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Fitch believes Australia’s agriculture, tourism and education sectors are among those most exposed to a potential escalation in bilateral trade tensions between Australia and China. China imposed tariffs on imports of Australian barley and suspended some Australian beef imports.

Australian Education Income

Fitch noted that the Chinese authorities have demonstrated a capacity and willingness to exert influence over spending in agriculture, tourism and education industries in connection with political disputes involving other countries.

China is Australia’s largest market, accounting for AUD153.2 billion, or 32.6%, of its total goods and services exports in the financial year ended June 2019 (FY19), according to Australia’s Department of Foreign Affairs and Trade.

Australia Chinese Exports 2020

China is Australia’s largest market for tourism, education and agriculture exports, and also plays an outsized role in driving their growth.

Chinese visitors, including vacationers and students, spent AUD12.4 billion in 2019, while agricultural exports to China in FY19 amounted to AUD14 billion.

Back in April the AFR reported up to "$12 billion in Chinese student fees could be wiped off university income in the next two years given the "high probability" Beijing will instruct students not to start courses here in 2021, said China watcher and associate professor at Sydney University, Salvatore Babones.  

Babones predicted there would be no new Chinese students in the coming academic year in the northern hemisphere and Beijing will almost certainly extend its ban to Australia in 2021.

Last month the Chinese Ambassador to Australia, Cheng Jingye, told The Australian Financial Review that Chinese consumers and students could boycott Australia in retaliation for Canberra pressuring Beijing over the origins of the coronavirus.

Most Chinese students are doing two-year post-graduate courses, Professor Babones said it would only take 24 months for Chinese income to slow to a trickle.

Domestic propaganda in China had laid the groundwork for a sudden halt to students wanting to study internationally.

"Chinese families have been spun a nationalist story, that despite China's success in managing COVID-19 the rest of the world is out to get China," Professor Babones said. "Anti-China racism has been blown out of proportion. People have been told the virus started in the US and spread to China. It's reported in China that it is simply not safe to go to the West. "Beijing will use public health as an excuse to boost enrolments in China's own universities."

About $50 billion is being lost to China as families pay tuition fees and living expenses in Australia, the UK and North America.

The Mitchell Institute at Victoria University said NSW and Victoria would suffer the most if there was a hit to university revenue from China. Policy fellow at the institute Peter Hurley said 71 per cent of Chinese students chose those two states.  The universities estimated they might have to make as many as 21,000 employees redundant, but Mr Hurley warned 130,000 jobs in downstream industries were supported by international students.

"If China stops students coming here it would be a big hit and require a lot of adjustment," he said. "It's a very, very big problem. Australia has used international students as a revenue stream for 20 to 30 years."

Monash University in Victoria is the latest institution to report a multimillion-dollar downturn in revenue. Income is down by more than $400 million and vice-chancellor Margaret Gardner told staff she was looking for "voluntary and involuntary measures to minimise the scale of job losses".

India is the next biggest source country for international students. "By my estimate, India has an eighth the number of middle-class families that China does. India is already overextended," he said.

We believe risks from China-Australia trade frictions are limited for most companies within these sectors in Fitch’s rated portfolio. However, we have included some benefits from expansion into China into our rating case for Amphora (B/Negative), owner of wine company Accolade. An extension of trade friction to the wine sector could slow the company’s ability to reduce leverage to within our guidelines -Fitch.

Source: Fitch. AFR

From The TradersCommunity News Desk

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