China signals diplomatic rift is alive and well China signals diplomatic rift is alive and well China signals diplomatic rift is alive and well

China signals diplomatic rift is alive and well

Summary:  China today announced the "indefinite" suspension of all activity under a China-Australia Strategic Economic Dialogue, underscoring the ongoing diplomatic rift between the two countries. Over the last year, the relationship has clearly deteriorated, and investors should expect these tensions to remain.

China today announced the "indefinite" suspension of all activity under a China-Australia Strategic Economic Dialogue, underscoring the ongoing diplomatic rift between the two countries. The last meeting under the China-Australia Strategic Economic Dialogue was in 2017, so the announcement today seems largely emblematic of the ongoing diplomatic rift with limited immediate impact. Although a clear confirmation of the continued tensions.

We have outlined before and our view has not changed - As is customary of geopolitical stresses and strains, the tensions will fluctuate, with periodic flashpoints, but the long run trend is set. Australia will pivot toward other export markets and China will gravitate toward self-reliance as telegraphed at the 5th plenum and in the touted “Dual Circulation” strategy. However, its not as simple as it sounds and these shifts will take time as new relationships are forged - the path will be bumpy and winding as goods are diverted elsewhere, but China’s dominant purchasing position for Australian goods comes with a price Australia is not willing to pay.

Australia’s export economy is incredibly interconnected with China, China is Australia’s largest trading partner and Chinese immigration/tourism has underpinned demand for Australian property and services exports like tourism and education.

For some Australian assets, a geopolitical risk premium should be considered by investors as there is no doubt these diplomatic tensions can manifest in a painful way for the individual industries targeted. Winemakers have felt the squeeze of China’s tariffs and a barrage of other attacks on Australian exports from coal and copper to barley and other agricultural products have also been amongst the industries bearing the brunt of this deteriorating relationship.

China’s embassy in Canberra has previously warned of a consumer boycott on Australian goods and produce, causing concern to producers fearing they could be the next targets in China’s economic coercion. Treasury Wine has felt the pain of souring ties with China, alongside beef, barley, coal and even lobster exports, but other companies like Bubs Australia, A2 Milk, and Blackmores have long relied on Chinese demand and could find themselves impacted by any boycott.

The warning also alluded to a potential bypassing of Australia as a destination for both tourism and education, both tourism and education are major service export industries in Australia - Think Qantas, Sydney Airport, Crown resorts, Star Entertainment and IDP Education.

Declining Chinese demand for these products and services would be negative for the industries at stake, although beyond the volatility that comes with the headline risk it would be hard to ascertain the impact of various risk events without further details. With the hostilities between Australia and China having been on the boil for over a year now - the rift goes as far back as Australia's 2018 ban on Huawei's participation in 5G rollout on the basis of security grounds - many businesses have begun to respond or put contingency plans in place for these shifting geopolitical tides. With many pivoting their focus to the long-term potential of other Asian economies.

These threats hold repercussions for the Australian economy as China remains the number one purchaser of both Australian goods and services exports – a strong contributor to GDP. While de-risking via diversification of Australian exporters into other markets like India and the rest of South East Asia would support long-term goals, reduced Chinese demand for Australian goods and services poses a near term risk, particularly if other large-scale exports like Iron Ore were to be targeted in the worst-case scenario. Although at present, China needs Australian iron ore just as much as Australian exporters need China.

A ban on Australian iron ore would be the true “black-swan” and is unlikely to happen at this stage. China still needs Australian iron ore and cannot substitute yet – there is a structural dependence. Diversifying supply away from Australia will be challenging, however, over the coming years it would be reasonable to expect China to pivot from Australian iron ore exports if tensions continue along the current trajectory. But by the same token Australia can also diversify to other Asian markets - Indonesia, Vietnam, Bangladesh and India for example. Although these shifts will take time as new relationships are forged and goods are diverted elsewhere.

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (
- Full disclaimer (

Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.