China and Australia still need each other, and their interest in clean energy may just clear the slate

In the burgeoning realm of new and renewable energy, China and Australia seem "destined" for greater collaboration, as each has critical resources that the other needs in their long-term plans to curb carbon emissions and ensure a sustainable supply of power for the people.

And such mutually beneficial exchanges may be just the catalyst needed to get their rocky relations back on sound footing after a prolonged stretch of bilateral bickering and finger-pointing.

At least that is the hope of Liu Ming, who has a bit of skin in the game as CEO of Melbourne-based Dimer Technology, which specialises in low-carbon gas processing and renewable-energy development.

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Australia cannot meet its carbon-reduction targets without technology and engineering resources from overseas, including from China, while Australia also has essential materials that will help both countries develop and expand their relevant capabilities and capacity in new energy, he contends.

"We have seen the dynamically growing bilateral investment and trade in this field," Liu said. "This kind of growth can help improve and stabilise the bilateral political relationship."

The mega trade partners have not seen eye-to-eye for more than two-and-a-half years, dating back to the early days of the pandemic when Canberra called for an investigation into the origin of the coronavirus, provoking the ire of Beijing.

What followed - sanctions, tit-for-tat tariffs and no shortage of nationalistic sentiment - dragged their ties to an all-time low, with little real effort seen by either side to make amends.

But with December set to mark 50 years since China and Australia established diplomatic relations, there have been signals that their still-strong economic ties could help Beijing and Canberra find common ground on which to mend political fences.

Despite their squabbling, Australia still relies on China's vast market and commercialisation of technology, while China remains heavily dependent on imports of Australian raw materials for its stable, long-term economic growth.

Xu Qinhua, a professor of international political economy and international relations with Renmin University's School of International Studies, says there is "huge potential" for China and Australia to collaborate in their bids to curb choking emissions that pose a danger to the world at large.

For its part, Dimer's firm is currently working with China Petroleum & Chemical Corporation (Sinopec), the country's largest oil distiller and petrochemicals producer, on projects that aim to both reduce carbon dioxide emissions and produce hydrogen - a renewable clean-burning fuel.

David Olsson, national president and chairman of the Australia China Business Council, which represents 700 member organisations, said the half-century anniversary offers a chance to examine what their relationship can offer both countries over the next 10, 20 or even 50 years.

"There are many areas where Australia's expertise is valued in addressing climate challenge - managing low-carbon food chains, deploying world-class expertise in land, water management and in green-building design," he added.

Last month, his council jointly released a report with international law firm King & Wood Mallesons illustrating 100 case studies on the economic potential of greater cooperation between the countries across six sectors: energy; mining and future-facing industries; transport and mobility; green cities and urban design; green finance and carbon markets; and food and agribusiness.

In the report, Neil Wang, CEO of New South Wales-based Foton Mobility, pointed to challenges facing his firm, which relies on Chinese technology for the hydrogen buses and electric trucks it produces. These hurdles include "a shortage of labour and a lack of familiarity with hydrogen buses and their components".

While Australia has just two hydrogen-powered buses in operation, China already has about 1,100, making its technology and expertise invaluable.

Meanwhile, China relies on imports of Australian resources such as lithium. In fact, the vast majority of Australian lithium goes to China, and the percentage keeps rising - from 85 per cent last year to 94 per cent this year, according to the latest figures released in August by the Australian Bureau of Statistics.

Lithium is an essential component in the batteries of electric vehicles (EVs) and energy-storage systems. And the two countries are the world's major players in the supply chain of the metal.

In May, Tianqi Lithium Energy Australia, a joint venture between IGO in West Australia and Chengdu-based Tianqi Lithium, produced Australia's first battery-grade lithium hydroxide at its plant in Western Australia's Kwinana city, according to the regional government, which said the raw material will be exported.

China is also tethered to its need for Australian iron ore - an essential raw material in producing high-quality steel for infrastructure - making it the bellwether of the trading relationship between the two countries.

A recent report by the Lowy Institute think tank suggested that the Australian government should cement its role as the "indispensable" exporter to China, to serve as leverage for Canberra in the face of Beijing's ongoing "trade coercion". The report also noted how China is most dependent on Australian iron ore, liquefied natural gas and wool, and said this makes the two countries "interdependent".

Dong Jinyue, senior China economist at BBVA Research, pointed out how China's diversification of iron ore sources "will be gradual and slow". Thus, she said, a decoupling between the two nations is "neither practical, nor realistic".

China has been Australia's largest trade partner since 2009. The trade volume over the past half-century has risen from less than US$100 million in 1972 to more than US$207 billion last year, when it accounted for 34.2 per cent of Australia's total trade, according to official figures.

