Speech
12 November, 2009
Trading with China: Beyond Risks to the Rewards
Australian Industry Group Address
Introduction
I was delighted to accept AiG’s offer to talk to business today about the Government’s approach to China, which has emerged as one of Australia’s strongest trade and investment partners.
Our two nations are in the process of developing a new and cooperative engagement in the Asia Pacific, based on an annual two-way trade in 2008-09 of A$83 billion.
China is now Australia’s biggest trading partner and that trade is backed up by a vibrant investment relationship which is growing day by day.
At the heart of Australia’s commercial relationship with China are strong trade and investment complementarities which benefit both our nations.
China is undergoing one of the greatest economic transformations in history, lifting it share of world industrial production from about 2 per cent to 13 per cent in just 20 years.
Just as China’s industries continue to require our exports of iron ore and coal, Australian consumers continue to buy China’s manufactured goods.
China’s investors, as well, see Australia as a prosperous and stable country in which to invest and have taken an active interest in our energy and natural resource companies.
Today, I'd like to talk briefly about how the Government understands Australia's commercial ties with China and what types of opportunities are emerging for our exporters and investors.
China’s Importance to Australia
As the world economy slowly escapes the grip of the GFC, it is an appropriate moment to reflect on some of the lessons of that crisis for Australia.
One lesson is Asia’s paramount importance not just to our exporters or as an investment source, but to our overall prosperity and the strategic integration of Australia's economy with Asia.
China, along with India, has continued to grow strongly despite the impact of the GFC on its export markets.
The IMF is forecasting real growth for China of 8.5 per cent this year and 9 per cent next year, a remarkable performance of great significance for Australia.
As the Reserve Bank noted last month, the continuing growth of China during the GFC has created a powerful trajectory for our economy during a difficult period.
Along with the Australian Government’s well-timed fiscal stimulus packages and historically low interest rates, this new trajectory helped Australia weather the crisis better than other advanced nations.
As a result of continuing strong demand for our commodities, our terms of trade remain at record highs.
Australia's exports to China actually increased by 30 per cent over the last year or so, despite global export volumes falling by about 20 per cent.
Thanks in part to the stability of our trade with China and other East Asian economies, which now buy over 60 per cent of our merchandise exports, Australia will be the only advanced economy to grow this year.
The latest Treasury forecasts for the Australian economy put our growth in 2009-10 at 1.5 per cent, and 2.75 per cent in 2010-11.
The gravitational pull of China’s thriving industries, and the growing purchasing power of its consumers, will continue to exert a tremendous influence on the Australian economy.
The Government’s Approach to China
Australia’s commercial ties with China are shaped by our broader approach to trade and investment.
That approach is based on the belief that trade is a stimulus to growth but also on the belief Australia should integrate its economy into the Asia Pacific.
Respect for the power of trade is why Australia has focussed
over the years on developing the multilateral system of free trade and investment.
This focus has been reflected in our longstanding support for the rules-based system of the World Trade Organization and recently for the finalisation of the Doha Round.
As part of its push for regional integration, Australia has also been an advocate --and practitioner-- of regional and bilateral Free Trade Agreements, especially in the Asia Pacific.
Australia has six existing FTAs, all of which are consistent with our WTO commitments, including ones with the United States, Singapore, and Thailand.
AANZFTA, our latest FTA signed in February, will join together Australia, New Zealand and the ten nations of ASEAN.
This new FTA will create from January 1, 2010 a single free trade market comprising some 600 million people with a combined GDP of A$3.2 trillion.
AANZFTA will increase the access of Australian exporters to ASEAN's growing markets by cutting tariffs on 96 per cent of our exports by 2020.
It will also allow investors to set up shop and take advantage of the growing intra-regional trade between ASEAN and China.
We are currently negotiating or considering nine other FTAs, including one with China, which has been underway since 2005.
In this regard, we welcome the positive comments about prospects for the Australia-China FTA made recently by Senior Chinese leaders and officials.
Australia also embraces an open investment regime, although like a lot of nations we have a review process for larger proposals.
We welcome and encourage foreign investment because of the benefits it provides to our economy. Historically, Australia has relied on international finance with open new investment opportunities and to develop our natural resources.
At the end of 2008, China was the 15th largest foreign investor in Australia, with total foreign investment of A$62.4 billion, of which A$12.5 billion was direct investment.
Since November 2007, the Government has approved more than $38 billion in Chinese investment, or over 100 investment proposals.
The Treasurer is on record as noting the Foreign Investment Review Board has been approving one Chinese deal a week.
