Behind the headlines: Why Australian companies are still doing business with China

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Glenda Korporaal, Adjunct Industry Fellow, Australia-China Relations Institute, University of Technology Sydney

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Executive Summary

The political relationship between Canberra and Beijing started going off the rails in 2016. The first casualty was a diplomatic freeze. In 2020, political tensions spilled over to disrupt around a dozen Australian goods exports. The Australian government responded by loudly urging businesses to diversify as geopolitical risks jumped.

Yet despite the apparent odds, this report documents that Australian executives are still keen on doing business with China and fully intend to continue to do so. This chimes with data from the Australian Bureau of Statistics showing that more Australian businesses are engaging with China than ever before and the annual value of total two-way trade continues to bounce off record highs, $267 billion at latest count.

We hear directly from business leaders themselves about why their interest and commitment to the China market remains. These are the people who have interacted with China on a daily basis for many years – an experience which is often much longer than the ministerial careers of the politicians of the day. These are also the people with most to lose if things go wrong. Trade strikes have certainly been a wake-up call and business leaders recognise that geopolitical risks have increased. They see benefits from market diversification. The old days – described by one executive as a ‘gold rush’ – are over. But this is only part of the picture.

1. The opportunities in China haven’t disappeared. From natural resources like iron ore and liquefied natural gas (LNG), to quality food products and cutting-edge healthcare, the basic economic complementarities between Australia and China kept shining through. No other market is building more infrastructure or adding more people to its middle-class each year.

2. China is not just a market. It’s a key supplier and collaborator on innovation too. An exposure to China as a market raised awareness around opportunities more generally. Many Australian business leaders no longer see their relationship with China solely through the prism of sales. Rather, it’s viewed as a vital full-spectrum partner.

3. Engaging with China helps with diversifying to new markets. The Chinese consumer and the e-commerce platforms they make purchases on were identified as the most sophisticated in the world. The speed of change in the China market is unparalleled and hard for many in Australia to fully appreciate. This meant lessons gained from the China market could be deployed elsewhere to raise the chances of success.

4. Recognising and managing risk is part of what businesses do naturally. Geopolitics is one risk amongst many. Sudden regulatory changes or supply chain disruptions driven by the COVID-19 pandemic often ranked higher on the priority list of risks needing attention. Agricultural exporters have long had to deal with floods and droughts and their goods being unexpectedly stopped and sometimes rejected at borders. And not only in China. Dealing with uncertainty goes with the territory and breeds resilience.

5. Market diversification is a priority but not the only risk mitigation strategy. Most interviewees assessed that the amount of exposure they had to China was ‘about right’. Also emphasised was the value of relationships with Chinese business partners and customers that had been built over many years. Having a steady eye on a long-term time horizon further served to put current risks of all sorts into perspective. Others were deliberate with the amount and manner that capital was deployed, conscious that one day a sudden adjustment might be necessary. For some, the logic of diversification applied not only to markets but the product range being sold too.

These insights from well-placed executives point to Australian business engagement with China being far more durable and resilient than is commonly appreciated. As some observers in this report have said, the strength of the business ties between Australia and China may be the key to its future.

Author

Glenda KorporaalOAM is Adjunct Industry Fellow at the Australia-China Relations Institute at the University of Technology Sydney and columnist for The Australian.