But despite the strong bottom line in trade, Australian businesses operating in mainland China and Hong Kong are still seeking "practical ways" to stabilise the bilateral relationship, according to a statement issued last month.

To that end, Ciara Morris, a China fellow at the non-profit organisation Young Australians in International Affairs, said working together to combat climate change is "a great example" of the enhanced communication and mutually beneficial strategic cooperation being employed between China and Australia.

"Australia should not underestimate the economic opportunities that will accompany Xi Jinping's carbon-neutrality pledge," she said, adding that China "wants to be seen as a leader in the development of clean energy".

Nonetheless, tensions between the countries continue to loom large. And it is unclear how or if their relationship could ever return to the way it used to be, particularly with so much damage already done.

For instance, Beijing's economic retaliation has cost billions of dollars worth of Australian exports, crippling certain industries amid allegations of dumping and other trade violations. Products affected included wine, coal, beef, lobsters, log timber and barley.

"I doubt there is a silver bullet that can 'reset' the bilateral relationship to the way it was pre-2018," Morris added.

But despite the tumult between them, China remains an "important trading partner" for Australia and will remain so in the face of headwinds ranging from coronavirus lockdowns to supply-chain disruptions, a senior government official said just last week.

"It's such an enormous economy. It will be almost unimaginable to think that that importance will decrease significantly," said Elisabeth Bowes, chief negotiator with the Regional Trade Agreements Division under the Department of Foreign Affairs and Trade, according to a Bloomberg report.

However, that does not mean Australia has not been taking steps to protect itself, as it has seen how dangerous it can be to rely so heavily on a single country for trade.

"[Beijing's punitive trade actions] have highlighted the risks in market concentration and really highlighted the importance of diversity of markets and in products and services that Australia exports and imports," Bowes said. "We're looking at delivering new agreements. That is a very key plank of the government's trade diversification agenda."

Bowes' comments came about a week after China's ambassador to Australia, Xiao Qian, was quoted by The Sydney Morning Herald as saying that efforts to reset the relationship were off to a "good start" under the new Labor government, but were still too "slow" from China's perspective.

He pointed to tensions over Taiwan and the treatment of Muslims in China's Xinjiang Uygur autonomous region as the two major barriers to resetting bilateral ties.

In June, Xiao blamed Australia for firing the "first shot" in deteriorating trade relations, but said that there was an opportunity to improve bilateral ties if the new government in Canberra took action.

According to another diplomatic source who spoke with the Post, bilateral contact has improved since the new Australian government took power in May, and there have been signs of improving ties between the two countries.

"But, in reality, there has been a lack of concrete moves," the source said, declining to be named. "China is still largely playing the blame game, while the Australian side wants to move on."

Australian foreign affairs minister Penny Wong met with her Chinese counterpart Wang Yi on the sidelines of the United Nations General Assembly in New York late last month, urging Beijing to use its influence on the UN Security Council to end the war in Ukraine.

After the meeting, the Chinese minister said in a statement that he had emphasised the importance of stable bilateral ties during the talk with Wong, which he said ought to be more resilient and not be prone to "accidents", given their 50 years of diplomatic relations.

Mercedes Page, a fellow with the Schmidt Futures International Strategy Forum (Asia), said that dropping its trade sanctions is the first step that China must take to improve the bilateral relationship, given that renewable energy and efforts to mitigate climate change are opportunities for cooperation.

"Anniversaries are particularly significant to the [Chinese government]," she added. "However, China's 50th anniversary with Canada [two years ago] marked the lowest point in bilateral relations between the two countries."

Back in 2020, relations between Ottawa and Beijing were clouded by the arrest in Vancouver of Meng Wanzhou, chief financial officer of Chinese tech giant Huawei Technologies Co. - and the daughter of its founder, Ren Zhengfei - on an extradition request from the US, as well as pressure to block Huawei from the 5G market in Canada.

Morris with Young Australians in International Affairs also explained that young Australians see the environment and the country's future economic relationship with China as "the main issues". But one of their "major concerns" also pertains to China's indefinite detentions of Australian journalist Cheng Lei and writer Yang Hengjun.

And Olsson at the Australia China Business Council said that there are many collaborations on renewable energy "already under way", at the business level, but "it is still early days" at the government level.

"Access for Australian diplomats in China has improved slightly in recent times, but more broadly, we are still in the early stages of trying to assess the parameters within which the two countries can interact," he added.

"Who knows, maybe Xi Jinping and Anthony Albanese can meet during the upcoming G20 meetings in Bali. If that were to occur, I expect that we might see more rapid progress in taking the relationship forward."

This article originally appeared on the South China Morning Post (SCMP).

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