Not a day goes by without the Australia-China trade spat appear in the news headlines. The list of main Australia exports shows China appears to be Australia’s largest export market not just in iron ore, copper but across a number of products such as seafood (lobsters) and wheat products.
There is a long list of reasons why China is unhappy with Australia. It is questionable if this is justified, none the less being the largest customer has its benefits. Like any business if you are unhappy with your supplier you can direct your purchase elsewhere for whatever reason. Given China is still much a command and control economy via the operation of the state own enterprises and government import management, it is more effective in displaying is displeasure through multiple avenues through trade than other democratic countries.
So far the redirection of trade from Australia has been in commodity sector where China can source the materials from alternative sources. Commodities by definition are products where it can be easily replaceable. There is growing evidence that even the redirection of the commodity trade is creating unintended consequences at its own cost.
However not all commodities are created the same. There are certain commodities where Australia due to its location and product availability China is not able to divert trade from. Namely iron ore and natural gas comes to mind. In addition to physical commodities, education is one of Australia’s largest service exports where Chinese students make up the largest foreign student cohort. The temporary setback has been clearly felt in the Melbourne CBD apartment market with the current travel restriction in place.
The main competing markets in this sector includes UK and US where the abysmal handling of Covid has turned them off as real competing options in the immediate future.
ASX Stocks with major China exposure
The list below shows the companies listed on ASX where a large portion of the business depends on China directly or indirectly. This is designed as a starting point to look for opportunities if the relationship ever recover or general macro snapshot of how the market is viewing the heavily Chinese exposed shares.
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Iron Ore
No surprise the usual names headline the list including BHP, Rio Tinto which supplies China the iron ore for its steel production. Iron ore shipments is still flowing and the consistency of the relationship in this sector is seen in the Rio Tinto dividends over the last couple of years.
LNG
China is one of the world’s largest LNG buyer in world. At the recent growth rates it will soon overtake Japan and South Korea as the largest LNG market.
Demand for LNG is driven by the shift to cleaner base load energy demand through gas and its shift away from coal.
The LNG projects in Australia were the major ramp up of supply during the last cycle and the projects were largely funded via major offtake agreements with Chinese importers. Similar to iron ore we wouldn’t expect any disruption in the LNG space as energy security will take precedence to any diplomatic or trade spa charade.
Tourism
These are a group of companies such as Sydney Airport or Qantas which indirectly benefit from Chinese tourism in Australia. The disruption from Covid is taking precedence but this is an area to keep an eye out once the market start to look past Covid.
Consumer Products
A2 milk is a prime example of market getting ahead of it self when thinking of who is next on the target list from China. The sell off it in the A2 milk share price is mostly in reaction to this and the temporary slow down in the daigou channel which has undoubtedly suffered in the mids of travel restrictions.