According to Fitch, China was Australia’s largest trading partner at $152 billion (32.6%) of goods and services exports for the year ended June 2019, and this figure had been rising since 2014.
The most-affected sectors would be agriculture, tourism and education, as Chinese authorities had indicated they could exert influence over those sectors.
“Fitch believes Australia’s agriculture, tourism and education sectors are among those most exposed to a potential escalation in bilateral trade tensions. The Chinese authorities have demonstrated a capacity and willingness to exert influence over spending in these industries in connection with political disputes involving other countries.”
Agricultural exports to China brought in $14 billion in 2019 while tourism brought in $12.4 billion but the largest export by far was iron ore which brought in $63.1 billion.
However, Fitch said, the likelihood of China reducing its iron ore imports was low which was good news for companies such as Rio Tinto, BHP and Fortescue Metals.
BHP was not immune though as it could be hit on its coal production side with the firm having a significant exposure to thermal coal.
“Australia’s coal producers, including BHP and Anglo American, could be more vulnerable to action. Both BHP and Anglo American predominantly export coking coal, but BHP still has a significant exposure to thermal coal,” the ratings agency said.
“There are some reports that Chinese utilities and steel producers have been informally warned by officials that restrictions on Australian coal imports could increase in the coming weeks.”
The performance of commodities firms had significantly diverged since the start of the year with Anglo Australian returning 55% and Fortescue Metals returning 39%, while BHP and Rio Tinto had reported losses.
