Trade
China crucial to early post-COVID-19 economic recovery
Author: Wei Li and Hans Hendrischke, Sydney University
China’s economy is poised for a quick rebound. In March, factories reopened and in April, schools started reopening in China’s biggest cities. Daily coal consumption has returned to 90 per cent of pre-COVID-19 levels. But due to the risk of a second wave of infections, social distancing is still strictly enforced. Australia is facing an economic crisis and is more closely interconnected with China than ever before. Can trade links with China assist Australia’s economic recovery as it did through the post-global financial crisis (GFC) period?
The Australia–China economic partnership was crucial for Australia’s 2008–09 GFC recovery. The story was simple. China became Australia’s largest two-way trading partner in 2007, accounting for 13 per cent (AU$58 billion) of total trade. China needed iron ore for its infrastructure stimulus package and Australia could supply high-quality iron ore in reliable quantities.
Ten years later, in 2018–19, two-way trade with China surged past AU$230 billion, well over double the volume of trade with Australia’s second-ranked trading partner, Japan (AU$88.5 billion). Nearly 40 per cent of Australian exports now go to China and one fifth of imports are from China.
Compared to 10 years ago, trade with China is more diversified and linked with a larger number of small and medium businesses in Australia. During the GFC, China was Australia’s top market for intermediate products such as minerals, fuels and agricultural produce — products in high demand in China’s state-owned sector. Today, China’s middle-class consumers have become Australia’s top market for high-quality consumer products such as food, beauty and health products, as well as services like healthcare, tourism and education.
Australian small and medium exporters are targeting China’s expanding middle class. According to Alibaba, during the 24-hour Singles’ Day sale on 11 November 2019, over 2000 Australian brands were selling their goods through TMall and TMall Global. Australia was the fourth-ranked country selling into China — behind Japan, the United States and South Korea but ahead of Germany.
High-quality products involve more Australian service industries and higher value added. For example, digital traceability and blockchain technology facilitate exports of seafood and dairy products to China. For each dollar worth of total Australian exports to China, at least 28 cents of value added is contributed by domestic service industries.
The China trade effect that was concentrated on the resources industry after the GFC is now spread much more widely across Australia’s rural and urban industries.
Australia’s regional and urban export industries, including the tourism and education sectors, will therefore benefit from a quick post-COVID-19 recovery of Chinese consumer demand. China’s consumer spending, now the most important contributor to China’s GDP growth (57.8 per cent in 2019), is showing signs of recovery. China has relied on digital technologies and decentralised economic policy to drive up consumption, rather than centralised stimulus payments through direct deposits or debt-financed guarantees as seen in Australia.
A total of 19 billion RMB (US$2.7 billion) worth of consumption coupons have been handed out by local governments in over 170 Chinese cities. This consumer stimulus is rolled out through digital technologies via Alipay, Meituan, Dianping and WeChat mobile applications. Consumption coupons are efficient, flexible, easy to track and can target specific sectors that suit local circumstances.
During the 1 May holiday week, consumption rebounded strongly. Average daily retail sales increased by one third (32.1 per cent) over the Qingming holiday sales in the previous month. This recovery in middle-class consumer demand bodes well for the future. Middle-class families plan ahead for the future, including for health and retirement expenditure and not least, education for their children, including overseas education.
Growth in consumption is undergirded by stimulus measures for Chinese small and medium-sized enterprises (SMEs). SMEs are the backbone of job creation in China. Many of them now focus on domestic markets, but those focusing on exports rely on government support.
Unlike the post-GFC stimulus in China which targeted physical infrastructure building, the post-COVID-19 stimulus targets communication and service infrastructure such as mobile communication, which is of more immediate benefit to SMEs in the…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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