Australia firms in China say bilateral tensions now a bigger risk than weak economy: survey(South China Morning Post 17.7.2020)

For Australian businesses with close China ties, tensions between the two countries pose a more worrisome threat than a slowdown in the Chinese economy, a new survey has found.

Although Covid-19 continues to dent earnings for those Australian businesses working with or in China, they currently see Sino-Australian  tensions as their biggest business risk, according to the Australia-China business chamber AustCham, which polled 87 businesses in Beijing, Southern China and Western China.

More than 70 per cent of the surveyed businesses said they were concerned about the deteriorating relationship, compared with 45 per cent in a similar 2018 survey.

Just over 50 per cent considered a weakening of the Chinese economy a risk, while 47 per cent said the global recession posed a threat.

The pandemic has continued to wreak havoc on turnover, with nearly half of the respondents saying their annual revenue would fall by 20 per cent compared with a year earlier – an outlook that has worsened since February, at the height of the coronavirus outbreak in China.

But businesses still value the strong connection between Australia and China, AustCham Beijing chief executive Nick Coyle said.

“The current tension in Sino-Australian relations is a concern for business. It is worth noting that the slowdown in the domestic economy here in China also grew quite substantially, as did the global economic slowdown,” he said. “We are still very optimistic about the medium- and long-term opportunities in the Chinese market. The strong complementarity that has underpinned the trade and investment relationship remains in place, and we see no reason why that shouldn’t continue, despite short-term fluctuations.”

Coyle noted the chamber’s last survey before Covid-19 showed more than two-thirds of its business members were increasing their investment in China.

The Australia China Business Council (ACBC), another business group in Australia, says overall sentiment from its members toward China was also positive.

Even though Australian trade minister Simon Birmingham has not spoken to his Chinese counterpart, commerce minister Zhong Shan, since China imposed an 80.5 per cent anti-dumping tariff on Australian barley in May, business partners in the two countries were still talking through “backchannels”, council chairman David Olsson told local broadcaster ABC earlier this week.

The tariff on barley and the tit-for-tat exchanges between China and Australia on the dangers of travel to both countries, as well as a Chinese ban on certain Australian beef exports, are part of the continuing conflict that started in April when Australia called for an independent inquiry into the origin of the coronavirus without consulting China.

“There remain dozens, if not hundreds, of communications and contacts that are going on … Within the ACBC we are talking constantly with the Department of Foreign Affairs and Austrade [the Australian government’s Trade and Investment Commission] and directly with our counterparts in those organisations in China and around the region,” Olsson said.

The continued trade – despite headwinds – has bolstered Australian exports to China.

Still, the political risk to business in China is something that family-owned Australian winemaker and wine exporter Shaw Wines has started to think about.

For now, it’s business as usual for Shaw Wines owner Graeme Shaw, who says relations with his Chinese business partners remain good, with both sides “ignoring” the political spat. But Shaw is slightly concerned about “hurdles” that the Chinese government may place in the path of imports from Australia.

Shaw and other Australian firms that trade with China say that while it is highly unlikely Beijing would directly block trade when “displeased”, it has a habit of showing its displeasure through subtle blocks, as illustrated by the extended customs clearing times for Australian coal at major Chinese ports last year, which culminated in a complete ban at the Port of Dalian in Liaoning province.

“We wanted to appoint a few more agents in eight different Chinese cities, but that’s on hold,” Shaw said. “Apart from that, we are still ticking over OK. The biggest test is when we have to restock everything. Will we get the same run through customs or not? Is it going to be smooth going?

“That is the only issue, trying to read the attitude towards our wine going in and getting customs clearance.”

In May, exports of Australian goods to China rose 8 per cent from April to A$13.6 billion (US$9.53 billion), according to international trade data released by the Australian Bureau of Statistics earlier this month.

China was again Australia’s biggest export partner in May, well ahead of Japan and the US.

However, an Australian food and beverage importer based in China urged caution in interpreting the healthy numbers, saying China’s continued purchases from Australia could be due to slower trading with other big partners such as Brazil, where the pandemic was worsening.

He said he had started to factor in the risk that China could stop buying from Australia – if relations did not improve – when its other partners recover.

Data from the Chinese Ministry of Commerce shows that Australian imports rose in the January to May period, compared with a year earlier, while imports from Brazil fell 4 per cent each month except March.

One thing that stops Australia and China from sliding into a trade war is that China does not compete with Australia like with the US, said Australian cross-border exporting firm James Tyler, which sells Australian milk and seafood in China.

“If you look at top Australian exports – mining, education, tourism – it’s obvious Australia [and New Zealand] feed into Chinese growth. None of the Australian exports are competing with China, so it’s a win-win partnership, but the situation between the US and China is more gamy,” James Tyler co-founder Tyler  said.

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John Menadue is the publisher of Pearls & Irritations. He has had a distinguished career both in the private sector and in the Public Service.

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