The Australians pushing to get back into China after bruising trade war

Rob Phillips is bullish on China. At his small med-tech company Uscom’s headquarters in an office tower in Sydney’s CBD, boxes of circuit boards, LCD screens and pieces of hardware congregate in a corner, ready to be assembled by engineers into patented ultrasound and blood pressure-monitoring devices.

Many of them are destined for China, where they are already used in 600 hospitals across the mainland. Uscom, a publicly listed outfit, counts China as its biggest market. And it’s chasing an ever-bigger slice of the opportunity pie.

“We’re expanding,” says Phillips, Uscom’s chief executive and a professor at the University of Queensland’s Institute for Molecular Bioscience.

“The China market is 1.4 billion [people]. Australia’s is 27 million. There are a lot of Australias in China.”

Phillips is not worried by China’s economic downturn, believing a rebound is inevitable. Nor is he too concerned about a return to the bad old days of frozen diplomatic relations, when China slapped trade bans on a dozen Australian industries – including coal, wine, barley, lobster, cotton and beef – in 2020 in retaliation for the Morrison government’s call for an independent inquiry into the origins of COVID-19 after years of ratcheting tensions between the two countries.

The med-tech industry wasn’t directly targeted by China’s sanctions, but Uscom was, in effect, shadow-banned. Purchasing tenders were delayed, hospitals were suddenly uninterested in buying devices, and revenue plummeted 50 per cent.

“If, for some reason, the government changed and we ended up as we were before, with politicians head-to-head fighting, my business could go to zero. I need to have risk management now,” Phillips says.

But he adds: “China is the world’s biggest medical market. You cannot afford not to have a good relationship and not to be there.”

After the trade war

It has been almost a year since China dismantled the last of its $20 billion in economic sanctions on Australian exports, with the final restrictions on the lobster and beef industries lifted in December.

The business community and its lobby groups are ebullient that the economic relationship – Australia’s most important, with China its largest trading partner – is back on track after years in the doldrums. They point to Prime Minister Anthony Albanese’s trip to China in July as having injected another much-needed shot of confidence.

Two-way trade hit almost $311.6 billion in 2024, with China accounting for nearly a third of Australia’s exports. Many of the sanctioned industries are bouncing back as exports resume, though total goods exports – the engine driver of the trade relationship – have slipped by about 13 per cent from 2023 to $179.2 billion, buffeted by falling iron ore prices.

Other data points suggest a sluggish return to form. Australian direct investment in China slumped to just $1.5 billion in 2024, down from more than $2 billion the year before, and $15.5 billion in 2019.

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But the lag in the data, and the fact that Australian companies operating in China often don’t have extensive footprints but rather small representative offices, coupled with China’s own economic slowdown, adds to the difficulty in getting a full picture of the recovery of business ties.

This includes how the scars of the trade ban era continue to shape companies’ risk assessments about re-engaging with China, and whether there’s been a chilling effect on new entrants seeking a foothold in the country. Many businesses are reluctant to draw attention to their China operations beyond positive PR.

For the Australian wine industry, which was crippled by tariffs of up to 212 per cent for three years, returning to the Chinese market has been complicated by a worldwide downturn in wine consumption and a government-led crackdown on banquet culture among officials, which had been a key source of demand for high-end red wine.

Nonetheless, the Chinese market cannot be ignored, says Swenson Su, general manager of global wine company Vinarchy, which produces Australian brands Jacob’s Creek, Hardys and St Hallet.

“We’re still looking at growth opportunities for China,” he says. “If there’s a trade issue with China again, it wouldn’t shake the foundation of Vinarchy’s exports to Asia – we are diversified enough.

“There’s risk everywhere, right? Look at Europe. There’s risk of declining wine consumption. Look at the US. [President Donald] Trump has a new trade policy every month. Those are just factors that business needs to navigate in today’s environment.”

Michael Wadley, a Shanghai-based lawyer and consultant who has advised businesses on China strategy for 25 years, says that before 2019, there was a gold rush of companies scrambling to get a foot in China’s door. Today, the recovery is more of a “slow burn”.

“But it is gathering momentum,” he says, adding that the pandemic added another layer to the political storm that drained business confidence.

“Before that, you had people piling in. Now companies want to be here, but the question is whether their board or owners have the appetite to be here, and they will make the final decision or veto.

“I have not seen a huge uptick in the inquiry or actual transactions.”

