South Australia’s economy benefits from a trade and tourism relationship with China. Across sectors like agribusiness, mining and resources, international education, and tourism, Chinese business to business and people to people engagement is booming.
But Beijing is also testing Australia with different sources of leverage. Ultimately, Canberra and many other nations will have to decide what kind of engagement they seek with China.
1. China’s economy
In a world that has been shaken by economic and political turmoil, China is still one of the most powerful economies. Its rise has been a force for good and the country’s development has lifted hundreds of millions out of poverty. In turn, it has become a consumer of Western goods and services and a major source of international investment. But its growing economic influence also makes it more likely to exercise coercive power when it sees fit.
Australia’s China relationship has long been fractious. Despite trading compulsions, security concerns over Beijing’s South China Sea ambitions have prevented Canberra from reaching out to the country with the same enthusiasm as many of its fellow allies. In recent months, however, the two sides have mended fences after a series of high-profile rows over the Covid-19 pandemic and the Ukraine war.
While Canberra has avoided using words like “reset,” experts say the current government is working to establish a new type of bilateral partnership. This, in part, may be a response to the uncertainty created by rising tensions between the United States and China.
For South Australia, which has a large population of Chinese descent, this is a complex dynamic that will continue to shape the state’s relationship with China. As the state’s second largest export market, the relationship has grown to include more than $2 billion in trade and investment in agribusiness, food and wine, tourism and international education.
The state has a strong sister-state relationship with the eastern Chinese province of Shandong. This includes a range of yearly trade missions in both directions. In 2016, the South Australian Government established an office in Jinan to facilitate business-to-business engagement with the region. Since then, a total of 16 South Australian companies have found new markets in China through the Shandong connection.
The premier’s upcoming trip to Shandong and Shanghai will further strengthen these ties. He will meet with representatives of the Chinese government and with local businesses and institutions that have already made substantial investments in South Australia. He will also speak with students and migrants from the region who have benefited from opportunities in the state’s growing economy. The premier will also be a guest speaker at the China Australia Society’s annual conference in Shanghai.
2. China’s foreign policy
As South Australia’s largest trading partner, China is a significant economic and diplomatic player in the State. Adelaide and Shandong have a sister city relationship that has been in place since 1986, and both governments are engaged in a number of initiatives that are designed to build a deeper exchange of ideas and information – particularly in cultural and educational settings. In addition, each year a delegation of 20 County Mayors from Shandong visit South Australia and conduct a two-week program of lectures and tutorials with local government officials. The partnership also delivers benefits in terms of increased trade and tourism numbers between the two states, and more importantly allows South Australian businesses to access a growing market for their products and services in Shandong.
In foreign policy, China uses a strategy called ‘triangulation’ to achieve its goals. This is a technique that involves embracing different parts of a rival’s platform and combining them with one’s own to create a third option which can be marketed as a ‘third way’. It is most famously associated with Henry Kissinger, who used this approach in the 1970s to disarm ideological opponents and build US international clout.
Beijing’s foreign policy objectives are primarily about building a sense of ideological solidarity and supporting countries it sees as allies or natural partners. This is a goal that can be achieved through direct diplomatic engagement, investment in developing nations and a range of coercive statecraft techniques. Any country that makes policy choices that are adverse to these interests risks experiencing the pain of China’s long-arm.
For South Australia, the implications of this are profound. As our most important trade and investment partner, China will require us to continually reassess the balance of our priorities. It is a relationship that will demand more of us than ever before, and it is vital we do not enter into it with blinkers on or take our eyes off the ball. The reality is that China’s growing economic power and soft power are exerting pressures on many states, including our own. It is therefore time to start thinking about the consequences of our responses to this pressure, rather than just speculating on what may or may not happen.
3. China’s domestic politics
The Australian economy has benefitted greatly from the rapid growth of China as a market for products like iron ore and concentrates, wheat, coal, petroleum products and minerals. This has boosted South Australia’s export revenue and created jobs. But domestic politics in China are currently dominating the country’s policy elite’s agenda to an extent rarely seen in previous times and this is expected to continue for some time. Xi’s leadership is preparing for the party congress expected in autumn 2022 and there will be a high turnover of officials slated to retire or shift roles as the new leader is positioned. In addition, the country is in the midst of a fierce regional rivalry over the South China Sea and Beijing’s assertiveness has heightened concerns about security risks.
The political and security issues have impacted bilateral trade. China has imposed import tariffs of up to 218.4 per cent on some Australian products, including wine and barley, as a result of backing the Philippines’ opposition to China’s expansive territorial claims in the region. The Premier is aiming to get these tariffs lifted during his visit and that will be good news for South Australian companies and farmers.
A number of businesses that have been hit by these bans will join the delegation including Thomas Foods International, Ferguson Australia and the South Australian Wine Industry Association. Getting these bans dropped will be a huge boost for our wine and seafood industries as well as our grain growers. It will also be great news for tourism as a new direct flight between Adelaide and Qingdao will open up the State to even more Chinese visitors.
Premier Malinauskas will also meet with officials in the Shandong provincial government in Jinan. This is a key trade and investment partner for South Australia with the relationship reaching back to 1986 when the State and Shandong formed a sister-state relationship. The partnership has grown over the years and in 2023 is valued at $2.8 billion a year – up 48 per cent on the previous year. This is primarily driven by agribusiness, food and wine and international education.
4. China’s relationship with Australia
Six years ago tensions between Australia and China began to spiral out of control. Beijing’s refusal to engage at the highest level and imposition of counterproductive tariffs on key Australian exports led the two countries to the brink of a trade war. Australia and China are both now working to stabilize their relationship, but the old era of closer ties is unlikely to return.
South Australia’s economy is heavily dependent on the economic relationship with China. Its top trading partner for manufactured goods is China, while its major source of mineral resources is the country. A significant portion of its thermal coal is shipped to China, and it also exports a wide range of agricultural products, including wheat, meat, oil and gas.
In 2023, the value of South Australia’s exports to China rose 48 percent to $2.8 billion. The majority of the growth was in iron ore and concentrates, refined copper, and coal.
A growing bilateral investment relationship is also under way. In 2023, the value of foreign investment from China into South Australian enterprises increased by 61 percent to $29.7 billion. The majority of this investment comes from Chinese state-owned enterprises and private companies. The Adelaide chapter of the Australian Chamber of Commerce and Industry (ACBCSA) regularly hosts platforms that connect South Australia’s SMEs with pre-qualified Chinese traders/investors. These events have directly resulted in tens of millions of dollars of new trade and investment between the two economies.
Australia and China share a range of common interests in multilateral forums, including the G20 and APEC. Both countries are members of the World Trade Organization and international financial institutions.
Both China and Australia are major global players in energy markets, with the China-Australia Pipeline (CAPC) bringing LNG to Asia. Australia and China also cooperate in research into new energy technologies, particularly renewables and batteries.
However, Australia’s close military ties with the United States and public perceptions of China’s rise have created a climate that makes it difficult for Canberra to pursue a more conciliatory policy toward Beijing. Siding with a superpower whose economic policies harm China will only put further strain on the bilateral relationship, and could ultimately land both countries back at square one.