Four things emerging about the Australia-China Relationship from economic standpoint

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Australian Economy, Chinese Economy

 

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Based on the developments till last year and early this year given rising investments, export-import scenario and so forth, relation between Australia and China was thought to be sailing smoothly. However, some recent events now portray a different picture all together. A detail view comes from the below given factors:

Rise in investments from China: China has been preferring Australia for direct investments, and accordingly the Chinese ODI reached over US$80 billion in 2015 (Source: American Enterprise Institute China Global Investment Tracker). Real estate investments from China have been rising rapidly and reached over $6.85bn in 2015 based on a KPMG and University of Sydney estimates. The report also indicated that the upcoming investment areas could be Renewable energy and healthcare as the Chinese are now focusing on healthcare and services.

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Chinese ODI in Australia as per Industry (Source: KPMG)

Australian tariffs on Chinese imports: With the China-Australia Free Trade Agreement, >86% of Australian goods which are being exported to China have been duty free. The Australian tariffs were said to decrease in the coming years as the duty free exports has been forecasted to increase to 94% in 2019, and to 96% in 2029 (Source: Department of Foreign Affairs and Trade).

Diversifying economic relationship: China’s focus on services could boost the Australian services segment consequently. Based on a report from economywatch.com, even though the average Chinese growth for the coming decade is less than 5% still Australian exports to China could rise 28% while Chinese exports to Australia would enhance by 20%. But both the countries need to improve their supply-side reforms, and upon implementation, it could lead to a growth of 120% of Australian exports to China and Chinese exports to Australia by 44%. Meanwhile, Chinese efforts of diversification has been boosting the education segment in Australia, wherein over 90,000 Chinese international students were studying in Australia in 2014 as per International Institute of Education. Tourism from China has also been increasing, and this trend has been expected to continue in the next decade as well, wherein inbound tourism from China is forecasted to grow threefold by 2025.

Recent perturbations: However, the relationship seems to be hit with tensions cropping over the South China Sea and the Olympics. The recent ruling in China by an international tribunal on China’s claim to most of the South China Sea has ignited the fire when Australia along with the US and Japan called on China to respect the verdict. Primarily, Australia’s humble opposition to Beijing’s militarisation of the South China Sea has led to an adverse response from Chinese media. Then the event when the Australian swimmer, Mack Horton accused a Chinese swimmer, Sun Yang of being a drug cheat, has furthered China’s negative views about Australians. The country is also facing challenges on the Australian-Chinese economic relationship front with events wherein the Australian government blocked a Chinese company from buying S Kidman and Co, which owns about 1% of the Australian landmass; and Chinese bidders along with Hong Kong bidders leasing 50.4% of a New South Wales electricity provider, Ausgrid. This came at the back of unspecified ‘national security concerns’. With time, it has to be seen how the relationship which was otherwise thought to be strong, unfolds given the recent bumpy ride.

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