In Western Australia’s Pilbara region, a slumbering giant is slowly coming to life. The $2 billion high-tech iron ore mining project, jointly owned by Rio Tinto (54%) and China’s Baowu Steel Group (46%), is set to start its full annual production of 25 million tons of iron ore this year. According to Simon Trott, chief executive of Rio Tinto’s iron ore business, the Western Range project symbolizes “the depth of connections now between ourselves and our friends in China.”

The adoption of new technologies to help Australia’s mining industry progress towards safer and more sustainable working practices and products has been a key aspect of the relationship between the two countries in recent years. And while that looks set to continue, the strained political and trade relationship as well as the changing geopolitical environment are leading to a reevaluation of their inter-dependence by both sides.

“There is a mismatch between the trade and investment relationship between Australia and China that could impact the longer-term sustainability of the economic relationship,” says Hans Hendrischke, Professor of Chinese Business and Management at the University of Sydney. “Australia is now looking to restrict Chinese direct investment in the Australian mining sector, while China is seeking to reduce its dependence on mining imports from Australia.”

Mining together

Between 2006 and 2023, the mining industry was the defining factor in the economic relationship between Australia and China, and China has been Australia’s main trading partner since 2009.

By 2023, China accounted for 32.5% of total Australian exports, and, according to shipbroker Banchero Costa, in the first nine months of 2024, China was the recipient of 83.8% of the iron ore shipments leaving Australian ports totalling 579.6 million tonnes. The next highest importers from Australia were Japan and South Korea with just 39 million tonnes each.

By November 2024, shipments from Australia to China had reached 711 million tonnes, which dwarfed the 251.8 million tonnes of imports from Brazil, China’s second-largest external source of iron ore.

The relationship as a whole has been mutually beneficial, as, from a Chinese perspective, investing in and exploiting natural resources in Australia is a logistically efficient way of securing critical mineral feedstocks. While for Australia, both the volume and expedience of Chinese investment and purchases of minerals have given a major boost to many parts of the mining sector.

Major Chinese firms, including Baowu Steel, Tianqi Lithium, Sinosteel and PetroChina, among others, have a significant presence in Australia’s mining sector, and the projects extend beyond iron ore to a number of key minerals, including lithium.

“China has sought to develop its international mining footprint across the whole roster of metals and minerals, and the battery minerals space is no exception,” says Daniel Fletcher-Manuel, Director of Prices & Data at Benchmark Mineral Intelligence. “China is the world’s largest lithium processor and therefore, shoring up its supply of high quality hard rock feedstocks is a strategic priority for the Chinese battery and EV industry, and government at large.”

The ownership of some of China’s largest lithium processors in specific upstream mining projects in Australia has also shorn up the demand certainty that was waning with the establishment of lithium capacity in Africa and South America.

The intertwining of China in Australia’s mining industry runs deep, but the political relationship between the two countries has been fraught in recent years. Diplomatic ties between China and Australia reached a 50-year nadir during COVID, with Beijing imposing tariffs or even bans on Australian goods from wine to coal, while officials in Canberra called for investigations into Chinese political influence.

Relations have since improved somewhat, with state visits to China by Australian Prime Minister Anthony Albanese, and a resumption of strategic dialogue between the two countries in 2024, after a seven-year hiatus. But looking forward there is a recognition on both sides that their current level of interdependence in mining may not be sustainable.

For China, there is a worry that it is over-reliant on Australian imports of critical minerals, especially iron, that help prop up its supply chain. As a result, China’s involvement in certain areas of Australia’s mining industry has begun to decrease.

“China is involved with a number of greenfield spodumene projects in Australia,” says Fletcher-Manuel. “However, as a proportion of all lithium mining in Australia, Chinese involvement has declined from 100% of capacity in 2015 to 52% in 2024, and is expected to decline further, to 40% by 2040.”

On the Australian side, there has been pushback over worries about Australia’s overdependence on China for its exports, exemplified by a drop in demand for iron ore thanks to China’s moribund property market and a resulting fall in construction. The other concerns rise from geopolitical worries over China’s outsized role in the Australian mining industry itself.

“It is clear that Australia is not immune to some of the geopolitical headwinds caused by globalization, and like the EU and US, is seemingly concerned with overdependence on China for some critical minerals,” says Fletcher-Manuel. “We saw this back in 2023 when the Australian government blocked the acquisition of lithium developer Alita Resources by a company with strong ties to China.”

