China May Be Back on the Menu for Aussie Investors

Yesterday, after more than two years of political bickering, an Aussie shipment of coal docked in China.

The unofficial ban, it seems, is over.

This is a milestone moment for Australia and our biggest trading partner, because while trade tensions may not be entirely behind us, this coal is an important first step.

As Chinese commerce minister Wang Wentao commented in an official press release:

‘At present, the economic and trade relations between the two countries are facing an important window period…the meeting is a significant step to push China and Australia economic and trade relations back on track…’

The meeting in question was between Wentao and our own trade minister Dan Farrell. These talks appear to be thawing trade relations at a time when China is desperate to avoid recession.

After all, our commodities have long been a vital part of China’s incredible economic ascent. Without our raw materials, it’s pretty safe to say that they would not have achieved the same kind of rapid growth.

It certainly helped a lot of local businesses too, especially in the mining sector. Which begs the question, could this new era lead to another China boom for investors?

The new, new China trade

At face value, the obvious answer is…probably.

Any kind of increased trade relations with China is good for businesses that used to or are looking to enter the Chinese market. That much is obvious to anyone.

The harder part to answer is whether demand will ever be the same for key materials like coal, iron ore, and baby formula — just a few examples of the biggest winners of the pre-COVID China boom years.

I certainly wouldn’t be betting the house on that occurring…

What may surprise you is the fact that China is spending big on clean energy initiatives. Last year alone, a whopping US$546 billion was put toward green power solutions such as wind, solar, and batteries.

In fact, China nearly accounted for half of the world’s low-carbon spending.

So, while it may take time for these investments to yield the desired results, it’s clear that China is adamant in committing to its energy transition — likely making shipments of coal a pretty bad long-term investment for Aussie investors…

As Scientific American reports:

‘“China has managed to nurture these really integrated, efficient value chains for making things like solar panels, for making things like battery cells,” said Antoine Vagneur-Jones, head of trade and supply chains research at BloombergNEF.

‘Both now make up a substantial percentage of China’s export revenues, he added. But China is also investing heavily in domestic supply chains, including wind turbine components for a massive expansion in offshore wind deployment, Vagneur-Jones said.’

Australia’s role in China’s pivot

The good news is that while China’s needs may be changing, so too are the offerings from Australia.

Lithium, for example, has quickly made a comeback as the hot new commodity in mining, and Australia is now the world’s largest supplier of the key battery mineral, despite not being home to the largest deposits.

Where we excel is our expertise in the mining business and long-time trading history. Unlike some of the more lithium-rich nations, we have far more political stability.

But, of course, this renewed trade relationship isn’t just about lithium.

It’s about all kinds of minerals, commodities, and everyday goods.

Green energy is hopefully just the start.

What would really be impressive is if we start to see new trade opportunities arise.

Because beyond mining, the other big beneficiary of this development has to be agriculture.

As Dan Farrell commented yesterday, a recent trade application for lobsters hasn’t been rejected either — a move that could signal Aussie farmers and fishermen could be set for renewed Chinese demand.

One can only hope, anyway.

Which is why, for investors like yourself, the time to consider the ‘China trade’ may be pertinent once again…because if the relationship continues to thaw, some big opportunities may be back on the menu.

Regards,

Ryan Clarkson-Ledward,
Editor, Money Morning