Australia’s Overlooked Trade Challenge: The Growing China–Russia Economic Alliance 

As of 2024, approximately 70% of assets within the Russian banking system are under sanctions, and major Western payment platforms – such as Visa, Mastercard and the SWIFT system – have suspended operations in Russia, effectively excluding Russian financial institutions from global transactions.

Moreover, Russia’s dependence on foreign technologies has made it especially vulnerable to sanctions on dual-use and high-tech goods, including semiconductors, avionics, drone parts and optical components vital to its military-industrial complex^{[5], [6]}. Western export controls have therefore limited Russia’s ability to access critical resources, thereby increasing its reliance on Chinese suppliers to fill strategic gaps in telecommunications, automotive, electronics and defence-adjacent industries.

Strategic Alignment and Asymmetry in the Partnership

This growing interdependence is not merely transactional but also reflects a shared strategic alignment: both Moscow and Beijing seek to push back against what they perceive as U.S.-led hegemonic dominance in the international order.^[7] The two countries benefit from a “no limits” partnership,^[8] although the relationship is asymmetrical. While China is Russia’s largest trade partner, Russia ranks only as China’s sixth-largest as of 2023.^[9] Nevertheless, mutual benefits are clear: Russia depends on Chinese investment in its energy and telecommunications sectors, while China relies on Russian oil and natural gas to meet its vast energy demands.

The Russia–China economic integration has continued to accelerate beyond the initial growth phase. Although early 2025 data indicate a slight decline of 7.5% compared to the previous year, the overall trend points to deeper economic integration. The scale of this trade relationship now rivals many traditional Western partnerships, highlighting how the BRICS framework has successfully facilitated one of the world's most strategically significant bilateral economic relationships.

The 8^th of May 2025 joint statement between Xi Jinping and Vladimir Putin reaffirmed their commitment to “further deepen the China–Russia comprehensive strategic partnership of coordination for a new era.” It outlined cooperation across economic, military and diplomatic spheres. China expressed support for Russia’s sovereignty, security and territorial integrity while opposing external interference.^[10] Russia reiterated its support for the One China policy, opposing Taiwan’s independence.

The shared strategic narrative centres on resisting “hegemonic bullying” by the United States and its allies, highlighting a global rivalry that Australia must navigate carefully. Fong and Merrow (2024)^[9] argue that the China–Russia partnership is “the strongest it’s been in centuries,” unified by a common goal to challenge the U.S.-led international order.

Russia–China Economic Integration

While precise details of economic integration remain undisclosed, the joint statement is widely understood to reinforce energy cooperation, expand agricultural trade and enhance technological collaboration. It specifically mentioned increasing the trade in high-tech products, developing innovative e-commerce models, and mutually supplying raw materials, minerals and agricultural products to promote stable and optimised bilateral trade.^[10]

The development of innovative e-commerce models is an increasingly important aspect of the deepened Russia–China economic partnership. As previously mentioned, Western sanctions have targeted Russia’s access to global financial systems and cross-border payments. Western payment firms such as AMEX, Visa, Mastercard, PayPal and Western Union suspended their operations in Russia, joining the broader wave of firms disengaging from the Russian market. Additionally, Russian banks have been excluded from the SWIFT system and placed under financial restrictions on cross-border transactions. To circumvent these financial restrictions, Russia has sought closer integration between its domestic payment system, Mir, and China’s UnionPay.^[11] There is also growing interest in adopting digital currencies for use in bilateral trade and, potentially, in cross-border e-commerce transactions.^{[2], [12]}

Russia and China are also committed to consolidating their comprehensive energy partnership by supporting projects in oil, natural gas, liquefied natural gas, civil nuclear energy, coal, electric power and renewable energy, while ensuring the stability of cross-border infrastructure and the smooth transport of energy.^[10] Industrial cooperation and technological innovation are also key focus areas aimed at strengthening the industrial chain.

