The China Analyst

Sino-Australian trade and investment activities remained  robust in 2011 and early 2012. Bilateral trade set a new record with total trade reaching USD 116.41 bn, an increase of 32.95% from 2010. Likewise, a flood of investment transactions in the energy and resources sectors transpired late in 2011.

China-Australia Briefing: Chinese currency settlement scheme expands to Australia; China seeks to capitalise on weak coal prices

• As a part of China's plan to free up its currency, the Hong Kong Monetary authority authorised 15 banks to provide trade settlement accounts in the Chinese currency in the second half of 2011. As a result, Australia and New Zealand Banking Group Limited (ANZ) and HSBC Australia have been encouraging their customers that are doing business in China to take advantage of this platform to settle transactions directly using the Chinese currency instead of going through the normal route of using the US dollar
• Australia's thermal coal price benchmark continues to remain weak as buyers stay away and sellers face an oversaturated market. Chinese utilities are enquiring for coal deliveries for April and May, hoping to book supply while prices remain weak. However, the annual term negotiations between Australian producers and Japanese utilities are helping to keep a hold on prices
• In more coal-related news, in early March Australia cleared the way for China's Yancoal to take over miner Gloucester Coal in a multi-billion-dollar deal that gives Beijing a greater foothold in the resource-rich country. Australian Treasurer Wayne Swan stated that Australia's foreign investments watchdog had given its approval for the deal under strict conditions that the new company should remain headquartered in Australia and list on the stock exchange before the end of 2012

China-Australia Trade

Total Trade

• Sino-Australian trade increased by 33% from USD 87.56 bn in 2010 to USD 116.41 bn in 2011, according to China Customs (CC), whereas the Australian Bureau of Statistics (ABS) puts the increase at 30.82% from USD 90.15 bn in 2010 to USD 117.93 bn in 2011
• China and Australia experienced their largest ever trade gap in 2011 with CC pegging China's deficit at USD 48.59 bn, a 46.8% increase from 2010's USD 33.10 bn deficit; ABS puts China's deficit at USD 31.01 bn, up 75.11% from 2010's USD 17.71 bn
• China's trade deficit with Australia peaked in September 2011 at USD 5.22 bn when China exported USD 3.13 bn's worth of goods to Australia while importing a record total of USD 8.36 bn
• According to ABS, China's trade deficit with Australia also peaked in September 2011, when Australia imported USD 3.92 bn worth of goods from China and exported USD 7.25 bn, resulting in a negative balance of USD 3.33 bn for the month

China Imports from Australia

• Australia continued to be a net supplier of commodities to China in 2011, with ores, slag and ash maintaining their position as China's leading imports from Australia at 59% or USD 23.17 bn of the total USD 39.44 bn. Mineral fuels, oils, distillation products, etc. came in second at 16% or USD 6.43 bn, while copper and articles thereof came in third at 4% or USD 1.69 bn

China Exports to Australia

• Electrical and electronic equipment remained China's leading exports to Australia in 2011 at 19% or USD 3.93 bn of the total USD 20.65 bn. Nuclear reactors,  boilers, machinery, etc. came in second place at 19% or USD 3.90 bn, while articles of apparel and accessories came in third place at 11% or USD 2.17 bn

Australia State Watch: Tasmania

• With a real gross state product (GSP) of USD 23.48 bn in 2010-11, Tasmania is Australia's seventh-largest economy
• It is a net exporter with exports amounting to USD 3,270.81 mn and imports amounting to USD 942.03 mn
• Main exports in 2010-2011 were zinc (16.62%), followed by aluminium (12.83%), wood chips (7.39%), copper ores and concentrates (6.99%), and iron ore and concentrates (6.19%)
• Key industries in terms of contribution to state GSP are manufacturing (9.4%), health care and social assistance (8.2%), financial and insurance services (7.2%) ownership of dwellings (7.1%) and agriculture, forestry and fishing (7.1%)
• In 2010-11, China was Tasmania's largest trading partner, with a total trade volume of USD 643.90 mn, followed by Japan (USD 424.32 mn) and the United States (USD 325.41 mn)

China-Australia Investment

Major Recent Deals

• In October 2011, China's Hanlong Mining raised its offer price for Australia's Sundance Resource Limited to roughly USD 1.7 bn, from its original offer of around USD 1.5 bn. The deal is proceeding despite an insider-trading probe involving several Hanlong executives
• In November 2011, Shanghai Sky Chem Industrial Co Ltd. initiated the acquisition of a 51% stake in ASX-listed Eagle Nickel through a share placement agreement. One of China's largest importers and distributors of chemicals, the privately-owned Shanghai Sky plans to build a leading ASX-listed resource enterprise
• In December 2011, Yanzhou Coal Mining Co. initiated a bid to merge its Australian unit, Yancoal Australia Ltd., with Sydney-based Gloucester Coal Ltd. Should the USD 2.1 bn merger push through, the merged group will become one of Australia's largest listed coal companies, as well as almost doubling Yanzhou's coal mines in Australia and expanding its access to ports. This transaction will leave Yanzhou with a 77% stake in the new company, while Noble-backed Gloucester will have a 14.8% stake in the merged group. In a separate transaction, Yanzhou signed agreements to fully acquire Wesfarmers Premier Coal and Wesfarmers Char for USD 296 mn in September 2011

• In December 2011, China Petrochemical Corp (Sinopec) agreed to raise its equity stake in the Australia Pacific LNG project to 25% from the original 15%. This reduces the ownership of ConocoPhillips and Origin Energy to 37.5% each. Sinopec also agreed to purchase an additional 3.3 mn tons of LNG annually to 2035, boosting the previously agreed 4.3 mn tons annually to 7.6 mn tons per year
  In December 2011, China's Guohua Energy Investment agreed to buy a 75% stake in Australian government-owned Hydro Tasmania's wind farms in northwest Tasmania. A subsidiary of Chinese coal producer Shenhua Group, Guohua will pay USD 89.4 mn for the 65MW Bluff Point and 75MW Studland Bay wind farms
• In December 2011, Chinese engineering development group DADI completed a USD 24 mn investment in MetroCoal, an emerging energy company in Australia. The HK-listed DADI has been involved in many significant coal projects, specifically focusing on open cut and underground coal mine design, processing plant design, coal processing research and development and engineering, procurement and construction projects. Further developments in January 2012 saw DADI boosting its ownership in MetroCoal to 19.6% via an off-market transaction with Metallica Minerals Limited
• In December 2011, Rio Tinto accepted a USD 996 mn offer from China Guangdong Nuclear Power Corp (CGNPC) and the China-Africa Development Fund (CAD Fund) for an 11.1% stake in London-listed Kalahari Minerals PLC. This boosted its existing 30.8% stake in Kalahari to roughly 42%. After winning control of Kalahari, CGNPC has set its sight on Extract Resources (42.7 owned by Kalahari), recently making a takeover offer of USD 2.38 in February 2012. The move brings CGNPC a step closer towards winning control of the Namibian Husab uranium project, one of the largest uranium mines in the world. Rio Tinto, which owns a 14 percent stake in Extract, has yet to decide whether it will accept CGNPC's offer
• China National Petroleum Corp (CNPC) is currently in talks with Woodside Petroleum Ltd with respect to its Browse liquefied natural gas (LNG) project in Western Australia. CNPC, the country's largest energy producer, is said to be bidding for as much as 15% of the venture. The stake is estimated to cost around USD 1.5 bn