China is buying less from developed countries, but not Australia

Australia’s exports to China have not returned to the peaks before the Chinese authorities started imposing discriminatory bans, but they are higher than five years ago, unlike China’s imports from every other major advanced economy.

Although there is no official campaign to curb access of western exporters to Chinese markets, there has been a marked shift in China’s imports away from advanced nations to favour the developing world. Australia is the stand-out exception.

Analysis by the Hinrich Foundation shows that the share of China’s imports coming from the G7 nations fell from 27 percent in 2017 to 22 percent in 2023. Japanese and German exports have been particularly hard-hit. The combined share from South Korea and Taiwan dropped from 18 percent to 14 percent.

China has been buying more from the ASEAN nations—their share of China’s imports has risen from 12 percent to just over 15 since 2017, while Russia’s share has doubled to 5 percent. Latin American and African nations have also increased their share of China’s imports.

Australia is an important source of supplies to China, accounting in 2023 for just over 6 percent of its imports, an increase from 5.5 percent in 2017. Australia last year supplied 64 percent of China’s iron ore and more than half its lithium.

There has been some softening of Australia’s exports to China during 2024, mainly reflecting weaker iron ore and lithium prices and a pause in the Chinese central bank’s gold purchases.

However, China’s share of Australia’s goods exports has revived from a low of 29 percent two years ago during China’s campaign of economic coercion to 36 percent now. Australia is thus more dependent on a single market than it has been since the late 1940s, when its biggest export customer was Britain.

Figures from the Department of Foreign Affairs and Trade show that in the six months to September, exports to China of coal were up 21 percent from a year earlier, bauxite shipments were up 39 percent and cotton sales were 41 percent higher. China has also returned to Australian wine and barley markets.

China’s share of Australian exports is still short of the levels above 40 percent reached between 2019 and 2021, however that was the result of unsustainably high iron ore prices which in mid-2021 touched a record US$220 a tonne. Iron ore is now down to US$105, with markets expecting further significant falls in 2025.

Chinese authorities remain keen to build their export markets globally, to help offset a weaker domestic economy.

The big shift in China’s export markets has been the rapid fall in sales to the United States. This has been driven by the US rather than by China.

In 2018, the US was taking 22 percent of China’s exports but by 2023, this had plunged to 14 percent. From a US perspective, the share of its imports supplied by China fell from 21 percent to 14 percent.

The tariffs imposed on Chinese goods during the first Trump administration and maintained under President Biden have had a big effect, but US companies have also made a conscious choice to source supplies that carry less geopolitical risk.

There has been a modest diversification of Australia’s imports away from China (and Hong Kong) following its coercive campaign against Australian exports. China’s share of Australia’s imports peaked at 30 percent in the latter half of 2020, but has dropped back to stabilise at about 25 percent since mid-2023.

That is almost double China’s 14 percent share of world exports and highlights Australia’s high dependence on Chinese manufactured goods.

With Christmas around the corner and the return of dialogue between the Australian and Chinese leaders, imports of Chinese goods are accelerating.

Mobile phones and other telephonic gear worth an amazing $1.1 billion were shipped from China into Australia in September, more than double the August tally. Imports of electrical goods, including solar panels and wind turbines, increased 62 percent while shipments of computers rose 27 percent, as did imports of prams, games and toys.

Australia has no obvious mechanism for lowering its trade dependence on China. The legislative charter of trade agency Austrade does not permit it to promote Australia as a market for other countries’ exports. There would, however, be the opportunity to import more Australia’s free-trade partners other than China. Austrade is restricted to promoting exports.

Australia has few alternative suppliers for many of our imports, particularly in telecommunications, computing and renewable energy generation.

There is no alternative market for our biggest export, iron ore, while China has no other source of iron ore of comparable scale. Supplies from the Simondou mine in Guinea, which is under construction, are more likely to replace high-cost Chinese iron ore mines, bringing down the world price, than Australian ore.

Both federal and state governments depend heavily on revenue from the resource sector. Last year, it delivered $55 billion in corporate tax payments (equivalent to the defence budget), and $31 billion more in royalty payments to the states.