Lyla Lindsey
Australia's manufacturing sector has declined over the years, with the country becoming increasingly reliant on Chinese-made imports. This shift can be attributed to various factors, including Australia's relatively high wages, which made local manufacturing less competitive in terms of pricing compared to cheaper imports from China. In response, Australian companies have capitalised on inexpensive labour in Asian countries, particularly China, for the production of goods, resulting in a significant increase in imported products. This trend has raised concerns about Australia's economic vulnerability and potential exposure to ''coercion and economic blackmail'' by China.
| Characteristics | Values |
|---|---|
| Reason for Australia's reliance on China-made goods | Cheaper labour in China |
| Australia's manufacturing capability | 25% of GDP in the 1960s, 5% in 2022 |
| Current reliance on China | 18% of goods shipped from China |
| China's investment in Australia | $47 billion in 2023 |
| Australian businesses manufacturing in China | HeyDoodle, Sea Level, Zimmermann, Cotton On, Bonds |
| Australian government purchases from China | Army uniforms, tug boats for the Navy |
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What You'll Learn
- Australia's manufacturing sector declined, and reliance on China increased
- China's inexpensive labour is attractive to Australian companies
- China is Australia's largest two-way trading partner
- Australian businesses benefit from trade events in China
- Australia's free trade agreement with China has enhanced competitiveness
Australia's manufacturing sector declined, and reliance on China increased
Australia's manufacturing sector has been in decline, while its reliance on China has increased. At its peak in the 1960s, manufacturing accounted for about 25% of Australia's GDP, but now it only accounts for 5%. This decline has left Australia heavily dependent on foreign-made goods, with about one in five goods in the country sourced from China.
There are several reasons for this shift. One significant factor is the difference in labour costs between the two countries. Australia's relatively high wages made it difficult for local manufacturers to compete with cheaper Chinese imports. Australian companies, therefore, began to capitalise on inexpensive labour in regions like China, importing products at a lower cost.
Another factor is the removal of trade tariffs and the modernisation of the Australian economy in the 1980s, which put pressure on the manufacturing sector. Additionally, China's increasing dominance in the tech industries and its massive program of tech theft have made it a powerful player in the global market.
The Australia-China bilateral relationship is based on strong economic and trade complementarities, and China is Australia's largest two-way trading partner. In 2023-24, two-way trade with China totalled $325 billion, with Australian exports to China amounting to $212.7 billion. The China–Australia Free Trade Agreement (ChAFTA) has also played a role in enhancing Australia's competitive position in the Chinese market.
However, this reliance on China has raised concerns about national security and economic vulnerability. During the COVID-19 supply chain disruptions, Australia experienced the risks associated with depending heavily on foreign-made goods. Additionally, the recent escalation of trade tensions between the US and China has impacted Australian businesses that manufacture in China and sell in the US market.
To address these challenges, some have suggested that Australia needs to rebuild its manufacturing capabilities and skills, particularly in high-tech sectors. There are calls for bipartisan agreements to support this transition and reduce the country's vulnerability to economic coercion by China.
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China's inexpensive labour is attractive to Australian companies
Australian companies capitalise on the low labour costs in China to maintain a competitive price point for their products. For instance, the Australian Defence Apparel (ADA) company awarded a contract for the manufacturing of new Australian Army uniforms to Chinese manufacturers. Similarly, the Australian Defence Force's new fleet of landing craft vessels was constructed in Western Australia by Austal, a Dutch company, at a Chinese shipyard.
The utilisation of Chinese labour allows Australian companies to reduce production costs and increase profit margins. This is particularly beneficial for labour-intensive industries such as the fashion industry, where Australian fashion brands like Zimmermann, Cotton On, and Bonds manufacture their products in China to take advantage of the low labour costs.
Additionally, the removal of trade tariffs and the floating of the Australian dollar have further incentivised Australian companies to utilise China's inexpensive labour. The China-Australia Free Trade Agreement (ChAFTA) has enhanced Australia's competitive position in the Chinese market, making it more economical for Australian businesses to manufacture their products in China.
However, the reliance on China's inexpensive labour has also led to concerns about the decline of local manufacturing in Australia. There are worries that Australia is vulnerable to any restrictions on imports from China, and that this dependence could potentially be exploited for political ends.