Those that are coming to China are much better prepared, he says, and have done risk assessments, due diligence, and strategic planning.

“Australian firms are leaning in, not stepping back,” says Vaughn Barber, the Beijing-based chair of business chamber, AustCham China, where Phillips is also a director.

“I wouldn’t describe it as a rush … but I’d say a steady flow.”

Barber points to the chamber’s survey in January of more than 800 executives from both Chinese and foreign companies directly involved in Australia-China business activities, including almost 300 Australian-controlled companies. Three-quarters of the foreign firms said doing business had become easier since the improvement in Australia-China relations.

Albanese’s three-city visit, which included meeting with Australia’s mining chiefs in Shanghai and lunching with Australian and Chinese leaders of the medical tech industry in Chengdu, “sent all the right signals”, Barber says.

Security element

For Albanese, restoring trade ties with Beijing is his pin-up achievement in the government’s effort to put the bilateral relationship on a more stable footing. It’s the good news story he is eager to crow about – the crowning example of his “co-operate where we can” maxim – while punting away questions about ongoing areas of tension with his catch-all “disagree where we must” retort.

Captured in those latter four words is the breadth of Australia’s strategic, national security and human rights concerns that exist beneath the surface of the renewed trade ties, spanning issues from China’s massive military build-up, its intensifying influence operations in the Indo-Pacific, aggressive territorial claims in the South China Sea, increasingly belligerent posture towards Taiwan, which it claims as its own territory, and the detention of pro-democracy blogger Dr Yang Hengjun. Once pursued publicly and with a tendency towards megaphone diplomacy under the Morrison government, these are now largely ventilated in diplomatic back-channels and set speeches delivered in carefully selected forums.

China, too, is on a charm offensive, having dialled down its aggressive wolf-warrior diplomacy in favour of presenting itself as the new champion of free trade and a stable economic partner at a time when Trump’s America is waging a tariff war against friends and foes alike.

This year, Chinese President Xi Jinping has wooed foreign investment and hosted global CEOs, reversing course on years of crackdowns on private enterprise, particularly in the tech sector. China has also rolled out visa-free travel for many countries, including Australia, making it easier for business executives to come and go from the country without convoluted passport processes.

But security and defence experts have also warned that trade and national security are now intrinsically fused. The Morrison-era “war” might be over, but one impossible-to-ignore lesson is that business success in China can heavily hinge on the temperature of the two countries’ political ties – and the Chinese government has proved its willingness to change the operating rules overnight when things go south.

“I think the government is very alert to the threat [China poses],” Australian Strategic Policy Institute executive director Justin Bassi says. He was chief-of-staff to then-foreign minister Marise Payne when China imposed the trade bans, and national security adviser to Malcolm Turnbull as prime minister.

Bassi says the restored trade ties are a good thing, but he bristled when he saw mining company executives speak of a mutual “trust” relationship between Australia and China when they joined Albanese for a press conference in Shanghai.

“After the trade measures were dropped, China used their PLA navy to intimidate by circumnavigating Australia and by releasing chaff in front of our planes. So the relationship isn’t built on trust, and we can’t afford governments or industry to tell the public that it is,” he says.

The policy institute has irritated the government, and Albanese in particular, for its criticism of Labor’s handling of Chinese relations, and its advocacy for an increase in defence spending to counter Beijing’s increasing assertiveness in the Indo-Pacific region.

But others, too, have warned against viewing China’s past economic coercion as an aberration confined to a uniquely bad diplomatic rough patch.

“We’ve got to remain aware they’re not a paragon of virtue when it comes to trade and would unquestionably put you in the doghouse again if you fell out politically,” Dennis Richardson, former head of the foreign affairs and defence departments, told The Australian Financial Review in July.

Economist James Laurenceson, director of the Australia-China Relations Institute at the University of Technology Sydney, takes a different view. He says the trade ban era showed the resilience of Australia’s exporters, who largely found other markets for their products, taking the sting out of Beijing’s coercive stick.

“If Beijing cut the market access again tomorrow, our beef producers, our barley producers, our coal producers, they would be absolutely fine,” says Laurenceson.

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As for Phillips, he’s a frequent flyer to Beijing, where Uscom has its China headquarters and his staff are steering expansion plans with manufacturers and distributors.

“Things can still go wrong. Maybe there will be another tantrum, but the Chinese won’t cut off their nose to spite their face. I don’t think Australia will mess it up this time either,” he says.

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