The latest approval for the Yanzhou Coal Mining Company’s purchase of Felix Resources for A$3.5 billion was given just last month.
Australia hopes that other nations reciprocate with an open investment regime that provides similar benefits to our investors.
Investment, like trade, should be a two-way street.
Present Opportunities in China
China is now the world's third largest economy after the United States’ and Japan’s, and is expected to become the world’s largest in the next twenty years. On current projection China’s economy is expected to quadruple in size.
It is noteworthy that the size of China's GDP in 2008 was estimated at US$4.4 trillion.
One need only look at the wealth and industrial diversity of Guangdong province to see where China’s future lies.
Since 1978, with the beginning of the Special Economic Zones, Guangdong and the “dragon” cities of the Pearl River Delta have led China’s dramatic economic transformation.
Since then, Guangdong has become the workshop of the world, generating about 12 per cent of China’s GDP and 30 per cent of its exports.
The breadth of China’s export industries is truly astonishing.
That fact has long been recognised by Australian companies, which exported $3 billion to Guangdong in 2008, which has included petroleum gas, aluminium, zinc, copper, and coal.
Guangdong’s industries produce furniture, garments, textiles, footwear, electronic and household goods, computers and increasingly more sophisticated financial products and IT.
The Australian Government recognises the breadth of the China market and the importance of our resource and energy markets to its industrial development.
Australia’s Gorgon gas project, for example, will provide an estimated A$50 billion worth of natural gas to China over the next 20 years.
Gorgon is the latest in a long line of energy deals which have made Australia an energy superpower in Asia.
But energy and resources aside, there are good reasons to focus on other sectors to maximise Australia’s trade and investment opportunities in China.
Future Opportunities
Several long-term trends in China’s economic development are creating unparalleled opportunities for Australian companies.
Like Australia, China is deeply concerned about climate change and energy efficiency.
These problems will become acute over the next generation as China faces the challenge of housing 400 million people as part of the world’s greatest urbanisation program by 2025.
China’s demand for clean energy technologies, and green urban designs which minimise the environmental footprint of buildings, will increase dramatically.
Australian companies lead the world in developing clean energy technologies, such as solar and wind power, and carbon capture and storage.
The Australian Government is determined to get on the front foot of emissions abatement by introducing a Carbon Pollution Reduction Scheme, which is currently before Parliament.
The world knows Australia is determined to do something about greenhouse gas emissions. This energy and commitment will have a profound effect on the regard in which our clean energy and green businesses are held overseas.
Australian architects and environmental scientists have also distinguished themselves with green urban designs that conserve energy and minimise waste.
China’s consumers are also becoming wealthier, healthier and better educated. By 2020, according to a recent Goldman Sachs report, about 70 per cent of China’s population will be middle class.
A rising middle class in China will create demand for new financial products to manage savings and investments, for healthier and fresher food, for new educational services and automobiles.
Australia is emerging as a financial hub for the Asia Pacific region, and with one of the world’s largest pool of funds under management, our financial service firms offer something special to China. In March 2009, total funds under management were estimated at A$4.4 trillion.
New trends in China’s economic policy will also enhance the development of a more consumer-oriented China.
It is significant that China's stimulus program to combat the GFC was focussed on domestic recovery, and the agreement at the G20 meeting in Pittsburg noted the trend of China pursuing more stable and balanced growth, with a greater reliance on domestic growth rather than an over-reliance on exports.
As the World Bank noted this month, this will mean a greater role for the government in health, education and the provision of a stronger social safety net, such as new rural pensions.
China’s consumers will be given more spending power to buy products which Australian exporters can provide, in health and financial services, urban design and agribusiness.
Conclusion
Apart from our ongoing trade in resources and energy, Australian exporters and investors will benefit from these long-term secular trends which are underway in China.
Australian businesses will also have the chance to showcase their products at next year’s Shanghai World Expo, expected to be the biggest ever.
Our A$83 million national pavilion will provide an excellent platform to display what Australian business and the Australian national brand can offer.
Seven million people are expected to visit the Australian pavilion, and Austrade will also be there to help exporters and investors with advice and market know-how.
Austrade has a major presence in China, with hub offices in Beijing, Shanghai, Guangzhou and Hong Kong, and ten other sub-offices, including one in Macau.
China is Australia’s biggest trading partner, a major investor and its economy is growing strongly despite the lingering effect of the GFC.
For some of the reasons I have outlined today, the outlook remains bright for your business endeavours in China and I wish you luck in them.
Thank you.
ENDS