China Australia Trade

Australia and China share a strong and rapidly growing trade and economic relationship. Further strengthening and deepening this relationship is a major priority for both countries, with both governments committed to sustaining the impressive trade and investment performance achieved in the past two decades. In that time, China has become Australia’s largest two-way trading partner and vital to Australia’s future economic prosperity.

On 18 April 2005, Australia and China agreed to commence negotiations on a Free Trade Agreement (FTA) following consideration of a joint FTA Feasibility Study. The study was completed in March 2005, and concluded that there would be significant economic benefits for both Australia and China through the negotiation of an FTA.

The negotiations are complex, covering an array of issues, including agricultural tariffs and quotas, manufactured goods, services, temporary entry of people and foreign investment.

China’s economic development has been truly remarkable by any measure. For three decades now it has sustained growth at an average of around 10 per cent per annum. China now accounts for a substantial and increasing share of global economic activity. Over the past 10 years, it has almost tripled its share of the global economy to become the second largest economy after the United States. China now uses a large share of the global output of commodities, not only because it’s a large economy, but also because it makes relatively intensive use of raw commodities. This reflects the high rate of investment in China as it adds rapidly to its stocks of capital and housing. One driver of this has been the rapid urbanisation of China. This requires the construction of new housing and places of work, as well as transport, communications, power, and water storage and treatment facilities.

China now uses about half of the world’s production of iron ore, coking coal and thermal coal. Not surprisingly then, the growth of China has seen the price of Australia’s commodity exports rise to unprecedented levels. Accordingly, Australia’s terms of trade – the price of our exports relative to the price of our imports – started rising rapidly from the mid 2000s to an historic peak in late 2011. This has led to a dramatic increase in investment in the resources sector in Australia. Even though the terms of trade have declined since then, they remain well above their level of a decade ago.