among the country’s national security hawks.   

The Bali meeting of the Chinese and Australian leaders represents a major thaw in what had become an icy relationship. 

The animosity began under the previous Coalition government due to a range of disagreements and escalated in 2020 when former PM Scott Morrison called for an international inquiry into the Coronavirus outbreak in China. It probably hit rock bottom when the AUKUS security pact between Australia, the UK, and the US was announced in 2021.  

Beijing’s response to the animosity was to suspend high-level political meetings and to introduce punitive obstacles to a range of Australian imports.

The victory of the Labor Party in the May federal election was seen as potentially opening a new era that would bring about a much-needed rapprochement. There was contact at a senior level for the first time in years. However, the Albanese government quickly reiterated many of the pro-US positions that enraged China, and the PM described China’s treatment of Australian exports as “economic coercion”. There was also friction over China’s activities in the Solomon Islands.

The hoped-for rapprochement following a change of government began to look like a false dawn.

Sino-Australian relations now appear to have been saved by the face-to-face between Albanese and Xi in Bali. It may have only lasted 32 minutes (Jacinda got 50 minutes in Bangkok), but it was cordial and constructive.

Afterwards, both sides acknowledged past differences but welcomed the renewal of top-level talks. Albanese described the meeting as “another important step towards the stabilisation of the Australia-China relationship”. Xi stressed the need to “improve, maintain, and develop the relationship between the two countries”. 

In another positive sign, an editorial in the Global Times, the Chinese government’s foreign language media outlet opined that the Albanese/Xi meeting “injected precious stability and new impetus into bilateral relations” and that “the most difficult time for China-Australia relations has passed”.

Why? Has the Australian PM played a blinder or has Beijing unilaterally decided to alter course?

Probably more the latter than the former. The new Australian government has certainly been open to dialog and improved relations with China. But President Xi is the key player. His country faces a range of problems at the present time including a softening economy, a persistent Covid-19 pandemic, and an increasingly awkward alliance with Russia’s President Putin.

The last thing Xi needs is a further deterioration of relations with Western nations. He has little to gain from a world divided into two competing camps – authoritarian regimes versus liberal democracies. Trading with those democracies has been, and remains, a significant driver in China’s rise. And, importantly, continued economic growth is crucial to the durability of the Chinese Communist Party.

It’s also difficult to overstate the importance of trade with China to Australia’s prosperity over the last twenty years. Without China’s almost insatiable demand for iron ore, coal, and a host of other mining and agricultural products, the land down under would be a much poorer place.

This issue was front and center at PM Albanese’s press conference after his meeting with President Xi. He began by saying that “China is Australia’s largest trading partner. They are worth more than Japan, US and the Republic of Korea together”. In the year to 30 June 2022, Australian exports to China were A$180 billion, a third of the country’s total exports.

China relies on what Australia produces, and Australia would struggle to find alternative markets of similar scale for many of its commodities. This interdependence means that trade between the two countries has been largely unaffected by the ups and downs in the diplomatic relationship.

There have been some exceptions in the last couple of years, primarily related to Chinese barriers to Australian exports of wine, barley, seafood, beef, and, to some extent, coal. The amount involved in this so-called ‘trade war’ between the two countries has been around $20 billion dollars a year. In some cases, Australian exporters have found replacement markets.

At their meeting in Bali, Albanese raised these trade barriers with his Chinese counterpart. In Albanese’s own words, “It was a positive discussion. We put forward our position. It was not anticipated that a meeting such as that, that you get immediate declarations.” In other words, no movement yet from Beijing.  

Australia has also suffered for several years from a drop off in tourists and students coming out of China. That has been attributable to both the Covid pandemic and the diplomatic freeze. Hopefully, both hurdles are now past.

Where next for the Sino-Australian relationship? It depends on who you ask.

In Australia, there’s much talk about the importance of mutual respect and dialogue, and the need for fair and reciprocal trading arrangements.

The focus in Beijing may be a little different. According to the Global Times, whether the Albanese/Xi meeting heralds “a new starting point” for a successful relationship “depends on whether Australia can properly handle its relations with China in the future and respect China’s core interests and major concerns”.

That sounds like a one-way street. And it’s far from clear that Australia can deliver on China’s expectations. The tension between Beijing and Washington is not going anywhere leaving Australia torn between its major trading partner and its key security partner.

Just today, The Australian newspaper is reporting that the US welcomes closer ties with the Australian navy and that it is “open to stationing Virginia-class nuclear-powered submarines in Australian waters”.

The rollercoaster ride that is Sino-Australian relations looks set to continue for some time yet.

Ross Stitt is a freelance writer with a PhD in political science. He is a New Zealander based in Sydney. His articles are part of our 'Understanding Australia' series.