As Australia's largest trading partner, there's no doubt strained tensions with China, including trade sanctions, have hurt the relationship on both sides and Australian businesses have been collateral damage.

There's been a considered effort to thaw relations and pave the way for positive dialogue since Labor was elected.

And Australian businesses say it's critical the situation is improved.

It's hard to imagine a cohort of local companies hit with more challenges than those currently doing business in China.

These businesses have grappled with ongoing COVID-19 restrictions and trade sanctions, which few would have envisaged only a few years ago. There's also now a real expectation that Beijing will further tighten its grip on the economy as part of President Xi Jinping's third term agenda.

Despite the multitude of complications, savvy Australian companies continue to make headway and find success in China.

Australian small and medium-sized enterprises (SMEs) adopting innovative approaches have, despite the odds, still managed to achieve success, based on prevailing consumer demand.

Trade analysis and reporting frequently focus on key commodity sectors and how some of Australia's largest companies have fared in this challenging environment. But the experience of SMEs has been flying under the radar.

SMEs account for 88 per cent of all Australian companies and China remains our largest export destination.

Australian SMEs might not have the resources of big business when operating overseas but with innovative approaches, many are achieving sustained growth.

There's been a major shift in the way Australian businesses break into these markets with products in food, fashion, health and skin care sectors now most in demand.

Consumers recognise quality when they see it.

Interest in smaller overseas brands with unique offerings has taken off, with small and medium-sized producers of distinctive products leveraging the high regard international consumers have for Australia as a producer of safe, clean, and high-quality products.

Australian companies leveraging this demand have adapted their strategies and operating models to find success.

While political tensions, rising freight costs, and travel restrictions present ongoing challenges, overcoming local market competition and playing to a clear niche are increasingly important.

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Companies in the skin care, healthcare, food and fashion sectors are some of the best performers, despite supply-chain issues. In the past, many Australian consumer brands were introduced to the China market by "daigou" traders - Chinese students or tourists in Australia who buy up goods at retail or factory outlets and take them back to China for resale.

COVID-19 dramatically reduced this traffic. But the growing use of e-commerce channels to bring foreign goods into China has picked up the slack and provided new digital marketing opportunities for Australian businesses to shape their brand.

China became a more complex export market for Australian businesses when restrictions were imposed on a range of imports, including barley, wine, seafood, beef, and coal. As a result, there is growing diversification and interest in new markets such as south-east Asia and India. But China remains our largest trading partner and the most dynamic consumer market globally.

Australian SMEs operating in China need to be as Asia-capable as big businesses to navigate this more complex landscape. This includes conducting regular risk assessments to ensure they are comfortable with their short and long-term risk exposure. Evaluating risk against reward is crucial.

China remains a complicated and uncertain market. Improvements in the bilateral relationship cannot be assumed and other shocks, including a major economic downturn, loom large.

Business owners are facing choices that will directly impact the existence of their companies. But given the size and growth of demand for Australian goods in China, it's still a market that many businesses should evaluate as part of their Asia strategy.

Evaluating risk against reward is crucial and so is the thawing of political uneasiness.