Australian firms happy stuck in the middle with Xi

Image Source: SMH

Beijing | Caught in a global trade war between US President Donald Trump and Chinese leader Xi Jinping, Australian businesses operating inside China are confident they have chosen the right side.

Executives from companies ranging from wineries to medical device makers said they are reaffirming their bets on China, may even benefit from the trade war, and remain cautiously optimistic about the future of their operations inside the world's second-largest economy.

"When the world goes a bit crazy as it's going now, even if China's not perfect, it's pretty good," said James Laurenceson, director of the Australia-China Relations Institute at the University of Technology Sydney.

"There's a bunch of regulatory uncertainty in China, for sure. But I'm not sure I'd rate the US any better right now. So in that relative frame, China's not looking so bad."

Nearly 70 per cent of Australian and foreign firms say they continue to rank China among their top three global investment priorities, according to an annual survey by Beijing-based business lobby group AustCham China.

"I have greater confidence in what will happen in China over the next five years than what will happen in America overnight," said Rob Phillips, founder of ASX-listed medical device maker USCOM.

"I copped a lot of flak from my investors for being Sinocentric. They're now quite grateful for that."

Their optimism was reinforced late on Thursday with revelations Trump and Xi had agreed to launch a new round of high-level trade talks as they seek to ease commercial tensions that have been rattling the global economy.

The US president and Chinese leader spoke on the phone, in their first known conversation since Trump returned to the White House in January, following repeated attempts by Washington to engage Xi in a discussion on trade.

Describing the call as "very good", Trump also said imports of rare earth minerals from China would resume soon as a result of the talks. China's limited exports of the vital materials have been a source of tension in recent weeks, as both sides accused each other of reneging on a breakthrough deal reached in Geneva last month.

Inside China, more than half of businesses surveyed say they are planning to expand across the mainland in the next three years, targeting emerging cities and regions that remain hungry for foreign expertise, especially in clean energy, agribusiness, education, biopharma and other sectors.

Based on responses from more than 850 companies operating in China, the report offers a rare window into the thinking of mostly Australian firms at a time of global warnings of decoupling from China and the United States because of whipsaw tariffs and rising geopolitical tensions.

Economists fear for China's already stuttering economy because of the trade war. A persistent property crisis has already dragged on domestic consumption and pushed up unemployment. But Australian business leaders argue the sheer size of China's market still offers earnings growth for those prepared to establish long-term operations.

Treasury Wine Estates was a high-profile casualty of Beijing's trade sanctions against Australia during a row with the former Morrison government. But the winemaker has maintained its country-of-origin strategy inside China, according to Chen Ma, head of government affairs.

"Even during the really painful [sanctions], we studied the climate and subregions in China," Ma said. "Now we're better positioned than before."

Executives are quick to note success in China isn't automatic.

"It's not a plug-and-play market," Phillips said. "There are 34 provinces, each implementing national law differently. You need partners that know what's going on in one hospital, one city, one province."

Australian companies are also hoping to take advantage of their unique position in the US-China trade war. Some Australian beef, barley and dairy businesses have reported rising interest from Chinese buyers, who are looking for alternatives to US products that will draw high tariffs if the trade truce breaks down.

The China-Australia Free Trade Agreement ensures tariffs on Australian exports remain low, averaging just 1.1 per cent, while zero levies are applied to Chinese goods entering Australia.

Still, companies are not dismissing the risks. Sectors such as technology and critical minerals face heightened security under Australia's foreign investment review regime.

"I can't think of a single Chinese investment that has been approved in Australia's critical minerals sector for more than five years," Laurenceson said, calling for a "smarter" approach to balancing national security and economic opportunity between the two countries.

Chinese businesses themselves are scathing of Australia's slow approvals process. The 2025 Doing Business in China report noted growing frustration among business leaders who see FIRB as "unclear and restrictive".

"Blocking all Chinese investment in critical minerals without exception doesn't suggest security is being appropriately weighed," Laurenceson said.

While Beijing and Canberra remain far from aligned on security issues, many businesses believe there is enough space for growing trade. "We're out of the dog house," Tian Zhang, chief executive of AustCham China, said.

Source: Australian Financial Review