China’s relationships with several nations, from the U.S. to India, have soured in recent times. The decline in its ties with Australia has been particularly sharp — and carries risks for both sides.

Not so long ago, Sino-Australian relations seemed on a much healthier track. China’s leader Xi Jinping addressed Australia’s parliament in 2014. The two countries got cozier still with a Free Trade Agreement enacted in 2015. Bilateral trade jumped and China continued to invest heavily in Australian resources and other sectors. 

But as the global mood towards China darkened, the Australian authorities grew suspicious of Chinese encroachment. Australia became one of the first major countries to effectively ban Chinese telecoms equipment maker Huawei in 2018. A key point in the two countries’ deteriorating relationship came with Australia’s call for an inquiry into the origins of COVID-19 in spring 2020. 

China hit back with tariffs on Australian barley in May, and later targeted several more goods, while a war of words between Beijing and Canberra broke out. The latest blow to relations came from Australia in April when the federal government canceled a Belt and Road deal between China and its second-largest state Victoria, taking the feud beyond trade. Australian authorities are also reviewing an agreement that gave a Chinese company a 99-year lease on a port in the northern city of Darwin. 

There appears to be no end in sight. “Both Beijing and Canberra, neither side’s backing down, both sides are blaming the other side entirely,” says James Laurenceson, Director of the Australia-China Relations Institute at the University of Technology Sydney. “So there’s just no nuance at all in the discussion.” 

This week, The Wire dug into the trade and cross-border investment numbers to see where China and Australia’s mutual hostility is biting.

Iron Ore, Iron Ore, Iron Ore…

Taking on China is a big step for Australia. China is its number-one trade partner, so any disruption to the relationship can have a significant effect on its economy. More than 40 percent of Australia’s exports went to China in 2020.

The overall picture doesn’t look too bad. Australia’s total exports dipped in 2020, but its shipments to China remained steady. That, though, was almost entirely to do with iron ore, the key ingredient in steelmaking: Over two thirds of Australian exports to China by value were ores and metal scrap in the last twelve months. 

“At the aggregate level, the China trade is holding up better than [Australia’s] trade with the rest of the world,” says Laurenceson. “But, of course, that has a lot to do with iron ore, and if you disaggregate the trade, then there’s plenty of sectors that are suffering badly.” 

Iron ore is certainly a strong suit for Australia . Nearly 60 percent of China’s iron ore imports came from Australia in 2020, with Brazil accounting for just over 20 percent, according to UN trade data. China, the world’s leading steelmaker, imports more iron ore than any other country — quantities worth nearly $120 billion in 2020, UN trade data shows. 

The picture is complicated by the sharp rise in iron ore prices, which is at over $200 a ton. Chinese customs data shows that while the value of its iron ore imports went up by almost 80 percent from 2020 in the first quarter of this year, the quantity went up by just 8 percent. China’s leadership has recently expressed concern about rising commodity prices and their effect on the overall economy.

“[One] thing that’s really making the [Australian] government quite comfortable, or confident, really taking on China at the moment is the iron ore price,” says Peter Cai, the Project Director for Australia-China Relations at Australian thinktank the Lowy Institute. “A lot of the downside of China’s trade sanctions against Australia is really being offset by this significant surge in iron ore price. In fact, it’s actually boosting the government’s budgetary bottom line.” 

The steady aggregate level of Australian exports to China obscures particular sectors that have been hit hard by Chinese tariffs. The value of Australian wine exports to mainland China dropped from $117 million in the first quarter of 2020 to under $7 million in 2021, data from Wine Australia shows. 

There’s some evidence, though, that Australian exporters are finding alternative markets to China. Take coal: While Australia’s exports to China have dropped, its other major markets such as India and Japan have helped to make up the difference. Meanwhile China can both use more of its own coal resources, and import more from other countries. “Both sides can really separate from each other [on coal] without significant disruption — though there has been some disruption in China, but not as serious as many people thought,” says Cai. “And also, China’s quite happy to pay extra to import from Canada and Indonesia just to make a point.” Experts The Wire interviewed believe China has further room to target Australia in sectors such as agriculture and dairy, as well as education and travel when borders reopen.

