19/02/2024
While diplomatic tensions between Australia and China have softened recently, Australia’s substantial alignment with the US and its allies could mean we miss out on opportunities in China's growing green energy and tech sectors, a panel discussed at a CEDA livestream.
"The diplomacy has certainly improved and there's been a softening of tone, but substantively, I think the Australian Government continues to signal a fairly clear choice, and that is aligning with the United States and its allies and other like-minded countries on a whole range of issues," Professor Jane Golley said as part of her moderator role in the livestream discussion on Friday.
"I actually see that as the biggest potential risk to the Australian economy in the next few years," she said.
Dr Marina Zhang, Associate Professor of Research at the Australia-China Relations Institute at the University of Technology Sydney, said two technological sectors at the centre of the geopolitical landscape were relevant to the Australia-China relationship – AI and renewable energy.
"China dominates across the entire value chain of green energy transitions from the upstream mining extractions to processing, smelting and downstream applications," Dr Zhang said.
Building extensive mineral processing capacities doesn't make economic sense for Australia, Zhang argued. "In the green-energy transition, the utmost goal for humans actually is to reduce carbon emissions.
“And if we are competing on building extensive capacities in processing, smelting and critical minerals, what’s the benefit?" she said.
Professor Golley agreed, stating, "when it comes to the renewable sector, it's very hard to find national-interest grounds in which we shouldn't be cooperating with the Chinese, so I think we can expect to see a bifurcation of the industries in which we continue or advance our cooperation with them and those in which we don't," she said.
Zhang advised that Australia's opportunity was in research areas such as AI and quantum computing, "but with Australia's market and the labour market, it's just not enough to develop downstream markets".
“For Australia to make a position in the global technological market, the best way is to maintain its collaborative attitude with both the US and China,” she said.
Dinny McMahon, Head of China Markets Research at Trivium noted China may see itself at risk of being locked out of Western markets following Russia’s invasion of Ukraine, and is working to address vulnerabilities such as its iron ore dependence.
"It's throwing a lot of resources at trying to find new iron ore deposits domestically in China, it's throwing a whole lot of resources at trying to recycle steel domestically in China and it's encouraging Chinese companies to develop their own iron ore mines overseas, specifically in Africa,” he said.
McMahon said regardless of these initiatives, China was never going to be able to plug the gap for iron ore, despite a recent decrease in building work across the country.
While about 90 per cent of all property sales were newly constructed housing until 2019-2020, this demand has peaked, McMahon said.
“The sheer volume of new housing that China needs is falling, and it will never again return to that elevated level that we saw at the peak in 2019 and 2020,” he said.
He pointed to population ageing, unaffordability of city housing for rural migrants and slowing demand for investment properties as reasons for the decline in building volume.
Falling home prices have also lowered expectations.
"The real issue is they're not sure if it's even going to rise at all over the next decade, and the impact of those expectations are really starting to change some fundamental things about the Chinese economy," McMahon said.
"It certainly affects peoples’ optimism about their future, and it affects their willingness to consume," he said.
McMahon argued China's unique political economy enabled creative solutions to its current issues.
“What we should be expecting over the next couple of years is creative solutions both on a micro level and big picture level to dealing with those problems,” he said.
Professor Golley encouraged viewers to read beyond the headlines and question the dominant narrative.
“My key takeaway for today is to expect the unexpected, because uncertainty really is going to be the dominant theme for the Chinese economy in 2024," she said.