Australian-Chinese Trade Relations

Australia/ChinaChinese Foreign Direct Investment is highly successful in the Australian mining and other energy industries. The history of China’s rise to become an economic superpower resulted in Chinese businesses having the opportunity to invest in overseas markets. Since Deng Xiaoping implemented his Open Door Policy in 1978, China’s economy has continued to grow thanks to international investment and trade opportunities. Australia still remains the largest foreign direct investment (FDI) destination for Chinese foreign investors. Australia’s natural resources have been the main target for Chinese FDI up to this point.

However obstacles facing Chinese investors, including FIRB decisions against prominent Chinese investment proposals (ie Huawei and Rio Tinto), Australia’s perception of governmental influence over their businesses (especially their SOE’s), and the sustainability of Chinese investment into the resources sector, have all stunted the growth of Chinese FDI in Australia. Bilateral relations were strengthened under Julia Gillard’s government in order to foster a stronger investment and trade relationship between China and Australia.  In recent years Australia has implemented policy changes to entice Chinese investors, and has attempted to shift the Australian public’s perception of Chinese Foreign Direct Investment.

Over the past few years, Australia-China relations have prospered. This has in turn, benefited investment relations. Australia was the first Western country to publish an Asian Century White Paper – “Australia in Asian Century” in 2012. The paper stated that “Australia will have more comprehensive diplomatic ties with countries across the region, especially with key regional nations – (first being) China”. This is reflective of Australia’s stance on future economic relations with China. Australia is continuing to shift its orientation to the Asia-Pacific region.

In order to develop relations with China to increase investment opportunities for Chinese investors, Australian Prime Minister – at the time – Julia Gillard visited China in April of this year. Julia stated that the visit was “deliberate and reflected the importance of Australia’s rapidly evolving relationship with China and our high level political oversight of that relationship”.The Prime Minister’s travelled with around 50 leaders of Australian industry to discuss how to improve both diplomatic and economic relations, going into the future. The Prime Minister’s trip resulted in many important bilateral decisions that will benefit trade and investment flows. One of the most important outcomes was the decision to begin direct trading of AUD$ and RMB$.

Australia is the third country to trade directly with China, following Japan and the US. This deal will “lower transaction costs” and “potentially facilitate the use of Chinese and Australian currencies in bilateral trade and investment”. It might take a while for the Chinese companies to change the way they transact with the Australian dollar, but it will have a positive impact in the long term once direct trading becomes common business practice. Both countries showed a commitment to advancing bilateral relations by agreeing to hold annual top-level exchanges between leaders in the future.

Chinese investment into Australia has “tremendous potential to increase its trade as well as investment”. Mutual respect and trust are “prerequisites” for a successful bilateral relationship between China and Australia. Julia Gillard’s visit to China was a testament to Australia’s commitment to China, and to her term as Prime Minister. The Chinese media responded very positively to Julia (you might be surprised to know that the Chinese media and public are not fans of the new PM, Kevin Rudd) and overall it was a highly successful and productive visit. Thanks to Julia, Australia’s relationship with China will continue to prosper. It should not be forgotten that she is primarily responsible for granting our next Prime Minister the opportunity to meet with Li Xinping next year.

Looking towards increasing Chinese FDI in Australia, it will be important to diversify the industries that Chinese businesses are investing in. It is “naïve to assume that Asian interest in our unique endowments of natural resources will automatically translate to a broader investment interest”. The United National Conference on Trade and Development (UNCTAD) published the World Investment Report in 2012 which “ranked Australia 15th out of nearly 200 countries for its FDI ‘potential’”. Potential industries that we should be advertising to increase Chinese investment, “include agriculture, financial services and infrastructure”. At the Boao Forum in 2013, President Xi Jinping stated that “China’s foreign direct investment will reach $500 billion dollars in five years”. We need Chinese investment, and for now, they need us too. Let’s keep it that way, and reap the benefits of China’s ever-expanding economy.


Stephanie Smith is an undergraduate student at Bond University, studying a double degree of Law and International Relations. Stephanie has spent the first half of 2013 studying in Shanghai, China and is currently undertaking an internship at the AustCham.


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