Speech

to the 2003 China Oration of the Australia-China Business Council

Melbourne, 13 February 2003

China and the Global Economy: Strategic Directions

Introduction

Thank you Warwick Smith (President of the ACBC); Lord Mayor John So (of Melbourne), Consul General Tian, distinguished guests, ladies and gentlemen.

It is a very great pleasure to be here today to present this year's China Oration. 

The Australia China Business Council has made a great contribution to the excellent state of the Australia-China commercial relationship, one of Australia's most important.

Currently China is Australia's 4^th largest merchandise export market, and 3^rd largest source of merchandise imports.

Our services trade also is expanding rapidly, particularly in education and tourism. And bilateral investment flows, while smaller, also are expanding encouragingly.

2002 was a year of consolidation and renewal - we looked back at the relationship's achievements over thirty years and added new, strategic elements to the relationship.

Most significantly, we launched discussions on a Framework Agreement to enhance further the bilateral economic and trade relationship.

And we signed a $25 billion liquefied natural gas deal with China - a deal which will provide the nucleus of a new long-term strategic energy partnership.

The importance of the relationship to both nations was highlighted by Prime Minister Howard's visit to China in May last year - his third in his time as Prime Minister - and the reciprocal visit in September of Chairman Li Peng of the National People's Congress.

The challenge ahead is to harness the dynamism and momentum created last year to grasp the many new and varied opportunities for Australia China commerce.

In my remarks today, I want to highlight how we can work with China on areas of common interest, at a global, regional and bilateral level.

Global

It has become a platitude to talk about "the rise of China" as if the complex process by which a nation of 1.3 billion takes its place on the world stage can be summed up in a simple turn of phrase.

Yet there is no denying that China now plays a much larger role in world affairs than at any time in the last century.

China's recent accession to the WTO, its advancing of regional trade agreements, its solidarity both in the war on terror and on the North Korean nuclear issue are all clear signs of a nation exercising its responsibilities seriously. 

Australia welcomes China's economic growth and its growing regional and global integration.

A prosperous and outward-looking China is a vital component of both international security and regional economic health.

The new Chinese leadership looks intent on continuing the domestic economic reforms and foreign policies set by previous leaderships. 

Certainly China's entry into the WTO in 2001 marked a watershed in its integration with the world market, and a defining moment in the development of its economy. 

Australia, as a critical participant in the negotiations for China's entry into the WTO recognises the very significant step China took towards its place in a rules-based global trading system.

WTO membership brings China - a major developing country - to the negotiating table on major trade issues. It also makes the system truly global, because it now includes the world's sixth largest trading nation.

China's membership of the WTO also brings all the major Asia Pacific economies together within the multilateral trading system. 

I applaud China's efforts to implement its WTO commitments since accession.

Australian firms are already enjoying the benefits of China's WTO membership: average tariff rates are now 11.5 per cent, down from 15.3 per cent two years ago, and over 40 per cent a decade ago. 

China is set to reach the 10 per cent target in 2010, with industrial tariffs at 9 per cent and agricultural tariffs at 15.7 per cent.

Of course, WTO membership is also good for China -as a trading nation and as a country undertaking major economic reform. 

It is adding critical momentum to China's efforts to build a resilient market based economy, and to overcome its major economic, social and business challenges.

Indeed, China's WTO commitments go much further than any previous entrant to the organisation. 

And it is clear that meeting those commitments will be a long and at times bumpy road.

China's leadership will face domestic pressures to limit rapid deregulation.

Powerful domestic lobbies will work hard to protect their interests and maintain preferential treatment.

Also, the task is of no small magnitude.  China's size and complexity will make the process difficult.

Many WTO obligations are new in Chinese law and require different approaches from local officials.

Tariff commitments have been the easier to implement.  But there is still a lot of work to be done in areas like the administration of tariff rate quotas, the enforcement of intellectual property right protection, services liberalisation in the banking, insurance and telecoms sectors as well as transparency of investment decision-making.

And many of the most difficult WTO obligations have yet to be phased in:  so in many regards the real test is yet to come.

China has already shown its willingness to stick to the road ahead - it is undoubtedly serious about its WTO commitments.

And it is in our interests to assist. We will continue to train Chinese officials in Australia and run sector-based seminars in China to help officials comply with WTO commitments.