Crossing the Border

China was once the leader of the pack when it comes to investment into Australia. A surge of acquisitions in Australian resources, particularly mining and iron ore, has been followed in recent years by a more diverse set of stake-buying, particularly in sectors such as property and healthcare. Australian regulators have more suspicious of Chinese funds, signaling that they would even block the Chinese acquisition of a dairy company last summer under a new foreign investment law based in national security risk. The Chinese government itself has also curbed outbound investment since the high peaks in 2016 and 2017 have resulted in the taps being all but shut off. 

“Sometimes, if you read Australian newspapers, you’d think China probably owns half of Australia,” the Lowy Institute’s Cai says. “But, in fact, the traditional investors like the United States… actually are far more significant investors in Australia.” 

Australian investment into China, meanwhile, dipped last year, bucking the global trend. Australian FDI into China dropped by more than half, and even its portfolio investment into China dropped substantially, despite a surge in China’s stock market that attracted private investors elsewhere around the world. 

Though the relationship between the two countries is largely rooted in trade, several notable deals have broken through. See details on some of the largest investments by Chinese companies into Australia, as tracked by the China Global Investment Tracker, in the table below. 

Date	Value	Description
March 2020	$1.1 billion	Global Logistics Properties, a Singapore-based entity that is wholly owned by Chinese investors, paid Australian property developer Goodman Group over $1.1 billion to acquire Eastern European assets. GLP’s owners are Hopu Investment Management, Hillhouse Capital Group, Vanke Group and Bank of China Group Investment.
June 2018	$1.4 billion	Hong Kong-based China Grand Pharmaceutical and Chinese private equity firm CDH Investments acquired Sydney-based medical device maker Sirtex Medical. Sirtex, which specializes in liver cancer treatments, delisted from the Australian Stock Exchange soon after the acquisition.
June 2017	$1.5 billion	State-controlled Yancoal acquired Coal & Allied from Anglo-American miner Rio Tinto for $2.7 billion. Yancoal then formed a 51-49 joint venture with global miner Glencore to manage coal producing mine Hunter Valley Operations.
September 2016	$1.5 billion	Sovereign wealth fund China Investment Corporation (CIC) took a 20 percent stake in Victoria state’s Port of Melbourne. It was part of a consortium of investors that bought the port for a 50-year lease. Other members included Australian sovereign wealth fund Future Fund, U.S. asset manager Global Infrastructure Partners, Australian government-owned Queensland Investment Corporation (QIC), and Canadian pension fund Ontario Municipal Employees Retirement System (OMERS).
December 2015	$2.2 billion	Chinese state-owned State Power Investment Corporation acquired Australian renewable power company Pacific Hydro from Australian investor IFM Investors. Pacific Hydro operates wind firms and hydropower plants.
July 2015	$1.8 billion	Chinese sovereign wealth fund China Investment Corp (CIC) bought Morgan Stanley’s Australian real estate unit Investa Property Group. The purchase included nine office buildings in Melbourne and Sydney as well as billions in property management contracts.
June 2015	$1.5 billion	Chinese state-owned bank China Construction Bank (CCB) bought $1.5 billion in Australian loans from the Royal Bank of Scotland.
November 2014	$3.0 billion	China’s Yankuang committed billions to its Australian subsidiary Yancoal following the collapse of coal prices.
May 2013	$3.8 billion	China state-owned power grid company State Grid bought a 60 percent stake in Singaporean gas and power company Singapore Power’s Australian subsidiary. The subsidiary operates assets branch Jemena and services branch Zinfra. Jemena’s gas distribution business accounts for most of the company’s profits. Singapore Power, which is owned by Singaporean government holding company Temasek, still owns the other 40 percent.
