So, prime minister Albanese is in China for his fourth meeting with Xi Jinping, accompanied by a large Australian business delegation.  We hear from the government that now they have ‘stabilised the relationship’ with Beijing, it’s time to grow our two way trade.  That’s the path Australia is on, but we shouldn’t be.

Remember back to May 2020, when the Chinese Government began to coerce Australia through trade blockages because our government had called for an international investigation into what caused the deadly global COVID-19 pandemic?

$20 billion of Australian exports were affected for years – covering wine, wheat, barley, beef and lobster exports.

At the time, there was strong political, public and business agreement that we needed to reduce Beijing’s power over us on trade by broadening our export markets.  This led to some successful diversification – Australian exports to Japan and South Korea increased to offset about half the hit from Chinese trade bans between 2020 and 2022.

But diversifying away from the one big China market to several smaller markets is plain hard work, and it turns out both the Federal government and Australian businesses prefer the easy path.

Talking about trade with China earlier this year. Trade minister Don Farrell put it bluntly: “We have had a record year for trade last year, but I want to see that grow even further.”  He followed up with a classic bit of political doublespeak, adding “We need to keep the focus on China but also diversify our markets.” That’s like jumping into a pool while asserting your plan is to stay dry.

Mr Albanese isn’t bothering with any caveats.  He says “The relationship with China means jobs in Australia, it’s as simple as that.”  Well, if only that were true. 

“Our pursuit of growing trade dependence on China is making us increasingly vulnerable to Beijing and its coercion toolkit, right as we watch Beijing employ that toolkit against others.”

The problem is the Chinese government hasn’t somehow just got over the notion it should use access to its economy as a weapon – it’s doubled down on this idea and put it at the heart of its planning through Xi Jinping’s signature “Dual Circulation” economic strategy. This is all about making China’s economy less dependent on others’ economies while simultaneously making other economies more dependent on China’s.

And as Beijing works with Chinese businesses to achieve this, Beijing has also built a new and wide ranging economic coercion toolkit to take advantage of this structural fact. This gives Xi Jinping the levers he needs to control other nations’ and foreign companies access to any bits of China’s economy that can cause them pain.  And Beijing is already using it in highly intrusive and effective ways. 

In April China curbed exports of processed rare earths and products made from them that are crucial inputs to modern manufacturing.  This was in retaliation against US tariffs but had a much wider effect across global manufacturing.  European and American auto manufacturers were directly affected, slowing production and foreshadowing closure of plants. Aerospace and electronics industries across the globe were also affected.  Donald Trump backed down because of pressure from suffering American businesses.

Other nations and their big global companies are paying attention to this growing source of economic and geopolitical risk.  The US has already moved to use Pentagon money to buy into an American company that mines and refines rare earths domestically to begin to reduce Beijing’s power over US manufacturing.  And Japan, the victim of a trial run on rare earth controls by Beijing back in 2010 can now meet 60 per cent of its own needs.

The point is China will use its economic power as a weapon against others when it chooses to do so in areas well beyond rare earths.  Countries (and companies) that allow themselves to become overly dependent on China’s economy will be the most vulnerable to Beijing’s whims. (Even during Mr Albanese’s current trip to China with senior business leaders, a prominent Chinese media commentator has raised economic punishment of Australia by Beijing if the prime minister delivers on his election commitment of taking back the lease of Darwin Port from Chinese company Landbridge. Commentators don’t speak without permission in China.)

Changing our high level dependency is hard and requires coordinated efforts by governments and their private sectors. Our economy is complementary to China’s and that is an important driver. But that’s also true for us with Japan, South Korea and Germany. 

It took China years to create its dominant position in multiple sectors. Addressing this structural economic problem is also the work of years. It involves increased domestic investment in our own capacities and trade diversification to a range of other smaller, hard to access economies over time, for both our exports and imports.  Small progress can still be beneficial in making us less easily coerced.

It seems this real world lesson others in Europe, the US and Asia are learning now is passing our own government – and some big Australian businesses – by.  It’s common knowledge that China is our greatest export market, dominated by iron ore and coal. Beyond this, though, China’s share of our total exports by value is growing fast – rising from 34 per cent in 2021-22 to 41 per cent last year.  

And our vulnerability to Chinese government whims applies to imports too. 

Our imports of manufactured goods have risen by 34 per cent to $245 billion. China supplies the largest and growing share.  Our energy sector’s dependence on Chinese companies in our distribution system and as suppliers of solar panels and batteries is already disturbing, but we are adding a new economic security risk by the rapid growth in Chinese EVs. 

Australia already ranks at the top of the OECD  for dependence on China’s economy, meaning most other advanced economies and their governments have been able to put themselves at less risk than us.

So, it’s a mystifying fact that Australia seems keen to be the poster child government and economy signing up to Xi Jinping’s Dual Circulation strategy. 

Our pursuit of growing trade dependence on China is making us increasingly vulnerable to Beijing and its coercion toolkit, right as we watch Beijing employ that toolkit against others.

That’s not in Australia’s national interest.  It’s something to challenge and change.

A version of this article was first published by the Australian Financial Review.