The Iron Silk Road: Navigating the Australia-China Economic Relationship for Investors

Introduction

The economic relationship between Australia and China represents one of the most consequential and paradoxical partnerships in the Indo-Pacific. China is Australia’s largest trading partner by a considerable margin, absorbing nearly a third of all Australian exports and underpinning the nation’s resource-driven prosperity. Yet Beijing is simultaneously viewed by Canberra’s national security establishment as Australia’s most significant strategic threat, driving the country deeper into defence alliances with the United States through arrangements like AUKUS. This duality, economic interdependence alongside Australia-China tensions, has defined the bilateral relationship for over a decade. The China-Australia trade war of 2020–24 (see below), in which Beijing imposed punitive tariffs and restrictions on Australian commodities, tested the resilience of both economies and reshaped trade patterns across the region. For investors seeking exposure to Australian markets or Asia-Pacific trade flows, understanding the nuances of Australia-China trade relations is essential. This blog post examines the key sectors, trade flows, and geopolitical dynamics shaping one of the world’s most important bilateral economic corridors.

This is the sixth instalment in our trade relations series, following analyses of US-China, US-EU, EU-China, US-Mexico-Canada, and US-India. New posts are published as global trade relationships evolve.

The Trade War: Economic Coercion and Its Limits

The China-Australia trade war of 2020–24 was unprecedented in its scope. Beginning in May 2020, shortly after Australia called for an independent inquiry into the origins of COVID-19, China imposed tariffs, anti-dumping duties, and unofficial bans on Australian exports of barley, wine, coal, cotton, timber, beef, and lobster. At their peak, the China tariffs Australia faced affected goods worth an estimated A$20 billion annually. Yet the coercion campaign produced mixed results for Beijing. Australian exporters proved more resilient than anticipated, finding alternative markets across Asia, Europe, and the Middle East. Coal is diverted to India, Japan, and South Korea. Wine flowed to the UK, the United States, and Southeast Asia. By some analyses, the restrictions may have backfired, encouraging Australian businesses to diversify away from China dependency. The full resolution came gradually:

• August 2023: Barley tariffs removed
• March 2023: Coal restrictions lifted
• March 2024: Wine tariffs removed
• December 2024: Lobster restrictions lifted

Trade Volume and the Balance of Power

In 2024–25, bilateral trade between Australia and China remained robust, cementing China’s position as Australia’s largest trading partner by a considerable margin. China (including Hong Kong) purchased over a third of Australia’s goods exports and supplied around a quarter of imports, a share far above global averages and tighter than any other advanced economy’s relationship with Beijing. The asymmetry is stark: Australia-China exports totalled nearly A$200 billion worth of goods and services in 2024, representing 30% of total Australian exports. In the opposite direction, Chinese exports to Australia totalled approximately US$76 billion.

Despite predictions of diversification following the China-Australia trade war, Australia’s reliance on China has actually deepened. Between 2014 and 2024, the share of Australia’s exports going to bilateral free-trade partners other than China dropped from nearly half to around 44%, while the share going to China rose from 35% to 37%. China’s share peaked above 40% between 2019 and 2021, plunged to around 30% in 2022 during the trade restrictions, before recovering strongly. The Australia-China trade statistics 2025 tell a clear story: no other advanced economy is as dependent on a single trading partner as Australia is on China. This concentration creates both opportunity and vulnerability, a dynamic that investors must carefully consider.

Key Sectors at a Glance

Iron Ore: The Foundation of the Relationship

Iron ore remains the bedrock of Australia-China trade. In 2024, China imported ~US$80 billion worth of Australian iron ore, with Australia shipping over 750 million tonnes, representing ~85% of Australia’s iron ore exports. The concentration is remarkable, accounting for approximately a third of Australia’s total export earnings. No other commodity relationship in the world matches this scale of bilateral dependency. 

The 2025 data shows continued volume growth despite iron ore price pressures. In January–July 2025, Australian mining companies exported over 500  million tonnes of iron ore, broadly in line compared to the same period in 2024. In July 2025 alone, Australia exported 75 million tonnes, up 5% year-on-year, with China importing 63 million tonnes (+7.4%). However, falling prices are squeezing revenues. The average iron ore price fell to ~US$85 per tonne in 2025 (down 14.2% year-on-year), and export revenues for January–July 2025 declined by double digits. Analysts note that $90 per tonne represents a critical threshold below which widespread production cuts occur globally, though Australian mines remain viable down to $75 per tonne, while Chinese domestic operations require $100+ to break even. The iron ore price forecast for 2025 suggests continued pressure. The Australian Government projects iron ore export earnings will decline from ~A$115 billion in 2024–25 to below A$100 billion by 2026–27, as benchmark prices continue to fall.

