Understanding the risks to Australia from China’s economic slowdown is Chalmers’ top priority in the upcoming Beijing talks

When Treasurer Jim Chalmers travels to Beijing later this month, he and his counterpart at China’s economic agency, the National Development and Reform Commission, will have no shortage of important topics to discuss.

Chalmers will attend the Australia-China Strategic Economic Dialogue, a part of a tripartite agreement struck by the Gillard government in 2013.

The purpose was to hold annual talks at the highest level. The agreement also includes a Dialogue of Leaders and a Strategic and Foreign Dialogue in which the Ministers of Foreign Affairs of the two countries participate.

Troubled times

The dialogue was last held in September 2017 when the state of official ties began to turn south.

It was then formally suspended by Beijing in May 2021 after the Morrison government canceled a memorandum of understanding with the Victorian state government to participate in China’s “Belt and Road Initiative”.

His resurrection was slow in coming. The stabilization of the bilateral relationship under the Albanian government has already had reciprocal visits between leaders and ministers of foreign affairs. But it wasn’t until June that the two sides signed a new memorandum to resume dialogue.

The fact that Chalmers was able to confirm the trip last Sunday is another sign that Canberra and Beijing remain committed to talking. This despite the fact that there are numerous issues on which they disagree.

Chalmers’ concerns

For the Treasurer, the priority will be to get a first-hand reading of China’s struggling economy and the risks this poses to Australia’s own prospects.

Announcing the visit, he alluded to a scenario his department was tracking that could see Commonwealth budget revenues take a $4.5 billion hit due to falling export prices for key commodities, including iron ore and lithium

Slowing Chinese growth and falling commodity prices are clearly not positive for Australian earnings, but Chalmers is unlikely to return in a state of panic.

The latest trade figures show China continues to import Australian iron ore and lithium at or near record volumes.

This suggests that the increase in supply and the lack of demand from other countries are at least as relevant to explain the recent price drops. And both are coming off extraordinary price peaks to now approach levels more in line with historical averages.

The impact of Chinese growth on its demand for Australian goods and services has also never been a simple, one-to-one relationship. That remains true today.

A complex relationship

Australian wine exports, for example, are booming after Beijing removed tariffs earlier this year.

China’s customs agencies put the value of Australian wine imported in the past three months at $252 million, or about A$400 million. This surpassed the $357 million sold last year to the United States, Australia’s second largest customer.

Students from China are also starting Australian universities in record numbers, although that is likely to fall next year due to restrictions imposed by Canberra, not Beijing.

That China remains a prominent market is reflected in the large number of businesses and politicians attending the Australia-China Business Council’s Canberra Networking Day on Thursday. Trade Minister Don Farrell, Foreign Minister Penny Wong, Shadow Trade Minister Kevin Hogan and Shadow Foreign Minister Simon Birmingham are all scheduled to give speeches.

Chalmers will also be interested in increasing the persistent import ban Beijing imposed in 2020 on Australian lobster. Trade Minister Don Farrell said in June he was “very confident that in the near future” the ban would be lifted. Chalmers’ visit may be the occasion to announce a final resolution.

China’s concerns

For China, the main concern will be Australia’s treatment of Chinese investment, particularly in sectors such as critical minerals. In the past they were well received, but since 2020 there has been an apparent de facto ban on further participation.

A recent survey of Chinese companies in Australia pointed to generally positive sentiment. Almost 80% said they were optimistic about the outlook for the local business environment. Still, while 72.5% did not feel they had been discriminated against, 42.4% felt the application of Australia’s laws and regulations lacked transparency.

It’s not hard to see why. When Chalmers was asked in an interview last Sunday whether or not he wanted “China’s investment in the processing of critical minerals in Australia”, he did not answer with a “no”. He didn’t provide a qualified “yes” either.

China will also likely seek reassurance that Canberra will not join Washington and some other capitals normally considered geopolitically “like-minded” in placing tariff barriers on Chinese imports.

This reassurance should not be difficult for Chalmers to provide. Unlike the US, Australia’s economic relationship with China remains overwhelmingly complementary. Last year, Australia’s exports to China exceeded imports by $110.7 billion.

And low-cost, high-quality imports from China, such as electric vehicles, would be welcomed by the government amid a cost-of-living crisis and net-zero transition.

Late last month Chris Bowen, Australia’s Minister for Climate and Energy, hosted his Chinese counterpart for the 8th Australia-China Ministerial Dialogue on Climate Change in Sydney.

A bipartisan approach

Trade with China also enjoys bipartisan support. In March, Minister Farrell touted the potential for two-way trade to increase from $300 billion to $400 billion.

Not to be outdone, Opposition Leader Peter Dutton said in June that he would like to “see the trade relationship [with China] double”.

Chalmers hit the money this week by claiming Australia’s relationship with China is now “full of complexity and full of opportunity”. Your next trip can only help you manage the former and realize the latter.