China’s wheat purchases are booming, and most of them are coming from Australia

China and Australia have had a significant trade partnership for quite some time.

China’s wheat purchases are booming, and most of them are coming from Australia
Printed Chinese and Australian flags are seen in this illustration, July 21, 2022. Reuters/Dado Ruvic/Illustration/File Photo

The backstory: China and Australia have had a significant trade partnership for quite some time, with Australia providing essential resources like ores, metals and minerals to China. In fact, China holds the title of Australia's largest trading partner, with trade between the two nations amounting to AU$287 billion (US$192 billion) worth of goods exchanged in 2022 alone.

But for the past few years, their relationship has hit some rough patches. It all started when Australia sought a closer military alliance with the US. And then, Australia decided to put the brakes on Huawei's involvement in its 5G network back in 2018, causing some major friction. At the beginning of the pandemic, Australia asked for an investigation into the origin of the coronavirus, which led to China slapping hefty tariffs on Aussie goods like barley, beef and wine. Fast forward to 2021, and Australia axed two Belt and Road agreements with China.

The tariffs on Australian exports are estimated to have cost Australia AU$5 billion (US$3.47 billion) in lost revenue. So, Australia took the matter to the World Trade Organization, saying that China's tariff hikes were unwarranted.

More recently: Last year, Australia elected a new prime minister, bringing a whole new government to town, and it seems like it's taking a different approach to its relationship with China. In April, Australia decided to put its case against China with the WTO on hold for a bit. Why? It seems China agreed to speed things up and review the situation. Plus, Australia's trade chief went on a trip to Beijing to meet the top Chinese trade official last month. It marks the first time an Australian trade minister has visited China since 2019. China seems to be on board, as the Chinese foreign ministry expressed the country is ready to work together with Australia.

The development: China, already known for being the top importer of corn and soybeans, is now on the verge of outpacing Egypt and Turkey to become the biggest wheat buyer, too. In the first four months of this year, China has already imported over 6 million metric tons of wheat, which is a 60% increase compared to last year. Over the last 11 months, China has surpassed the 12 million-ton mark. And guess who's its top wheat supplier? Australia takes the crown, giving China more than half of its wheat imports.

Key comments:

“Imports have been quite profitable, and lots of cargoes were booked,” said Zhang Zhidong, senior analyst with Guolian Futures Co. “Domestic grains are expensive, and stockpiles are falling, so there is the demand.”

“We have made it clear that we believe there’s no justification for the measures that China introduced in relation to barley,” said Australian Foreign Minister Penny Wong to reporters last month. “We have also made clear that we believe it is in both countries’ interests for these trade impediments to be removed.”

“If the duties are not lifted at the end of the review period, Australia will resume the dispute in the WTO,” said Wong last month.

“Recently, some Australian Commonwealth Government officials launched a series of measures to disrupt the normal exchanges and cooperation between China and Australia out of Cold War mindset and ideological discrimination,” said China’s National Development and Reform Commission (NDRC) in a statement in 2021 about the decision to suspend activity under the China-Australia Strategic Economic Dialogue.