Coal: From Embargo to Normalisation

Coal represents another pillar of Australia-China trade, and a vivid case study in economic coercion and market adaptation. In late 2020, China imposed an unofficial ban on Australian coal exports amid deteriorating diplomatic relations, forcing exporters to find alternative markets in Japan, South Korea, and India. Following the lifting of China’s ban in March 2023, exports surged: in 2024, Australia shipped ~85 million tonnes of coal to China, up over 50% in 2023, with a total value of approximately ~US$8 billion.

However, 2025 has seen a normalisation. In January–June 2025, Australia exported ~35 million tonnes to China, down 7% year-on-year. Mainland China now accounts for just over 20% of Australian coal exports, a dramatic reduction from the nearly 40% share it held before the 2020 ban. This reflects a structural shift in global coal markets: China has pivoted toward alternative suppliers, including Mongolia and Russia, which now cover the bulk of its metallurgical coal imports. Australia now holds less than 10% of China’s coal import market, a position unlikely to fully recover. 

Australian coal exports face broader headwinds. Metallurgical coal export earnings are forecast to decline from ~A$55 billion in 2023–24 to ~A$40 billion in 2025–26 due to lower global prices, while thermal coal Australia earnings are expected to ease from ~A$37 billion to below A$30 billion over the same period.

Lithium and Critical Minerals: The New Frontier

While iron ore and coal dominate headlines, Australian lithium exports have emerged as a strategic flashpoint in the Australia-China economic relationship. The numbers are staggering: lithium has overtaken liquefied natural gas as Australia’s second-biggest export to China behind iron ore, with sales rocketing to A$12 billion in the first half of 2023 alone, up from just ~A$500 million two years prior. The dependency is even more concentrated than iron ore: nearly all of Australia’s lithium is exported to China, which processes it into batteries for electric vehicles and energy storage systems. Australia provides ~60% of China’s lithium demand, with Chinese companies such as Ganfeng Lithium and Tianqi Lithium holding significant stakes in Australian mining operations.

Critical minerals Australia produces extend beyond lithium. Australia holds significant reserves of cobalt, manganese, rare earths, and rutile, materials essential for the clean energy transition. Beijing controls 90% of the world’s rare earth refining, 80% of lithium refining, and 70% of nickel refining, giving it substantial leverage over global supply chains.

The geopolitics are complex. Under the Critical Minerals Strategy 2023–2030, the Australian Government aims to reduce dependency on Chinese processing by building domestic refining capacity and expanding partnerships with “like-minded” nations, including the United States, Japan, and the European Union. Rare earths Australia producer Lynas has partnered with US defence contractors, sending its share price to a 14-year high in October 2025. Yet economic reality constrains strategic ambition. When Australian Resources Minister Madeleine King offered lithium and rare earths as bargaining chips in US trade negotiations, Washington reportedly responded that Australia “wasn’t offering anything new.” China’s capture of Australian lithium exports highlights the tension between economic forces and strategic policy, a dynamic unlikely to be resolved quickly.

Wine: Recovery and Reality

Few industries suffered more from the China-Australia trade war than Australian wine. China had been Australia’s most valuable wine export market, purchasing over A$1.2 billion annually. When Beijing imposed China wine tariffs exceeding 200% in late 2020, alleging dumping violations, exports collapsed virtually overnight. The China tariffs Australia imposed on wine were among the most punitive of any trade measure. Between September 2020 and September 2021, the value of Australian wine exports globally declined by around a quarter to $2.27 billion, with exports to China dropping nearly 80%.

The tariffs were lifted on 29 March 2024, triggering an immediate recovery. In the 12 months ending March 2025, Australian wine exports surged over 40% year-on-year to ~A$2.6 billion, with mainland China accounting for nearly 40% of total export value. Australian wine China shipments reached nearly 100 million litres, valued at over A$1 billion. By the 12 months ending June 2025, total exports reached ~A$2.5 billion (+13%), with China taking 85 million litres worth ~A$900 million. The market is normalising after the initial restocking surge, with Q2 2025 volumes around a third lower than Q2 2024. Yet a full recovery remains elusive. Export volumes to China are still only half of the 2018 peak, reflecting a Chinese wine market that has contracted to a third of its 2019 size. Australia now holds approximately one-third of China’s wine import market, competing with Chilean, French, and South African producers who filled the void during Australia’s absence.

Barley: Tariffs and Resolution

Barley was the first Australian commodity targeted when Australia-China tensions escalated. In May 2020, China imposed barley tariffs totalling over 80% in anti-dumping and countervailing duties, effectively blocking a market worth approximately A$1 billion in 2018–19. The barley tariffs China imposed were challenged through the World Trade Organisation, with Australia arguing they violated international trade rules. The tariffs were removed in August 2023, with China’s Ministry of Commerce stating that “in view of the changes in the market situation of barley in China, it is no longer necessary to continue to impose anti-dumping duties”.