Ultimately, the joint statement reinforced China and Russia’s shared vision to build a multipolar world order and resist U.S.-led coercion and foreign interference.

Australia’s Trade Risks from Russian Competition

Energy Sector: The “Power of Siberia 2” gas pipeline and LNG Implications

Russia’s oil and pipeline gas exports to China have expanded significantly since the onset of the Ukraine conflict. The "Power of Siberia 1" gas pipeline from Siberia to China was completed in December 2024 and is expected to become fully operational in 2025, delivering around 38 bcm (billion cubic metres) of natural gas annually.^[22] Progress on the "Power of Siberia 2" pipeline aims to add a further 50 bcm in annual gas deliveries to China. These pipelines are intended to reduce China’s reliance on LNG imports transported via maritime routes, while strengthening energy cooperation between China and Russia.

The potential impact on Australian LNG exports is significant, given that China is currently Australia’s largest LNG buyer:

• In 2024, Australia's primary LNG export destinations were China (33%), Japan (32%), South Korea (15%) and Taiwan (10%), with all remaining countries accounting for approximately 10% of total exports.^[13]



• In FY 2024, Australia’s LNG exports were valued at AUD $69 billion, with China’s 33% share amounting to approximately AUD $22.7 billion – an increase from AUD $19.8 billion in FY 2023.^[14]

• Once both Power of Siberia gas pipeline are fully operational, a significant portion of that AUD $22.7 billion of Australia’s annual LNG exports to China could be at risk due to increased competition from Russia.

While the Power of Siberia 2 gas pipeline is not expected to be operational until the early 2030s, its eventual completion could intensify competition in China’s energy market. Pipeline gas is typically more affordable and secure than seaborne LNG, potentially reducing Chinese demand for Australian LNG. Nevertheless, Australia’s LNG exports are diversified, with Japan, South Korea and Taiwan as key markets. Australian policymakers and LNG exporters should closely monitor China’s evolving energy strategies and invest in market diversification to mitigate future risks.

Critical Minerals and Technological Collaboration

Russia’s growing role in supplying critical minerals to China and expanding technological collaboration could marginally reduce Australia’s leverage in this strategic sector. Traditionally, Australia has been a key exporter of critical minerals – such as lithium, nickel and rare earth elements – vital to China’s manufacturing and green energy transition.^[15] Russia, however, has sought to strengthen its critical minerals sector, with significant reserves of nickel, copper, zinc and rare earth elements, and is actively engaging with China to secure export deals.^{[16], [17]}

Russia and China have intensified their cooperation in the critical minerals trade and joint technology development as strategies to circumvent Western sanctions.^[17] This diversification of China’s supply chain could marginally weaken Australia’s bargaining power, as Beijing would no longer rely solely on Australian minerals for its industrial needs. While Australia remains prominent in global critical minerals production and has strong partnerships with Japan, South Korea and the United States, these developments emphasise the need for Australia to further strengthen its supply chains and diversify its markets.

Agricultural Exports: Barley, Wheat and Oilseeds

As Russia strengthens trade ties with China, Australian agricultural exporters face rising competition across multiple sectors, with the barley market serving as a stark warning of what can happen when geopolitical tensions disrupt established trade relationships.

The story of Australian barley exports to China illustrates how quickly markets can shift and competitors can emerge. In 2020, Beijing imposed an 80.5% tariff on Australian barley, as part of escalating diplomatic tensions between China and Australia, particularly after Australia called for an international inquiry into the origins of COVID-19. As a result of these tariffs, Australian barley farmers lost approximately AUD $1 billion in market share that year.^[18] Russia quickly capitalised on this opportunity, becoming China's top barley supplier by 2022.^[19]

The timing was strategic. In June 2022, Russia and China formalised their agricultural partnership with an agreement to jointly develop infrastructure and boost grain exports by 1.9 trillion rubles (USD $19.6 billion), with settlements conducted in national currencies.^[20]

