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Australian residents are subject to CGT on their worldwide assets. Your parents would have been deemed to have reacquired the property for its market value at the time they became a resident of Australia (I assume they were not classified as a temporary resident). This would reset the cost base of the property for Australian CGT purposes.
The main residence exemption can apply to foreign properties as well as Australian properties. This also means that your parents can apply the absence rule to the China property. If your parents started renting out the property when they moved to Australia then the absence rule can apply for up to 6 years. If the property was not used to produce assessable income, they can treat the property as their main residence for an unlimited period. If this choice is made, they are unable to treat any other dwelling as their residence for that time.
Therefore your parents are eligible to choose to continue treating the China property as their main residence even though they no longer reside it. After making this choice they can disregard any capital gain or capital loss made on the sale of the China property.
No valuation is required if the main residence conditions are satisfied.
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