Australian banks are retreating from China’s most lucrative financial businesses, even as Wall Street and European competitors queue up to get deeper into the world’s second largest market. The sharp contrast came amid tension between Beijing and Canberra over the origin of the coronavirus pandemic, Xinjiang , Hong Kong, the South China Sea, and most recently, trade relations, and there is no sign of a quick improvement. Commonwealth Bank of Australia, the largest Australian bank, announced on Tuesday that it has signed a deal with two state-owned Chinese entities to transfer a total of 10 per cent stake in the Shanghai-listed Bank of Hangzhou at 8.2 billion yuan (US$1.3 billion), according to its filing to the Australian Stock Exchange. The Australian-China relations being so bad, then I would guess that there seems very little upside in this deal for many years to come Fraser Howie Commonwealth Bank of Australia, which became the local bank’s strategic investor in 2005, will keep a 5.56 per cent stake for three years, but the share transfer means the Hangzhou municipal fiscal bureau, which now owns 11.86 per cent, is the largest shareholder. The Bank of Hangzhou is China’s seventh largest city commercial bank by asset size, with January-September profits up 26.2 per cent to 7 billion yuan, non-performing loans of 0.9 per cent and provision coverage ratio of 559.4 per cent. While the Australian bank’s chief executive officer Matt Comyn attributed it to the strategy of focusing on core banking business in Australia and New Zealand, analysts said it is the latest jigsaw piece that outlines the fast shrinking Australian business presence in China. Australian coal ban ‘paves the way’ for US to fill China’s void, boost trade deal Fraser Howie, co-author of Red Capitalism: The Fragile Financial Foundations of China’s Extraordinary Rise , believed the worsening domestic and international environment led to the decision. “The Australian-China relations being so bad, then I would guess that there seems very little upside in this deal for many years to come,” he said. Westpac Banking, Australia’s third largest, axed its China operations in October 2020, citing consolidation of international businesses to cut costs and improve capital efficiency. ANZ Bank, which disposed of its 20 per cent stake in Shanghai Rural Commercial Bank in 2017, is the only Australian bank with onshore outlets, reaping 552 million yuan (US$87.46 million) of revenue and 64 million yuan of profits in 2020 in mainland China. Some foreign banks, which rode the tide of China’s financial opening after the 2001 World Trade Organization (WTO) accession, sold their stakes in local banks as part of business restructuring after the 2008 global financial crisis. But China remains attractive to foreign investors, especially after the authorities opened its bond, stock and securities market wider in 2018. Australia has lagged far behind other countries in terms of financial businesses – JP Morgan and Nomura have already opened their wholly owned securities venture. Bilateral trade rows have also extended in the past two years. Supply shortages, inflation linger for China despite factory rebound The National Development and Reform Commission, China’s top economic planner, indefinitely suspended the annual high-level economic dialogue in May 2021, claiming some Australian government officials had launched a series of measures to disrupt the normal bilateral exchanges and cooperation with a cold-war mindset and ideological discrimination. China-Australian trade rose by 35.1 per cent year on year to US$231.2 billion last year, customs data showed. However, it was largely driven up by a nearly 40 per cent rise in the trade value of iron ore. Canberra accused Beijing of punitive restriction of trade, setting high tariffs on coal, wine, barley, lobsters and other products, and it already tabled several dispute complaints to the WTO last year. “China-Australian ties are at a key stage,” Xiao Qian, China’s new ambassador to Australia, told the media at Sydney airport in late January. “I’m looking forward to enhancing contacts and communication with Australian governments and friends … to bring China-Australian relations back on track.”