China is digging in its heels as the trade spat between Canberra and Beijing continues

Davies

A composite of the Chinese and Australian flags on cracked ground.

China is digging in its heels as the trade spat between Canberra and Beijing continues, with officials laying responsibility for the tensions solely at Australia’s feet.

Chinese Foreign Ministry spokesman Zhao Lijian told reporters Tuesday night that some in Australia “tend to regard China’s development as a threat”, and that this was “the root cause” of the problems between the two countries.

Mr Zhao had been asked about comments made by Australian Trade Minister Simon Birmingham earlier this month, specifically the minister’s comment that “the ball is in [China’s] court” when it came to starting talks over the trade issue.

Federal Government ministers have been unable to get their Chinese counterparts on the phone for months, and Senator Birmingham had been calling on Chinese officials to speak directly to the Government.

With no resolution in sight, many exporters affected by China’s sanctions are now looking for alternative markets where they can sell their goods and services.

Here’s a look at what some of those markets are, and whether analysts view them as a long-term solution.

What are Australia’s alternative markets?

Two harvesters in a field.

Some Australian goods could find other markets rather easily, but not all of them.(Landline: Kerry Staight)

China is easily Australia’s largest export market and two-way trade partner, according to statistics from the Department of Foreign Affairs and Trade.

It was the destination for 32.6 per cent of Australia’s exported goods and services in the 2018-2019 financial year, amounting to $134.7 billion in exports — Japan was Australia’s next largest export market, with a 13.1 per cent share worth $59.1 billion.

In that same period, Australia’s other top markets in descending order were South Korea, the United States, India, New Zealand, Singapore, Taiwan, the United Kingdom and Malaysia, which each took between 2.5 and 5.9 per cent of Australia’s exports.

They could be potential alternative markets for Australian goods that can no longer get into China, along with other nations like Indonesia and Vietnam.

However, simply selling goods and services somewhere else is easier said than done.

He-Ling Shi, an associate professor of economics at Monash University, said while some goods could be sold in other markets, industries like international education would have a harder time shifting towards countries other than China.

“But in the short run, frankly, it’s quite difficult to replace the large scale of Chinese students with some alternative sources.”

And while some consumer goods could be shifted to other markets, the mining sector is heavily reliant on the Chinese market.

“Australia can export wine to different regions, different economies like Taiwan and Japan — [but] if you think about iron ore, that’d be big trouble,” Dr Shi said.

Are they viable markets for Australian exports?

A bucket of grapes is thrown into a sorting tray.

Finding new markets for Australian wines may be easier said than done.(Supplied: John Kruger)

This is the big question, and again it really varies from industry to industry.

James Laurenceson, director of the Australia-China Relations Institute at the University of Technology Sydney, said the hopes that are being placed in alternative markets “may be a bit misplaced”.

“China’s [GDP is] expected to grow by 1.9 per cent, the US is going backwards 4.3 per cent, the Euro area backwards by 8.3 per cent, India — the great hope of replacing China — going backwards by 10.3 per cent, even ASEAN’s down by 3.4 per cent,” he said.

Dr Laurenceson said even though Australia’s political tensions with China had spiked in 2020, it had still sold more exports to China as a proportion of its total than ever before.

“In the first nine months of this year 40.5 per cent of our total goods exports went to China, that’s up from 38 per cent last year,” he said, adding that the costs involved in moving to new markets were also a concern.

“It’s not just about finding someone who likes Australian wine in Vietnam, you’ve got to build brand awareness, you’ve got to build distribution networks and so on.”

Dr Shi said exporters would also need to factor in a drop in profits if they chose to sell in alternative markets.

“You should anticipate there’s a drop in profit.”

Industries that have profited from the high margins Chinese consumers are willing to pay would feel this particularly hard, further complicating calls for businesses to diversify their markets.

Red lobsters swim in a tank of clear water

Rock lobster exports have also been caught up in China’s trade sanctions.(ABC South East SA: Isadora Bogle)

“If you’re a wheat grower, your prospects of selling wheat on the global market, whether it’s to China or anyone else are probably pretty good — there’s a number of buyers, and you’ve got a pretty standard product,” Dr Laurenceson said.

“But it becomes harder when you’re a lobster fisherman, and China is the country that overwhelmingly is willing to pay so much more for your output than any other country.”

Could other markets be better than China in the long run?

Chinese President Xi Jinping raises a glass of wine while standing in front of a Chinese flag

China has grown increasingly assertive under the leadership of Xi Jinping.(Reuters)

China’s willingness to target Australian exporters over a political dispute with Canberra has led some to question whether the risks associated with trading with China were becoming too high.

Dr Laurenceson said while the potential for China to use coercive measures against Australian businesses was “absolutely a real risk”, he was not convinced alternative markets provided a safer option.

“When you’re going into alternative markets, there’s other types of risks that you’ve got to deal with, for example Vietnam — guess what, that’s an authoritarian, one-party Communist state as well,” he said.

“India is a highly nationalistic market, one with very poor intellectual property protection.

Dr Laurenceson argues businesses will need to hedge their bets by developing more sophisticated risk mitigation strategies, instead of “simply selling less to China”.

He cited a suggestion put forward by University of Queensland chancellor Peter Varghese, which would see universities invest the profit margin from international student fees into a fund, to be accessed if foreign students were suddenly unable to come to Australia.

Dr Shi said there was concern the trade difficulties with China could make Australia’s pandemic-related recession even deeper in the short term, however diversification could be beneficial for Australia in the future.

“There’s a basic rule in finance: don’t put all your eggs in one basket,” he said.

“Australia actually should diversify its business partners … in the long run such kind of diversification could make Australia’s economy more resistant to any sort [of] international political or economic unpredictability.”

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