China is the single biggest buyer of Australian exports – some $100 billion a year (35% of the total) – most of which are commodities. In the past several years, however, China’s economy has slowed, and its focus is shifting away from massive infrastructure products and more toward stimulating consumer demand.

Through ChAFTA, Australia is likely to gain an edge in “value-added” products, those in which the country already has a competitive advantage: food and agricultural goods, many different services, and certain types of natural resources. Such exports will have a price advantage in the Chinese market, since their Australian producers won’t have to pay Chinese tariffs. Within four years, virtually all Australian exports to China will be tariff-exempt.

Agriculture: ChAFTA Champ

Australia sold AUD$9 billion worth of food and agricultural products to China in 2013, more than to any other country. While this amount is up nearly threefold in the past decade, food is still only around 10% of Australian exports to China currently.

Through ChAFTA, Australia is well-positioned (geographically and product wise) to grow both its market share and sales in China. Up until 2050, China is expected to account for nearly half (43%) of the growth in global demand for agricultural products.

AE Portfolio Aggressive Holding GrainCorp Ltd (ASX: GNC, OTC: GRCLF), Australia’s largest grain exporter, should enjoy substantial growth as a result of ChAFTA.

Other beneficiaries include Ridley Corp. Ltd (ASX: RIC, OTC: RIDYF), which produces feed for livestock.

Services: Unprecedented Access

Australia sells about AUD$7 billion worth of services to China, more than to any other country. And this number is likely to grow dramatically: Through ChAFTA, Australia is getting the best terms on services that China has ever offered to any trading partner, outside the Chinese territories of Hong Kong and Macau.

Australian providers in virtually all service sectors will gain new – or significantly improved – access to China’s markets: Australian banks, insurers, securities firms, law firms, health care and aged care, education, telecommunications, construction and manufacturing services.

Financial Services. Improved market access will be of significant value to Australia & New Zealand Banking Group Ltd. (ASX: ANZ, OTC: ANEWF, ADR: ANZBY), which is already executing a well-developed Greater Asia strategy.

Health care. The Chinese government will permit hospitals and aged-care facilities that are 100% owned by Australian companies to operate in China.

Opportunities here will benefit private hospital operator Ramsay Health Care Ltd. (ASX: RHC, OTC: RMSYF), whose exploratory efforts in the Middle Kingdom will likely pay off thanks to ChAFTA.

Education. Among AE non-portfolio names, Navitas Ltd. (ASX: NVT, OTC: NVTZF) is particularly well placed to serve the needs of China’s expanding and education-focused middle class.

Telecom. Telstra Corp. Ltd. (ASX: TLS, OTC: TTRAF, ADR: TLSYY) has already started expanding into Asia and is poised to provide Australian companies doing business in China with communication services, storage and forwarding services, and call-center services.

Tourism. The Chinese are Australia’s second-largest tourism group, based on the number of arrivals, a fact that has already given Sydney Airport (ASX: SYD, OTC: SYDDF) a significant boost during the past decade.

By the year 2023, Chinese are expected to account for 40% of the growth in foreign tourism spending in Australia, according to Australia’s Ministry for Trade and Investment.

Professional services. China is also opening its market to Australian companies that provide services related to natural resources through ventures with Chinese partners. This should provide new opportunities for WorleyParsons Ltd. (ASX: WOR, OTC: WYGPF, ADR: WYGPY).

Commodities: The Long View

Australia exported more than AUD$85 billion worth of natural resources and manufactured products to China in 2013. ChAFTA provides greater certainty for Australia’s commodity exporters by locking in zero tariffs on key exports such as iron ore, gold, crude oil and LNG.

The commodity boom is over. But over the long term ChAFTA is a positive for diversified commodity producers BHP Billiton Ltd. (ASX: BHP, NYSE: BHP) and Rio Tinto Ltd. (ASX: RIO, NYSE: RIO), both of which now get more than 20% of revenue from China.

Manufacturing: Health Focus

ChAFTA is likely to benefit Australian manufacturers of specialty items such as pharmaceuticals, vitamins and other health care health products.

Australian biopharma powerhouse CSL Ltd. (ASX: CSL, OTC: CMXHF, ADR: CMXHY) has already held meetings with key Chinese officials to discuss expanding delivery of its plasma-based therapies to the Middle Kingdom.