Recalibrating Australia–China relations | East Asia Forum

Chinese Premier Li Qiang’s arrival in Adelaide on 15 June 2024 marked the first visit by a Chinese premier to Australia in seven years. This follows Australian Prime Minister Anthony Albanese’s visit to China in November 2023 and is expected to pave the way for Chinese President Xi Jinping’s first visit to Australia in a decade. As Australia–China relations restabilise, positive developments should be assessed while acknowledging persistent challenges.

In recent years, the Australia–China relationship has been turbulent and volatile, strained by diplomatic, economic and security issues. But recent developments suggest a cautious yet noticeable thaw. Both countries appear to recognise the mutual benefits of a more stable and predictable scheme of engagement.

Significant efforts were made by both Canberra and Beijing throughout 2023 to manage and stabilise the fraught relationship. In September, the two countries reopened high-level dialogue channels after a three year hiatus, signalling a willingness to engage constructively. This was followed by Albanese’s landmark visit to China in November, the first by an Australian leader since 2016.

Albanese’s approach, to ‘cooperate where we can, disagree where we must and engage in our national interest’, reflects a nuanced strategy that seeks to balance Australia’s economic interests with its security concerns and values-based foreign policy. Xi’s declaration that the two countries have ‘embarked on the right path of improving relations’ further underscores the mutual efforts taken to reset bilateral exchanges.

This diplomatic rapprochement has been accompanied by tangible economic benefits. Australia’s two-way trade with China increased by almost 10 per cent in 2023, totalling AU$326.9 billion (US$221.5 billion). The services sector in particular has seen surging growth, with exports to China up by 53.4 per cent, driven largely by the return of Chinese tourists and students.

China’s decision to lift trade restrictions on Australian exports imposed in 2020 represents a significant softening gesture. Restrictions targeting key Australian industries including wine, barley and coal had been a major source of economic and diplomatic friction. Their removal not only relieves affected Australian sectors but also signals China’s efforts to de-escalate trade tensions in the interest of strategic stability amid rising hostility with the United States.

Beijing is likely to identify gaps among Western countries and deploy tailored approaches to its interests. This calculated strategy allows China to weaken the authority of US leadership while bolstering its own influence in the region.

China’s shifting stance comes against growing trade challenges, with Chinese manufacturers facing headwinds in global markets. The European Union has launched an anti-subsidy investigation into Chinese electric vehicles and announced potential tariffs of up to 48 per cent, citing unfair competition. The United States also maintains steep tariffs on Chinese auto imports and has implemented measures to limit China’s role in critical supply chains. These actions threaten China’s economic growth by constraining its ambitions in the electric vehicle and automotive sectors. Improving trade conditions with Australia enables China to hedge against economic risks posed by trade conflicts with other major markets.

But it would be premature to declare a complete normalisation of relations. Key points of difference between Australia and China will likely persist in areas such as human rights and regional security, especially over Australia’s strategic alignment with the United States. Concerns over China’s assertive behaviour in the South China Sea and alleged Chinese influence operations in Australia remain potential flashpoints that could easily reignite new rounds of rhetorical battles.

Australia’s strategic calculus must also account for the broader geopolitical context. As the United States and China navigate their relationship, Australia is in the challenging position of balancing its longstanding alliance with the United States against its extensive economic ties to China. Albanese’s absence from the NATO summit in Washington — contrasting the high-profile presence of EU leaders including French President Emmanuel Macron and German Chancellor Olaf Scholz — signals Australia’s distinctive approach to regional security. While Australia strives to diversify trade partners and reduce economic dependence on China in the long term, this strategic dilemma is unlikely to dissipate and requires skilful manoeuvring from Canberra.

The current trajectory suggests an overall pragmatic approach from both sides. Australia appears to be pursuing a policy of strategic engagement, seeking to compartmentalise areas of cooperation and competition. China seems to recognise the value of a more stable relationship with Australia, particularly as it seeks to counter perceptions of diplomatic isolation and economic coercion. While key differences between Australia and China will likely remain, continued mutual efforts can keep relations stable in the short to medium term.

Zhuowen Li is a Research Analyst at the Peterson Institute for International Economics.