Lobster: Premium Exports Resume

Live rock lobsters, a premium export to China’s luxury seafood market, were the last commodity to see restrictions lifted. The ban was removed on 20 December 2024, just in time for Chinese New Year celebrations. The recovery of Australian lobster exports to China has been rapid. In January 2025 alone, over A$30 million of South Australian Southern Rock Lobster was exported to China. Remarkably, in just over one month since trade resumed, lobster exports to China reached around 60% of the all-time full-year peak set in 2019. The industry expects a total trade potential of over A$700 million, protecting around 3,000 jobs in the sector, predominantly in Western Australia. Before the ban, China accounted for over 95% of Australia’s rock lobster exports.

Education Services: A Major Export Industry

International education is Australia’s fourth-largest export and one of the most significant non-commodity trade flows to China. In 2024, education-related travel services to China were valued at ~A$13 billion. Chinese students in Australia represent nearly a quarter of all international students, the largest single source country. At Australia’s prestigious Group of Eight universities, Chinese students represent the largest international cohort. Collectively, Go8 universities undertake 70% of Australia’s university research activity, much of it funded by international student fees. The sector faces headwinds. In 2025, the Australian Government implemented caps limiting new international student enrolments to 270,000, a policy experts believe will disproportionately affect the number of Chinese students in Australia. The implications for university finances and research funding remain uncertain.

Tourism: China Returns to Number One

Chinese tourists to Australia have historically been among the highest-spending visitors, and 2025 has marked their emphatic return. Between June 2024 and May 2025, nearly one million Chinese visitors arrived in Australia, an over 20% year-on-year increase. China has reclaimed its position as Australia’s top source of international visitors for the first time since the pandemic, overtaking New Zealand. More significantly, China is Australia’s largest tourism market by expenditure. Chinese tourists in Australia spent over A$9 billion in the 12 months to March 2025, representing around a quarter of all short-term international visitor expenditure. The average Chinese visitor spent around A$12,000 per trip. Travel patterns are evolving. Chinese tourists are increasingly venturing beyond major cities, hiring cars and exploring regional areas, a trend driven by younger travellers seeking adventure-based experiences. Australia ranked as the number one medium-to-long-haul destination on Ctrip during the 2025 Chinese New Year period.

Foreign Direct Investment: A Diminished Flow

Despite the enormous trade volumes, investment flows between Australia and China have declined significantly from their peak in the mid-2010s. Chinese investment in Australia has fallen sharply. China now ranks as Australia’s thirteenth-largest foreign investor, accounting for just under 2% of total foreign investment stock. In 2023, outward FDI from China to Australia totalled around US$550 million, down over 50% from the previous year. Between 2006 and 2023, accumulated Chinese investment in Australia reached over US$110 billion, with significant holdings in healthcare, food and agribusiness, and mining. Notable historical investments include Chinalco’s A$15 billion purchase of a 9% stake in Rio Tinto, one of the largest single Chinese investments in Australia.

Australian investment in China remains comparatively modest, reflecting the asymmetric nature of the relationship. Australia sells raw materials to China rather than building businesses there. Most Australian corporate presence in China focuses on sales offices and distribution rather than large-scale capital investment. 

The decline in bilateral FDI reflects several factors: Australian foreign investment screening laws that restrict Chinese acquisitions in critical infrastructure and sensitive sectors; Beijing’s own capital controls limiting outbound investment; and geopolitical tensions that have made cross-border investment politically contentious on both sides.

The Geopolitical Dimension: AUKUS and Indo-Pacific Strategy

Underpinning Australia-China economic relations is a fundamental tension: China is simultaneously Australia’s most important trading partner and the country perceived as its greatest strategic threat. This perception drives Australia’s security posture, most visibly through AUKUS, the trilateral security pact with the United States and the United Kingdom announced in September 2021. Under AUKUS, Australia will acquire nuclear-powered submarines and gain access to advanced military technologies, including hypersonic weapons, precision-strike missiles, and autonomous systems. The arrangement represents Australia’s most significant defence commitment in decades.

Beijing has condemned AUKUS as part of an “all-round containment” strategy, with China’s Ministry of Foreign Affairs describing it as an “Anglo-Saxon clique” that “smacks of obsolete Cold War zero-sum mentality.” Chinese state media has criticised the pact as an attempt to “NATO-ise” the Asia-Pacific and destabilise the Indo-Pacific trade environment. The 2025 AUSMIN meetings detailed expanded cooperation: upgrades to Australian air bases for US bomber rotations; co-production of guided weapons, precision-strike missiles, and hypersonic systems; enhanced torpedo cooperation; and integration of critical minerals into Australia’s supply chains. In September 2024, AUKUS partners announced Japan was exploring opportunities to join advanced technology-sharing arrangements, potentially expanding the alliance’s scope.