But the future direction is not clear cut, given the huge role that the mining industry plays in Australia’s economy.

“The public discourse in Australia is split into a geostrategic discourse and a commercial discourse which represent different approaches,” says Hendrischke. “The political consensus is to let the geo-strategic discourse dominate the public discourse while avoiding economic decoupling. At the same time, there is a lively commercial debate about the long-term need for closer cooperation between Australia and China in order to maintain global competitiveness of the Australia mining sector as China increases its technological leadership and influence in the global mining industry.”

Modernizing mining

While the Australia-China relationship is in flux, the two are still cooperating to modernize the mining industry. The process of mining can be a dangerous one, and there is growing acknowledgement of the significant environmental impacts that the industry has. The implementation of new technologies and the widespread digitalization of mining has, therefore, become a priority, both to diminish the dangers and environmental impacts of the industry, as well as increase productivity and output.

“Technological changes in the mining sector, whether driven by digitalization, AI or other innovations, run deep,” says Hendrischke. “It affects all parts of the value chain and covers the whole life cycle, from exploration, development and operations, to closure and rehabilitation.”

AI, for example, is being implemented across the board to deal with issues of resource development, cost control, ESG, safety and productivity. The technology can allow for the deployment of autonomous equipment which can, when combined with data analytics, operate at peak efficiency around the clock. Additionally, AI algorithms drawing on real-time data can enable predictive maintenance, reducing downtime by preventing accidents before they occur, as well as forecasting events such as gas-related incidents within half an hour.

China’s Baowu Steel unveiled its first AI large language model (LLM) in October 2024, which is said to help improve efficiency and refine operations across the steel industrial chain, which includes Australian iron ore extraction. The model, xIn³Plat, covers key areas in R&D, production, operations and services, and has already achieved a 30% increase in R&D efficiency. In terms of lean manufacturing, the boost in annual efficiency of a production line using the LLM has topped ¥10 million ($1.4 million). The model can also reduce energy consumption and carbon emissions through process optimization.

“Aspirants and developers in Australia have already leveraged AI to speed up on the resource discovery and early stage assessment process, saving both time and capital in that high risk stage.” says Fletcher-Manuel. “This really hit the news in late 2024 when Legacy Minerals announced its successful use of AI to identify an exciting greenfield nickel, copper and PGE resource. Meanwhile, established miners have been public about exploring AI solutions to generate predictive asset maintenance schedules, which could be a game changer for minimizing excess downtime.”

There are also several examples of Chinese-Australian cooperation on greener mining operations, something Australia sorely needs if it wants to maintain its position as the world’s top iron exporter.

“Australia is a global leader in sustainable mining practices, which is why it is so critical to the global energy transition journey,” says Fletcher-Manuel. “The Minerals Council of Australia has been encouraging the use of digital innovation in order to minimize waste and environmental impact through more precise and effective resource extraction for many years.”

In January, Australia’s Fortescue, along with Bauwu Resources, a wholly-owned China Baowu Steel Group subsidiary, announced a partnership to “accelerate the development of green iron technology and ensure that we will be able to meet growing demand for green iron in and outside China.” Fortescue’s green iron project at its Christmas Creek operations in Western Australia (WA) is set to produce over 1,500 metric tons of green iron annually. The plant will use green hydrogen rather than the traditional carbon-intensive processes.

Tianqi Lithium Energy Australia have also partnered with Edith Cowan University to better utilize Australia’s finite lithium supplies, the end-products of which are used in EV batteries by manufacturers such as Tesla. The Kwinana plant in WA is specifically designed to derive by-products that make the most of the resource, including low sulphur aluminosilicate, which can be used to create lower-CO2 concrete.

New opportunities

Australia’s mining sector is an incredibly lucrative and integral part of the country’s economy, and Chinese firms will continue to play a major role, particularly as a technological partner, developing future technologies and AI. In turn, China may have to relinquish some of its monopolies over mining technologies and critical minerals processing through offshoring and relocating production facilities closer to mines and energy sources.

Both countries have realized that the relationship of five to 10 years ago is not a sustainable one, with both over-reliant on the other, but perhaps there is still room for development of the relationship.

“The Australia-China relationship is developing in a multilateral context,” says Hendrischke. “For example, with China’s mining investment shifting from Australia to Latin America, Africa and most recently Southeast Asia, these developments open further possibilities for multilateral cooperation.”