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China is Australia's largest two-way trading partner
Australia's exports to China totalled $212.7 billion in 2023-24, with services exports increasing by 42.3% in the same period. This was driven by increased personal travel and the return of students to Australia. The China-Australia Free Trade Agreement (ChAFTA), which came into force in December 2015, has enhanced Australia's competitive position in the Chinese market, boosting economic growth and creating jobs.
The bilateral relationship between Australia and China is strong, with diplomatic relations established in 1972 and an embassy opened in Beijing the following year. China is the fifth-largest foreign direct investor in Australia, with investment stock worth $47 billion in 2023. Chinese investment has broadened from mining to other sectors, including infrastructure and healthcare.
However, Australia's reliance on Chinese imports has raised concerns about the vulnerability of its supply chains. Australia's manufacturing sector has declined, with manufacturing now making up just 5% of the country's GDP. About one in five goods in Australia are sourced from China, and the removal of trade tariffs has increased the affordability of Chinese imports for Australian consumers. This has contributed to a shift away from Australian-made products, with businesses capitalising on inexpensive labour in regions like China.
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Australian businesses benefit from trade events in China
Australian businesses have benefited from trade events in China, with the Australian Made Campaign Ltd Chief Executive Officer, Ian Harrison, leading the way. In May 2018, Harrison travelled to China to attend a suite of events, including the China International Beauty Expo (CIBE). The CIBE offered exporters and buyers in skincare, cosmetics, natural health, and associated equipment and packing industries a face-to-face platform. The Australian Made logo, a successful tool to prove provenance, was featured prominently at the events, and on digital advertising boards at the AFL match between Port Adelaide Football Club (PAFC) and Gold Coast Suns (GWS).
The China International Import Expo (CIIE) is another major event that Australian businesses should consider attending. It is estimated that 150,000 domestic and foreign professional purchasers will participate in the CIIE, a huge opportunity for Australian businesses to gain exposure and showcase their products under the 'Brand Australia' identifier.
The benefits of Australian businesses participating in trade events in China are clear. Firstly, China is Australia's fifth-largest foreign direct investor, with an investment stock worth $47 billion in 2023, and accounting for 4.0% of total foreign direct investment. Secondly, the China-Australia Free Trade Agreement (ChAFTA) has enhanced Australia's competitive position in the Chinese market, with businesses taking advantage of lower tariffs. Thirdly, increased engagement between the two countries has led to positive developments in the trade relationship, including the removal of trade impediments.
However, it is important to note that the current global trade landscape is navigating a period of significant volatility and uncertainty, with ongoing US-China trade disputes and disruptions in the Red Sea impacting global supply chains. Despite these challenges, Australian businesses have always been adaptable, and staying informed, diversifying markets, strengthening supply chains, and managing costs can help navigate these turbulent times.
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Australia's free trade agreement with China has enhanced competitiveness
Australia's free trade agreement with China, the ChAFTA (China-Australia Free Trade Agreement), has enhanced competitiveness for Australia in the Chinese market. The agreement was signed in 2015, and has resulted in significant economic benefits for Australia, including boosting economic growth and creating jobs.
ChAFTA has unlocked opportunities for Australian businesses in China, which is Australia's largest export market for goods and services, accounting for nearly a third of total exports. The removal of tariffs on 95% of Australian exports to China has been a significant factor in enhancing Australia's competitiveness in the Chinese market. This has particularly benefited agricultural products, including beef and dairy, and the services sector.
The agreement has also encouraged investment from Chinese private companies, with investments under 1,078 million AUD exempt from FIRB approval. Additionally, a Work and Holiday Agreement grants up to 5,000 visas to Chinese nationals for work and holiday purposes.
Prior to the agreement, Australia's manufacturing sector was in decline, with high wages making it difficult to compete with cheaper imports, especially from China. This resulted in an increased reliance on imports from China, with about one in five goods in Australia sourced from there.
By signing ChAFTA, Australia has improved its competitive position and gained greater access to the large Chinese market, enhancing its economic growth and creating more jobs.
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Frequently asked questions
Not everything in Australia is made in China. However, about one in five goods in Australia are sourced from China. This is due to Australia's relatively high wages leaving local manufacturing unable to compete with cheaper Chinese-made imports.
Australia's manufacturing sector has declined, with manufacturing now making up just 5% of Australia's GDP. This has left the country vulnerable to any restriction on imports.
Some examples include textiles, clothing, kitchen appliances, cars, and even Australian Army uniforms and Australian Navy boats.
