Prime Minister Albanese’s visit to Beijing – what’s happened, what hasn’t, and so what for Australian businesses?

Australian Prime Minister Anthony Albanese’s meeting with Chinese President Xi Jinping is very important – but it’s by no means the end of the story. Australian businesses should certainly welcome the move to improve relations. At the same time, geopolitical volatility is still just as real as ever, and we need to continue to be prepared.

What’s happened?

No Australian prime minister has visited China since Malcolm Turnbull in 2016. The bilateral relationship between China and Australia has been at its lowest point in decades. The Chinese government placed trade restrictions on a number of Australian products, including coal, wine, barley, timber, beef and lobsters. The application of economic sanctions to demonstrate dissatisfaction or what some call ‘geo-economic coercion’ is becoming increasingly standard practice around the world. The Chinese government has never said the trade restrictions were related to any political issues. Despite this, there is general acceptance among Western commentators that these restrictions were put in place by the Chinese government in response to what they saw as provocations from the Australian side. The goal, according to this understanding, was that the Chinese government sought to pressure Australia into stepping back on the issues that had caused consternation. From the Australian government perspective, Australia intended to stand by its values. And so we found ourselves in a challenging conundrum with our biggest trade partner. In some cases, Australian exporters were able to find alternative markets and continue to thrive, but in others, the impact has been challenging.

Over the past year, and particularly in the last few months, the bilateral relationship has started to thaw. It’s not clear exactly why. The high-level dialogues that had been on hold for three years resumed in September. At that meeting, Australian industry representatives had the chance to speak to their Chinese counterparts. Over the past year, many trade restrictions have been lifted, like on timber, barley, and coal, and of course, we’ve now had this much-anticipated leaders meeting as well.

What’s come out of it all?

It’s obviously great news that these meetings and dialogues have been recommenced. According to the Australian Treasurer, 95 precent of trade restrictions by dollar value have been lifted. It’s a good thing to be talking with your most important trade partner, and such an important global actor. In advance of the Prime Minister Albanese and President Xi meeting China has undertaken an ‘expedited review’ of the wine tariffs which Australia referred to the World Trade Organisation (WTO) in 2021. That means the WTO process is currently suspended while China reviews, which is set to take about five months. If after that, Beijing does not lift the tariffs, the WTO process will resume. Australian journalist Cheng Lei has been released after three years of detention in China. Australia’s Anti-Dumping Commission has recommended that Australian tariffs on Chinese wind towers expire early next year. The high-level dialogues seem to be back on the agenda as an annual event. All of these are positive developments and as Treasurer Jim Chalmers said, good for Australian exporters, workers and businesses.

What is still unknown?

The wine tariffs have not been resolved, but there is considerable optimism that they will be. Likewise there are still lobster and beef tariffs to be settled. Among other issues, another topic discussed at the meeting was China’s desire to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CP-TPP). Membership involves unanimous agreement by all other members that the applicant country meets all the requirements – which are stringent. China needs Australia’s support, but Prime Minister Albanese has been discreet in his position.

What does it all mean?

The Australian Government has been very clear that they recognise the bilateral relationship with China is complicated. These recent developments, while welcome, do not constitute a ‘reset’ or ‘normalisation’, but rather a ‘stabilisation’. That means, things have not gone back to the status quo ante, pre-2016 world – and are not expected to. The world has changed, and the future looks very different from the past. Geopolitical volatility, the strategic competition between the United States and China, the desire of the Global South (including China) to have their issues on the international agenda – none of these are going away. China under President Xi Jinping continues to be committed to its longstanding goals, like the China Dream of national rejuvenation, and Australia continues to be committed to a values-based foreign policy. There will inevitably be areas of disagreement. There remain a number of areas of potential friction that could affect the relationship.

The key message for Australian businesses is that given we can’t control or even influence these broader geopolitical circumstances, we must invest in being prepared. We must build our understanding and our resilience. ?There are ways we can do this ourselves, as well as support our clients to do this – including risk assessments, supply chain mapping, scenario modelling, and of course, building geopolitical understanding. As the Global CEO Outlook 2023 shows, business leaders around the world are increasingly concerned about these issues.?

For more information about KPMG’s unique Geopolitical Offering, see the website.