Australia's exports to China reach record A$102.5B in H1, driven by lithium concentrate sales; diversification efforts amid China's economic coercion deemed short-lived as share of exports to China bounces back to 36%
The Chinese economy may be softening and commodity prices falling, but Australia’s exports to
China
hit a record
$102.5 billion
in the first half of this year thanks to massive shipments of lithium concentrate.
Lithium has overtaken liquefied natural gas as Australia’s second biggest export to
China
behind iron ore, with sales rocketing to
$11.7 billion
between January and June. Two years ago, first-half sales of lithium to
China
reached only
$470 million
.
China
is taking almost all of Australia’s lithium output, underlining its dominance of both critical-minerals processing and of the energy transition more generally. Apart from
China
, just 2% goes to
Belgium
and 1% each to
the United States
and
Korea
, according to the
Department of Industry, Science and Resources
.
While the development of a major new export commodity is a boon to the economy, especially at a time when prices of other exports are sliding, China’s capture of the lithium market runs counter to the warning in the Australian government’s new critical minerals strategy of the danger of excessive reliance on a single customer.
The strategy declared that the ‘risks of disruption to critical mineral supply chains are heightened when mineral production or processing is concentrated in particular locations, facilities or companies’. Australia’s strategy was to work with ‘likeminded governments’ to diversify supply chains.
Detailed trade data from the
Department of Foreign Affairs and Trade
shows that the diversification of export markets during China’s two-year campaign of economic coercion of
Australia
was short-lived. Sales to most of Australia’s other principal trading partners have been falling sharply as sales to
China
recover.
When
China
embarked on its campaign of economic coercion,
Australia
was saved by its other Asian trading partners (see chart below). China’s share of Australia’s exports had peaked at 43% in
May 2020
but plunged to 28% by the middle of last year.
Shares of Australia’s export markets,
January 2015
to
June 2023
Source:
Australian Bureau of Statistics
(six-month rolling total).
The slack was picked up by
Japan
, whose share of Australia’s exports went from 11% in mid-2020 to 21% by September last year, and by other Asian nations whose combined share rose from 22% to 34%, comfortably overtaking
China
.
But with China’s share climbing back to 36% in the first half of this year, Japan’s share has dropped back to 16% and the rest of
Asia
is now taking just 29%.
Australian coal sales to
China
stopped entirely during 2021 and 2022, causing huge shifts in the global coal trade.
China
started buying coal from
Indonesia
, which then cut its sales to
India
and elsewhere.
India
boosted its purchases of Australian coal that had previously gone to
China
.
These flows have now reversed. India’s purchases of Australian coal, for example, went from around
$1.5 billion
a month to
$2.5 billion
a month through much of last year, but are now back to about
$1.3 billion
.
China
is now spending about
$1 billion
a month on Australian coal.
China
has also returned to purchasing Australian oil, with sales rising from nothing to
$860 million
in the first half of the year. Although never put on China’s list of banned Australian purchases, imports of wheat and other cereals (excluding barley) have risen rapidly from
$500 million
in the first half of 2021 to
$3.1 billion
so far this year.
The trade figures to the end of June don’t show any Australian exports of barley, for which
China
has only just agreed to drop its punitive tariffs. Tariffs remain on wine, and at the end of June,
China
still had trade bans on Australian copper ores, wood chips, timber and crayfish.
Total Australian exports to
China
rose by 22.4% in the first half of the year, despite a sharp, and continuing, fall in commodity prices.
China’s capture of Australia’s lithium exports highlights the tension between economic forces and strategic policy. The government favours investment from Western nations and its clear preference is to build supply chains with Western partners that bypass
China
.
The Foreign Investment Review Board
has been knocking back efforts by Chinese companies to invest in the Australian critical-minerals industry. For example, it has vetoed moves by a company directed by a Chinese national, Astroid Australia, to purchase 90% of lithium miner
Alita Resources
and prevented
Yuxiao Fund
from increasing its 9.9% stake in rare-earths miner
Northern Minerals
.
However,
China
has been building its expertise in critical minerals since the 1980s. Its unrivalled lead in processing and manufacturing technology makes it the obvious choice for buyers wanting quality refined critical minerals.
More broadly, the concentration of export markets in
China
exposes
Australia
to the impacts of both downturns in the Chinese economy and future geopolitical tensions between the two countries. However, the experience of the past two years, when the Australian economy barely noticed the impact of China’s trade strikes, underlines the flexibility and adaptability of international markets.
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