Although Australia began recovering after China removed the 80.5% tariff in August 2023 – importing 314,000 tonnes of Australian barley worth AUD $139 million^[18] – Russia has continued to expand its agricultural footprint in China. Russian wheat exports to China reached a record 3.5 million tons in the first nine months of 2023, up from 2.2 million tons in 2022.^[20] 

The scale of Russian ambitions became clear in October 2023, when Russia and China signed a massive 12-year contract worth USD $25.8 billion for 70 million tons of Russian grains, legumes and oilseeds.^[20] This growing Russian presence in legumes and oilseeds commodity markets could also exert pricing pressure on Australian pulse and canola exports, suggesting that the competition extends far beyond barley to virtually all agricultural commodities where Australia and Russia vie for Chinese market share.

 

Beyond the intensifying competition from Russia’s agricultural sector, Australia's agricultural industry remains highly vulnerable to Chinese trade decisions, as demonstrated by the billions in losses when China previously imposed bans and tariffs on various exports such as wine and barley in 2020. The recent recovery in barley exports illustrates this dependency clearly: after Beijing scrapped tariffs two years ago, Australia's barley exports to China soared to AUD $1.22 billion in 2024,^[21] showing how quickly Australian farmers' fortunes can change based on Chinese policy decisions. This vulnerability becomes even more concerning as Russia's New Land Grain Corridor^[20] could provide China with alternative suppliers for key agricultural products like wheat, potentially giving Beijing more leverage to shift away from Australian suppliers whenever diplomatic tensions arise—leaving Australian farmers at the mercy of geopolitical relationships beyond their control.

Strategic Risks and Opportunities for Australia

Australia faces a complex strategic landscape shaped by evolving global dynamics, particularly the deepening partnership between Russia and China. On the risk side, Australian exporters confront growing competition from Russian energy and agricultural goods, which could gradually erode Australia’s market share. Furthermore, China’s efforts to diversify its suppliers diminish Australia’s bargaining power in trade negotiations, limiting Canberra’s influence.

However, Australia can seize several opportunities to mitigate these challenges. Diversifying trade partnerships with emerging markets such as India, Southeast Asia and the European Union offers a pathway to reduce overdependence on China. Additionally, Australia’s reputation for high-quality, safe and sustainable products provides a competitive edge in increasingly crowded global markets.

The recent thaw in Australia–China relations presents a diplomatic opening to rebuild trust and strengthen economic ties while proactively managing emerging risks. To navigate this environment effectively, government agencies should lead efforts to expand trade agreements and foster international partnerships, while industry leaders and businesses pursue market diversification and innovation. Investing in domestic competitiveness through agricultural innovation, sustainable practices and clean energy transitions will be essential to maintaining Australia’s economic resilience.

Finally, continuous monitoring of Russia–China agreements and their impact on Australian exports is essential to enable timely responses. Strengthening national supply chains and encouraging supplier diversification will further safeguard Australia’s economic security against external shocks.

Conclusion

The deepening economic relationship between Russia and China has not yet significantly displaced Australian exporters in the Chinese market. Nonetheless, it represents a clear shift in the global trade environment that demands proactive and strategic responses from Australian policymakers.

Particular attention should be paid to vulnerable sectors such as LNG, critical minerals and agriculture, where Russian competition is intensifying. To support these vulnerable sectors, Australia should:

• Lead efforts to expand trade agreements and foster international partnerships within these sectors.

• Enhance domestic competitiveness through innovation, sustainability and clean energy transitions.

• Accelerate market diversification across these sectors.

• Continuously monitor the Russia–China trade relationship to anticipate and respond to emerging risks.

Avoiding complacency in the face of intensifying Russian trade competition is essential as Australia navigates evolving global economic and geopolitical challenges. Strategic agility, coordinated policymaking and stronger collaboration between government and industry will be crucial to ensuring trade resilience. A balanced approach – diversifying trade partnerships while strengthening domestic capabilities – will help safeguard Australia's economic interests and maintain its global competitiveness over the long term.