For Australia, the balancing act is precarious. The country relies on China for its economic prosperity while depending on the United States for its security. This dual dependency creates vulnerabilities on both sides, a dynamic that became explicit when the Trump administration pressured Australia to reduce its economic ties with Beijing as the price of continued security cooperation. Australia’s strategic challenge is managing Australia-China tensions without sacrificing the economic relationship that funds its prosperity. No clear resolution exists, and investors should expect this tension to persist indefinitely.

Recent Diplomatic Thaw

Despite the structural tensions, 2024–25 marked a notable stabilisation in Australia-China relations. Prime Minister Anthony Albanese met President Xi Jinping on three occasions during 2024, a level of engagement unthinkable during the previous government’s tenure. In July 2025, during Albanese’s visit to China, the two countries signed a Memorandum of Understanding to review the ChAFTA (China-Australia Free Trade Agreement), signalling potential deepening of economic ties. A Joint Outcomes Statement outlined cooperation on trade facilitation, green energy investment, digital infrastructure, and enhanced market access for Australian agricultural products. Yet friction persists. A dangerous aerial incident in the Yellow Sea in May 2024, involving a Chinese fighter jet and an Australian Navy helicopter, underscored the military tensions that exist alongside commercial engagement. Beijing continues to criticise Australia’s participation in the Quad, military exercises in the South China Sea, and procurement of Tomahawk missiles.

Future Outlook: Interdependence and Diversification

Australia-China trade relations are unlikely to be fundamentally disrupted in the near term. The complementarities are too significant: China needs Australian resources, and Australia needs Chinese markets. The full lifting of trade restrictions by late 2024 suggests both parties recognise the mutual costs of economic conflict. However, several structural shifts are underway:

• Resource dependency risks: As China’s property sector slows and steel demand plateaus, Australia’s iron ore earnings face long-term pressure. The iron ore price forecast for 2026 suggests continued weakness. The transition to renewable energy may reduce demand for thermal coal that Australia exports. 
• Critical minerals opportunity: Australia holds significant reserves of lithium, rare earths, and other critical minerals essential for battery production and clean energy technology. Both China and Western nations are competing for access, potentially giving Australia leverage in both relationships. 
• Supply chain diversification: Australian businesses, burned by the China-Australia trade war, are actively seeking alternative markets. The “China plus one” strategy has become standard practice for exporters in wine, barley, and other affected industries. 
• Education sector uncertainty: Caps on international students, combined with geopolitical tensions, may reduce Chinese students’ enrolments, with significant implications for research funding and institutional finances.

For investors, Australia-China trade demands nuanced analysis. Companies with direct exposure to Chinese demand, particularly in iron ore, lithium, and education, face both the benefits of scale and the risks of concentration. Those positioned in sectors benefiting from diversification, alternative export markets, critical minerals Australia processing, and defence industries, may find opportunities in the strategic realignment.

Conclusion

Australia-China economic relations embody the defining tension of our era: how nations navigate prosperity and security when their economic and strategic interests point in opposite directions. Australia has discovered that it cannot fully separate these domains, that its largest customer is also its most significant strategic concern. What the past five years have demonstrated is that economic coercion has limits, that markets adapt, and that interdependence constrains both parties. China could not force Australia to change its foreign policy through the China-Australia trade war; Australia cannot fully decouple from its largest trading partner without accepting significant economic costs.

The relationship has entered a new phase of cautious re-engagement. Trade restrictions have been lifted, diplomatic channels reopened, and both governments appear to recognise the mutual benefits of stability. Yet the structural tensions, AUKUS, Taiwan, and strategic competition in the Indo-Pacific, remain unresolved. Investors should expect continued volatility, punctuated by periods of cooperation and friction alike. For those seeking exposure to commodities, education services, or Asia-Pacific growth, the Australia-China corridor will remain essential to understand. The iron silk road between these two nations, despite all its turbulence, continues to carry the goods that shape both economies.

DCSC and Sector-Based Investing

Investors who want to view the Australia-China relationship through the lens of economic sectors can use DCSC to better understand their own portfolios, identify concentration risks, and discover opportunities across the trade corridor. With DCSC, you can build portfolios based on location and the relevance score between a company and sector, analyse existing holdings for exposure to China-dependent industries, and monitor sectors most affected by bilateral trade dynamics, from iron ore and coal to education services and critical minerals.