March 2012	$2.4 billion	China General Nuclear (CGN) and other Chinese investors bought internationally focused Australian mining exploration company Extract Resources. One significant asset included in the transaction was the Husab mine in Namibia, a uranium mine that different estimates place as the second- or third-largest uranium mine in the world.
October 2012	$1.9 billion	State-owned China National Offshore Oil Corporation (CNOOC) bought interests in the Queensland Curtis LNG (QCLNG) project from U.K. oil and gas company BG Group, which brought its total equity stake up to 50 percent. BG Group has since been acquired by Dutch oil company Royal Dutch Shell.
December 2012	$1.6 billion	China state-owned oil company PetroChina (CNPC) bought a stake in liquefied natural gas project Browse from Australian mining company BHP. PetroChina holds a 10.67 percent stake in the project, per project operator and Australian natural gas producer Woodside.
December 2011	$2.2 billion	Yancoal, an Australian subsidiary of Chinese state-owned coal producer Yankuang, acquired Australian mining company Gloucester Coal. The merger brought Yancoal onto the Australian Stock Exchange.
April 2011	$2.0 billion	State-owned power generation company China Datang Corporation and state-owned manufacturer China South Industries formed a joint venture with Australian renewable energy company CBD Energy. Datang is the majority owner in the new entity, AusChina Energy Group, which aims to generate wind power in Australia.
February 2011	$1.5 billion	State-owned oil company Sinopec bought a 15 percent equity interest in a liquefied natural gas resource in Queensland from Australian gas and oil company Origin Energy and U.S. energy company ConocoPhillips.
March 2010	$1.6 billion	A 50-50 joint venture, split between state-owned oil company PetroChina (CNPC) and Dutch oil company Royal Dutch Shell, acquired Queensland energy company Arrow Energy. Arrow Energy is a coal seam gas (CSG) company, which means it gets its energy from gas extracted from coalbeds. One notable project under Arrow Energy’s control is the Surat Gas Project, which Arrow estimates will bring 700TJ a day of gas at its peak.
August 2009	$3.0 billion	China state-owned coal company Yankuang bought Australian coal company Felix Resources. In the deal, it acquired the Moolarben mine in New South Wales.
July 2009	$1.5 billion	State-owned aluminum company Aluminum Corporation of China (Chinalco) bought $1.5 billion worth of shares in Anglo-American mining company Rio Tinto to maintain a 9 percent stake in the company.
June 2009	$1.4 billion	State-owned metals and minerals company Minmetals bought almost all assets from Australian mining company Oz Minerals. An earlier version of the deal, at $1.8 billion, was rejected by Australian authorities over national security concerns; the final purchase excluded an asset that was near a military weapons-testing range.
August 2009	$1.1 billion	Sovereign wealth fund China Investment Corp (CIC) acquired a 17.8 percent stake in Australian property developer Goodman Group. Though it later sold many of its shares, it remains the largest stakeholder in Goodman Group, with a 9 percent stake as of January.
February 2008	$12.8 billion	Chinalco spent $12.8 billion, alongside U.S. aluminum company Alcoa’s $1.2 billion, to buy a 12 percent stake in Rio Tinto, which has headquarters in Australia and the U.K.
July 2008	$1.3 billion	Chinese state-owned Sinosteel took over Australian iron ore producer Midwest. Midwest now falls under the Sinosteel Midwest Group (SMG) with a new name, Sinosteel Midwest Corporation. It develops iron ore projects, as well as some magnetite and manganese, in Australia’s Mid West, north of Perth. At the time, it was the largest Chinese corporate takeover in Australia ever.
March 2006	$2.9 billion	State-owned trust CITIC made a deal with Australian mining company Mineralogy over the right to mine a magnetite iron ore George Palmer Deposit in Western Australia. The two entities have been locked in legal battles for the last several years.

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