Macro Intelligence: Prime Minister Albanese reopens diplomatic trade with landmark China visit

Article by Juliette Saly (ausbiz)

Diplomatic breakthrough: Prime Minister Anthony Albanese's landmark visit to China

Prime Minister Anthony Albanese has become the first Australian leader to visit China in seven years.

Mr Albanese is confident the visit has sealed diplomatic ties with China, which have been strained since 2020 when China imposed trade blocks that cost $22 billion a year in commodity and food exports. The punitive measures were put in place after then-Prime Minister Scott Morrison called for an investigation into the origins of COVID-19.

Mr Albanese has pledged to continue working with China, aiming for a “strong relationship” with his counterpart, President Xi Jinping.

“A strong relationship between our two countries will be beneficial for the future. When differences arise, it’s important we have communication… From communication comes understanding,” Mr Albanese told President Xi.

The Prime Minister has also left open the possibility of Australia supporting China's bid to join a trans-Pacific trade bloc.

Economic reconciliation: the thawing of Sino-Australian trade relations

In 2020, China imposed trade blocks that cost Australia over $20 billion a year in commodity and food exports. It was a bid to demonstrate economic coercion, but it did not fully succeed. Farmers and miners found other markets for the goods China blocked.

Australian and Chinese trade between 2019 - 2023

Most of the sanctions have now been removed, but there remain restrictions on wine, lobster, and beef exports, which the Prime Minister is confident will be lifted soon.

Australia's total export chart

Iron ore surge: China's unwavering demand signals economic promise

An easing of tariffs would further boost exports. Cynthia Dearin, formerly of the Department of Foreign Affairs and Trade, told ausbiz the symbolic lowering of tariffs on Australia's exports suggests that trade relationships appear to be realigning.

The latest data from Chinese customs shows that China's October imports from Australia grew 12% from a year earlier to $11.96 billion.

Iron ore daily chart

China’s reliance on Australian iron ore is also a positive sign for our economic outlook.

The recent surge in iron ore prices shows no signs of abating as China bolsters government support for its beleaguered property sector. China consumes more iron ore than any other nation, with close to 70% of the commodity coming from Australia.

Seasonal iron ore imports chart

Equities in focus: Australian stocks under the spotlight amid trade optimism

• Treasury Wine Estates

As we have mentioned previously in the Macro Report, Treasury Wine Estates stands to benefit from the anticipated easing of wine tariffs. Several brokers remain optimistic about this stock, with analysts at Morgan Stanley recently maintaining their Overweight call with a $14.50 price target, also reflecting the wine giant’s acquisition of a California-based luxury wine brand.

Treasury Wine Estates weekly chart

• A2 Milk

An "expedited" review of duties on Australian wine tariffs by Beijing is expected to take several more months.

A2 Milk could also stand to benefit. This company produces and sells A1 protein-free milk and related products like infant formula, which are popular with Chinese consumers.

A2 Milk weekly chart

China's role in Australian tourism recovery efforts

The COVID-19 pandemic impacted tourism worldwide, and strained ties between Australia and China meant fewer Chinese tourists were seen once borders reopened. Before the pandemic, China was Australia’s leading visitor market. We welcomed 1.4 million visitors from China in 2019, contributing $12.4 billion in tourism revenue, according to the ABS.

Chinese tourists are returning slowly, yet remain well below pre-pandemic levels.

Tourism Australia estimates that visitor numbers from China are at approximately 50% of pre-pandemic levels annually. This is partly due to the gradual reopening of borders in China and low commercial aviation capacity. In April 2023, ABS data showed that visitation from China to Australia had returned to 33% of 2019 levels, an increase of 22% from March.

Top five countries 2023 chart

"Come and say G’Day"

ABS data indicate the number of short-term trips to Australia in August 2023 was 23.5% lower than the pre-COVID level in August 2019. New Zealand was the largest source of visitors, accounting for 17% of all arrivals. China did not make the top five countries; a stark contrast to 10 years ago when it was predominant.

Prime Minister Albanese is on a mission to ensure Chinese tourists return Down Under, to "come and say G’Day." This is a significant step towards fortifying ties between the two nations and a much-anticipated boost to our economy.

Total overseas arrivals and departutes August 2013 - Septmeber 2023