Why Australia’s trade relationship with China remains at ground level

Despite strong export data, Australia’s trade relationship with China isn’t as developed as we think. AAP

AUSTRALIA IN ASIA: In the seventh part of our series, James Laurenceson looks at the challenges in doing business with China.

The headline numbers surrounding Australia’s exports to China make for impressive reading.

Australian Bureau of Statistics data show that in 2010, the value of merchandise exports had reached $58.4 billion, with services adding another $6 billion. This made China by far our most important export destination.

The level of merchandise exports reflected an average annual growth rate over the past five years of 29.1%.

Australia’s apparent export success also meant that it was one of the only high-income countries to be recording a trade surplus with China, reaching $27 billion.

The optimism surrounding our trade relationship with China stands in stark contrast to that of the US, where the Senate passed legislation intended to make Chinese exports less competitive.

But despite these encouraging numbers, our export performance to China is far less impressive than many people think.

In terms of merchandise exports, all we have really cracked is the ability to export minerals, in particular, iron ore – and not a lot else.

In 2010, minerals accounted for 67.3% of the total. This concentration has been growing over time, and the higher up the value chain you go, the more disappointing our export performance has been.

Consider the fact that mineral exports to China have been growing at an average annual rate of 39.2% over the past five years, compared with just 3.7% for elaborately transformed manufactures.

Whichever way you look at it, this latter figure is ordinary in the context of a Chinese economy that has been growing at an average annual rate of around 10%.

Exports of services to China are also heavily concentrated in just two areas, tourism and education.

These issues are significant for several reasons.

Is Kevin Rudd too optimistic? AAP