How economically dependent is Australia on China (and vice versa)?

2020 has been a pretty bad year for Australian exports to China. The most recent tariffs on wine follow similar sanctions on barley, beef and lamb, cotton, timber, coal, and even lobsters… The ABC has a full rundown.

Officially, none of this is politically motivated – China would be in breach of WTO rules if it was – so there are totally legitimate reasons for the sanctions, like ‘quarantine delays’ (lobsters), ‘bark beetles’ (timber), ‘contaminated meat’ (beef and lamb), and ‘anti-competitive behaviour’ (wine and barley).

Yep, totally 100% legitimate non political grievances – it definitely doesn’t have anything to do with Australia backing a global inquiry into the origins of the coronavirus in April or banning Huawei from the roll-out of 5G over “unfounded” national security concerns. It’s also purely coincidental timing that 9News alleges they recently received a shit list of 14 separate grievances from the Chinese Government that would need to be redressed before relations could be normalised.

So how screwed would we be if this economic sabre rattling turned into a full blown economic war?

Well, lets start with a bit of history. This racing bar chart shows a month by month breakdown of our biggest export markets since 1988:

If you don’t feel like watching the whole thing, you can use the little chart section to skip around. As you can see, Japan holds the top spot until early 2009, at which point China roars ahead to become our biggest customer. By October 2020 (the most recent ABS statistics), China buys more of our stuff than the next 9 countries combined.

In fact, including Hong Kong, China accounts for around 43% of our total merchandise exports:

So what do we actually sell to China, anyway? Well, lots of stuff, as it turns out – though (surprise, surprise) mostly stuff that we dig out of the ground:

As you can see from the above chart (data from 2018 and in US dollars), something like 80% of our exports to China are ‘Mineral Products’. Iron ore alone accounts for 44% of our total exports, with coal coming in a distant (but far from inconsequential) second.

Recall from above that coal was one of the items on the sanction list, along with barley, beef and lamb, cotton, timber, and lobsters.

Could Iron Ore be next? Well, it’s probably unlikely. China needs huge quantities of iron ore for steel production, mostly for its domestic market. In 2019, the entire global output of steel production was 1869.9 million tons, of which China produced 53% or 996.3 million tons – that’s nearly 10 times what they produced in 2000 as the chart below shows:

And here’s the state of the global iron ore market, as of 2019:

As you can see, Australia is by far the largest producer of iron ore, with an output of 930 million tons in 2019, or a little over 37% of the world’s total output. Brazil comes in a fairly distant second, with 480 million tons or 19% of the world output, though in 2020 production is expected to be down due to Covid-19 related issues and dam collapses.

China is desperately trying to diversify away from Australian iron ore (we currently provide about 60% of their iron ore, with Brazil coming in next at just 20%) by developing mines and infrastructure in Africa, The Guardian reports, but these sources aren’t expected to come online for between 5 and 10 years.

In the short term, we’re really the only game in town, so for the time being iron ore exports are probably safe. But, like any good business, we should be working hard to diversify both our customer base and our products while times are good.

Having a single customer making up nearly 50% of our revenues is a dangerous position to be in, and (as pretty much every Aussie will admit) we rely far too much on digging wealth out of the ground – the Harvard Atlas of Economic Complexity ranks Australia a dismal 87th of 133 countries, down 32 spots since 1995.

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