China-Australia Trade Officials Hit ‘Snag’ as they begin Meetings, with Talk of Wine, Lobsters and Logs

· Three intended rounds of negotiations are expected to precede a visit to Beijing by trade minister Don Farrell

· Some insiders say that the bulk of trade is expected to eventually resume, but a considerable chunk has already been supplanted by other countries

· The discussions between trade officials of both countries have so far focused on tariffs related to Australian wine and barley, as well as unofficial bans related to logs and lobsters.

· “The world’s largest exporter the United States has much fewer export supplies available due to a smaller 2022 crop, while Australia has harvested a massive crop and is a major supplier to the world market.”

Trade officials from China and Australia are up for second and third rounds of discussions to eliminate barriers after meeting last week, and the negotiations are expected to pave the way for an eventual visit to Beijing by Australian trade minister Don Farrell, according to sources with direct knowledge of the matter.

While there is no concrete date for Farrell’s visit, he said he had accepted an invitation from China’s commerce minister, Wang Wentao, to continue their “productive dialogue” following a virtual meeting held on February 6. The first round of trade talks was said to have taken place virtually last Thursday, with officials meeting “to carry forward dialogue” and discuss “a broad range of trade and investment issues”.

One of the sources close to the Chinese government said that the discussions between trade officials of both countries have so far focused on tariffs related to Australian wine and barley, as well as unofficial bans related to logs and lobsters.

The other source, who is close to the Australian government, added that there was a “snag” in the talks, although it looks like they “are still going on”.

“[China] protested the Foreign Investment Review Board’s ban on the proposed Singapore/Chinese investment in an Australian lithium project,” the source continued, referring to reports that Canberra had blocked China’s Yuxiao Fund from increasing its investment, citing national interests.

Both China’s Ministry of Commerce and Australia’s Department of Foreign Affairs and Trade did not formally reply to requests for comment.

The Post reported last month that Australian Prime Minister Anthony Albanese “looks forward to seeing” a face-to-face meeting between Farrell and Wang ahead of the prime minister’s anticipated visit, which is expected to “demonstrate a full resumption between the two countries” after all trade barriers are settled.

Alongside a series of discussions between trade officials from China and Australia, Albanese will travel to Washington in mid-March to unveil the design for a fleet of nuclear-powered submarines to be built with the help of the US and Britain.

The joint announcement with US President Joe Biden and UK Prime Minister Rishi Sunak would represent a milestone in the 18-month-old Aukus partnership that is intended to counter growing Chinese naval might in the Asia-Pacific region.

Regarding the gradual relaxation of trade barriers between the two countries, analysts and industry insiders said that some Australian products – while not all – can still reclaim certain market share in China after being legally absent for three years.

Terry Newman, the owner of Ecquality Timber Products based in the Zhejiang province, said that the situation will “never return to the status quo”, but his “educated guess” is that 80 per cent of the business will return because China is a “very efficient producer”.

“Some of the business has certainly moved to Vietnam and other places,” he added. “On the broader issue, there is a host of factors that both importers and exporters consider when deciding to do, or not to do, business. One is risk … but in the end, price is going to be the main issue.”

Newman explained that Australian timber has not been banned over the past three years, only logs were. But Chinese shipping companies and agents were initially unwilling to import wood, partially because Chinese officials had briefed some of them on the unofficial ban.

Chinese buyers have stepped up inquiries for Australian coal following reports about the National Development and Reform Commission having held talks with four state-owned importers in January over a partial lifting of the verbal ban on Australian thermal and coking coal that has been in place since 2020.

Harry Huo, the chief editor at Shanxi-based coal information provider sxcoal.com, said that a lot of vessels over two megatonnes departed Australia in February and were set to arrive in China by this month.

“Feedback we received indicates renewed interest in Australian coal. State-run companies were among the first,” he added. “It is the quality, and there’s a price/logistics advantage for Chinese buyers to purchase.”

Huo further explained that Australian premium coking coal for steelmaking, which is scarce not only in China but worldwide, is a good option. Thermal coal’s prices are “sort of high”. Still, the price of Australian coal is overall competitive, and Chinese buyers “will surely buy”.

Chinese cotton buyers are also purchasing Australian products, in anticipation of the lifting of an unofficial ban that decimated Australian cotton exports to China, amid a diplomatic thaw that has already seen trade resume in other sanctioned commodities.

“Hopes are high in the industry that trade into China could resume due to local low Chinese inventories at a time when global supply is tight,” said Stefan Vogel, the general manager at RaboResearch Australia & New Zealand.

“The world’s largest exporter the United States has much fewer export supplies available due to a smaller 2022 crop, while Australia has harvested a massive crop and is a major supplier to the world market.”

Since October 2020, he added, China has imported only a tiny fraction of the typical volumes – whereas more than 70 per cent of Australian cotton exports had moved to China before 2020 – as the Chinese government told buyers that they could lose their quotas if they bought Australian cotton.

However, Vogel said that the future outlook in China for Australian barley – which was slapped with an 80.5 per cent import tariff – is not as bright as it is for other Australian products.

“They don’t buy it at all, but rather they import barley from alternative origins as well as alternative grains such as corn,” he explained. “Australian barley has not been on top of the list for Chinese buyers in recent years – actually, it isn’t on the list at all.”

As a result of the strained relationship between the countries that particularly soured after the Morrison administration asked for an international probe into the origin of Covid-19, China also applied duties of between 116.2 and 218.4 per cent on containers of up to two litres of Australian wine.

Pierre Tam, president of the Hong Kong Wine Industry Association, said that Australian wine cannot reclaim its lost market share in China because products from Chile and Argentina have already replaced it.

“Small customers don’t think of Australian wine any more, mainly due to price considerations,” he added. “Some Australian exporters may need to engage in price wars to regain the market. But transport, marketing and storage costs are high.”

Tam further explained that logistics have not yet returned to pre-Covid levels, which is a risk that buyers will need to consider, while the “damage” to the wine sector “is already done” due to the geopolitical situation.

The Post reported earlier that Australian lobsters, which are still under unofficial bans, will be returning to the Chinese market in March after China’s envoy at its Perth consulate, Long Dingbin, visited the Geraldton Fishermen’s Cooperative in January.

However, Chinese restaurant owners and seafood importers said Australian rock lobsters are set to face “severe” competition from Cuba and Vietnam if they return to Chinese restaurant tables.