Australia, China put doing business above all else

Apr 12, 2016, 11:14 AM EDT
Australian P.M. Malcolm Turnbull.
(Source: Malcolm Turnbull/flickr)

Australian Prime Minister Malcolm Turnbull will arrive in Shanghai on Thursday to promote Australia Week, which has attracted about 1000 business executives interested in China. Later on Thursday he will fly to Beijing for a meeting with Premier Li Keqiang, and hold talks with President Xi Jinping there on Friday. Although the two countries are on opposite sides in the South China Sea dispute, their economic links are growing ever-stronger.

China is Australia’s largest trade partner, with total trade worth more than $114 billion per year, and that figure is sure to rise. A comprehensive FTA between the two countries went into effect in December, and early figures are already showing a surge in trade as tariffs fall. For example, in the first two months of this year, frozen beef sales to China rose 44% to $72 million compared with the same period last year, and sales of bottled wine climbed 122% to $109 million.

Turnbull’s trade visit --  the largest ever by an Australian leader -- comes amid a changing landscape of Chinese investment in Australia. As China’s economy slows, reducing demand for Australia’s mining exports, commercial real estate down under has become the next big thing.

Chinese investors doubled their holdings of Australian real estate to $18 billion in the year ending June 2015, and their appetites are growing larger. (This was triple the amount that U.S. investors put in over the same time period.) All Chinese investors in a survey conducted by KPMG and the University of Sydney want to allocate more money to Australia, a report showed on Monday. Australia's housing market is slowing down though, on track for a 6.6% median price increase this year, from over 11% in the last two years. But Chinese investors currently view that as the market stabilizing, rather than the first indications of a bubble that will burst somewhere down the line.

After interviews with 11 Australian-based Chinese firms, the KPMG report found that the top motivation for investment is the desire to make profits, followed by securing resources. Additionally, "Australia is seen as a learning ground for entering other developed markets," the report said. "The closer economic relationship between China and Australia has helped, as does the same time zone between countries (West Coast Australia) and the sense that Australia is a preferred destination for Chinese students, tourists and migrants," it added.

Australia’s participation with the U.S. in freedom-of-navigation patrols in disputed waters near Chinese-claimed islands in the South China Sea is a point of contention in the Sino-Australian relationship. But neither side is willing to jeopardize their expanding mutually beneficial economic links over it.

For more on the South China Sea dispute, see our recent coverage.