CNBC Explains - What is China Buying in Australia

The above CNBC video provides a brief explanation of the trade interdependence of China and Australia with an overview of the significance of the value of key Australian exports to China.

Since the turn of the millennium, there have been significant advancements in transport and telecommunication, leading to a gradual strengthening of economic linkages between nations. This has brought economies worldwide closer together than ever before, effectively overcoming the limitations of physical and geographical separation, which Frances Cairncross termed the "death of distance." With the widespread availability of more advanced and efficient transportation methods, the costs associated with moving goods and people across the globe have also been reduced. As a result, the significance of distance in calculating the actual costs of international trade and tourism has diminished.

Consequently, the invisible cost barriers that once prompted countries to trade within their own geographical regions have been partially lifted, opening up a broader range of opportunities for global trade. In the digital age, the swift advancements in long-range communication methods have further contributed to this transformation by enabling more extensive engagements in services trade. Economies can now easily import and export different types of services, from call services in India to various financial and insurance services offered by global organisations.

Trade

Trade takes place when national economies engage in the exchange of goods and services. For Australia, this is predominantly focused on exporting our abundant natural resources such as iron ore, coal and natural gas, while importing items like motor vehicles, refined petroleum, and machinery/capital goods, which are too costly to manufacture domestically.

Investment

Investment refers to the movement of foreign financial capital between economies, encompassing various forms such as borrowings, equity, bonds, property purchases, and direct & portfolio investment. Following the deregulation of international financial transactions in the 1990s, countries with relatively smaller populations and inadequate domestic savings to meet their investment needs (e.g. Australia) found it more feasible to bridge the savings gap by welcoming foreign investments as a means to finance their economic development. This was especially evident during the mining investment boom. Australia's high levels of investment and its capacity to undertake many mining projects greatly depend on foreign investments from countries like China and the US, which have sizable populations and surplus savings to invest abroad. Without these foreign investments, Australia's ability to fund such projects would be limited by the lack of capital resources.

Image: Australian Industries and FDI (2022), Image by DFAT (https://www.dfat.gov.au/trade/trade-and-investment-data-information-and-publications/foreign-investment-statistics/australian-industries-and-foreign-investment) 

Tourism

Tourism can play a crucial role in the success of many economies. When people travel internationally for personal/leisure or professional purposes, the host country experiences a boost to revenue and GDP resulting from foreigners spending on local businesses and jobs opportunities being created across various sectors, including communication, health and education (in the case of education-related travel, i.e. overseas students studying at Australian institutions). Additionally, governments will also be incentivised to invest in local infrastructure, whether that be building a new tourist attraction or simply improving public facilities, such as roads, parks, hospitals, and airports, to attract more tourists.

Prior to the pandemic, tourism accounted for ~10% of global GDP and employment (2019), with one in every five new jobs created between 2014-19 linked to the tourism sector. In Australia, it ranked as the top import and was among the top exports. However, due to travel restrictions and border closures, tourism has naturally declined in the past few years. Nonetheless, the sector has been making a gradual recovery back to 2019 levels, with the travel & tourism industry contributing to 7.6% of global GDP in 2022.

Image: Regional Overview of the Total Contribution of Travel & Tourism to GDP (2022 vs. 2019), Image by World Travel & Tourism Council (https://wttc.org/research/economic-impact#:~:text=In%202022%2C%20the%20Travel%20%26%20Tourism,and%20only%2011.4%25%20below%202019)

Image: Share of Global GDP from Travel & Tourism, Image by Statista (https://www.statista.com/statistics/1099933/travel-and-tourism-share-of-gdp/#:~:text=Travel%20and%20tourism%20accounted%20for,(COVID%2D19)%20pandemic)

Immigration

Immigration typically involves the permanent entry and settlement of foreign residents in a country. In Australia, immigration constitutes around 30% of the population, corresponding to one of the world’s highest immigration rates. This has several significant benefits: firstly, it provides a boost to the population, particularly the productive working-age segment, which, in turn, can contribute to the growth of Australia's financial market, narrow the investment savings gap, and support sustainable economic development in the future. Secondly, immigration enriches the workforce by attracting a valuable pool of skilled labour from qualified overseas workers who can immediately contribute to human capital development and technological advancement with their diverse range of ideas from around the world that help foster innovation.

Image: Overseas Migrant Arrivals in Australia, Image by Australian Bureau of Statistics (https://www.abs.gov.au/statistics/people/population/overseas-migration/latest-release)