1 Introduction

Since 2000, economic cooperation between China and Australia has been continuously strengthened, and the establishment of the China Australia Free Trade Area in 2015 further promoted bilateral economic and trade relations. However, the competition between China and the United States has led to tense relations between China and Australia, frequent trade frictions, such as Australia banning Chinese 5G technology and China imposing sanctions on Australian agricultural products. Despite the friction, there is no fundamental conflict of interest between China and Australia, and differences should be resolved through dialogue to promote economic and trade cooperation. This article uses the GTAP model to analyze the positive impact of China Australia free trade on both economies, providing reference for future trade policies of the two countries. China and Australia should recognize the importance of economic and trade cooperation, deepen the construction of free trade zones, and expand economic and trade cooperation.

2 Literature Review

Reviewing the diplomatic relations and economic and trade cooperation between China and Australia since the establishment of diplomatic relations in 1972, it is pointed out that the relationship between the two countries has experienced a tense situation from deepening cooperation to recent years. Australia relies on China economically, but leans more towards the United States in terms of security, leading to policy imbalances. After 2016, Australia's policy towards China increasingly focused on geopolitics, leading to a deterioration of bilateral relations. In terms of economic and trade cooperation, China and Australia have strong complementarity and their trade volume continues to grow, but they also face problems such as a single structure and an expanding trade deficit. China's investment in Australia is showing a diversified trend, but the prospects for economic and trade cooperation are affected by factors such as trade asymmetry and geopolitics. The research on the China Australia Free Trade Area mainly focuses on economic effect analysis, including its impact on the overall economy and specific industries. Overall, the free trade zone has a positive welfare effect on the economies of both countries, but its impact on different industries varies. In terms of agriculture, Australia has benefited greatly, while China's agriculture may be negatively impacted. In terms of industry, both countries benefit, with China's labor-intensive industries benefiting more significantly. The impact of free trade zones on the textile and dairy industries has also been analyzed. Existing research mostly focuses on a single aspect, lacking comprehensiveness, and the data is outdated, failing to fully reflect the changes in China Australia relations in recent years. This article will use the GTAP model to analyze the overall and industry level economic impact of the China Australia Free Trade Area, and propose suggestions for promoting bilateral economic and trade cooperation.

3. Current Status of China Australia Trade Cooperation

In 2020, the total trade volume between China and Australia reached AUD 246.31 billion, with China being Australia's largest trading partner, accounting for 30.9% of its total trade volume. Goods trade is the main part of China Australia trade, accounting for 94.4%. Among them, Australia's exports to China are mainly iron ore and concentrate, while imports from China are mainly telecommunications equipment, computers, etc. In terms of trade in services, China is Australia's second largest trade partner in services. Australia mainly provides education services to China, while China provides tourism and transportation services. Since 2009, the bilateral trade volume between China and Australia has continued to expand, and China has always been Australia's largest export market and import source country. The dependence of the Australian economy on Sino Australian trade has gradually increased, with foreign trade dependence growing from 1.3% in 1987 to 18.5% in 2020. The trade integration index between China and Australia shows that the two countries have close trade ties, and Australia has a greater dependence on China's trade.

Current Status of Investment Cooperation between China and Australia

China's investment in Australia is relatively small and volatile, accounting for only 2% of Australia's total overseas investment in 2020. The investment industry is mainly focused on minerals and real estate, with mining investment accounting for 38% of China's investment in Australia in 2020. The main investment entities are private enterprises, and in 2020, non-state-owned enterprises exceeded state-owned enterprises in both total investment and transaction volume. The investment areas are relatively concentrated, mainly flowing to New South Wales and Victoria, which have absorbed the majority of Chinese investment.

Analysis of the Economic Effects of the China Australia Free Trade Zone

Since the China Australia Free Trade Agreement came into effect in 2015, it has had a significant impact on the economies of both countries. Australia implements 100% zero tariffs on Chinese exports, while China implements zero tariffs on 97% of Australian imports. Both sides have also expanded their openness in the fields of services and investment. Economic analysis shows that the establishment of free trade zones has a positive impact on the economies, trade, welfare levels, and output of some industries of member countries. The GTAP model is an important tool for studying the impact of trade policy changes on the economy. This article uses the GTAP 10 database and conducts simulation analysis based on global economic data from 2014. The results showed that the establishment of the China Australia Free Trade Zone led to a 0.08% increase in Australian output and a 0.05% increase in China. The output of Australia's livestock industry increased by 1.93%, while the textile industry decreased by 7.06%; The livestock industry in China decreased by 0.09%, while the textile industry increased by 0.17%. The overall welfare level in Australia increased by 796 million US dollars, while in China it increased by 1.861 billion US dollars. Australia's overall exports to China increased by 66.17%, while China's overall exports to Australia increased by 26.31%. The China Australia Free Trade Zone has promoted trade growth between the two countries, improved welfare levels, and had a positive impact on the output of some industries.

Outlook and Policy Suggestions for China Australia Economic and Trade Relations

The chapter on prospects and policy recommendations for China Australia economic and trade relations analyzes the positive impact of the China Australia Free Trade Area on the economies of the two countries and provides prospects for future cooperation. China Australia trade has strong complementarity, with abundant labor resources in China and abundant natural resources in Australia, providing a foundation for economic and trade cooperation. The increasing trade dependence and integration between the two countries have laid the foundation for deeper cooperation. The increase in cooperation and exchange platforms between China and Australia, such as the Prime Minister's annual meeting mechanism and the signing of RCEP, creates opportunities for trade and investment cooperation. However, issues such as the game between China and the United States and the single trade structure also pose challenges to China Australia economic and trade cooperation. To deepen cooperation, it is recommended to expand the scope of economic and trade cooperation, avoid comparative advantage traps, strengthen bilateral communication and exchanges, and eliminate misunderstandings and differences. China and Australia should accelerate the transformation of their trade structure, expand cooperation in emerging industries, sign special cooperation agreements in specific fields, and promote the alignment of industrial strategies. At the same time, maintaining smooth communication channels at the senior level, utilizing mechanisms such as RCEP to carry out close economic and trade cooperation, strengthening people to people exchanges, and enhancing economic and trade consensus.