Regional

Ladies and gentlemen

China's growth and economic reform is a boon for the region. 

As it further reforms its economy, lowers trade and investment barriers and sustains 7 per cent real annual economic growth, China will become a bigger and better market for goods produced elsewhere in Asia.

And in more uncertain times, stronger economic links can underpin regional stability and prosperity.

In particular, China is becoming more interdependent with other major regional players such as Korea and Japan.

The facts speak for themselves.

In 2002, China overtook the United States to become Japan's largest source of merchandise imports. In the last couple of years, China also became Japan's second most important merchandise export destination.

Japan similarly, is China's biggest source of merchandise imports and third biggest destination for merchandise exports.

And China is rapidly becoming more important to the Republic of Korea - it is now its second biggest merchandise export destination and third biggest import source.

Beyond trade, investment links also are becoming closer.  China is now the most important destination for outward Korean investment and is also an important Asian destination for Japanese investment abroad.

This buoyant intra-regional investment and trade can serve to reduce regional strategic tension and can provide a cushion for Asian exports when demand in the US and EU slows.  

Economic growth and interdependence in Asia is also reflected in a variety of proposals for further regional integration.  

The ASEAN Free Trade Area, the proposed China-ASEAN FTA and Japan's proposal for a comprehensive regional economic partnership reflect the fact that nations of the region recognise that free and open trade is the best guarantee of economic prosperity and growth.

Free Trade Agreements which are comprehensive, and not designed to be exclusive, can complement - and even help drive - wider trade objectives in APEC and the WTO.

The China-ASEAN FTA will allow ASEAN to make early inroads into the Chinese market though preferential access.

ASEAN businesses will have time to introduce greater efficiency during the first few years of advantaged access to the Chinese market.

Such cooperation is bound to offer significant benefits for the countries of the region.

As you well know, Australia too is active and constructive in building regional interaction. 

We have developed a Closer Economic Partnership framework agreement between the ASEAN Free Trade Area, which sits well with ASEAN's initiative with China.

And of course we are pursuing the opportunities created by China's accession to the WTO to build up our important bilateral relationship.

China also is a key player in APEC.

Indeed, China's interest in the global trading system has always extended well beyond its desire for WTO membership. 

In 2001, China chaired APEC for the first time, with great success. 

Its leadership and organisation helped to deliver a number of positive outcomes - in particular, a renewed commitment to achieving the Bogor Goals of free and open trade and investment in the Asia-Pacific by 2010 and 2020.

Leaders at the APEC Summit in China adopted a 'pathfinder' approach to accelerate the drive for free and open trade and investment in the region.

They agreed to reduce business transaction costs by 5 per cent by 2006 - following on from a joint Chinese and Australian study which found that the savings for APEC economies could be in the order of US$60 billion annually.

We will be maintaining our close relationship with China as we implement APEC policies and programs in the coming years.

We also see many areas for potential cooperation between China and the Cairns Group in promoting agriculture liberalisation. 

The Cairns Group, which Australia Chairs, is made up primarily of developing countries disadvantaged by the distortions in world agricultural markets created by developed countries.

China's interests are entirely consistent with the objective of the Cairns Group to liberalise agricultural trade and benefit efficient producers.  Cooperation between China and the Cairns Group is therefore natural, and desirable.

These and other reforms - affecting standards, technical barriers, conformity assessment procedures, sanitary and phytosanitary regimes, intellectual property rights, transparency in publishing laws and regulations, reviews of administrative decisions, and a uniform trade regime - will all help China become an even more prominent trading nation in Asia. 

If China is able to achieve these objectives, the economic health of the entire region will see the benefits.  And the more important China's contribution to trade and economic growth in the region will be.

Bilateral

Ladies and gentlemen

China's emergence as a major regional and world economy and trading power has significant implications for Australia.

Already we have benefited from over two decades of market reforms and growth in China.

Our exports increasingly fuel China's robust industrial expansion.

The value of Australian merchandise exports to China is at the highest level ever, totalling $7.8 billion in 2001/02 - a fourteen percent increase over the previous year.

And, of course, our recent deal to supply LNG to China is an enormous development for both countries.

It was but one of a series of recent trade wins:

• Just last month, China responded positively to a coordinated strategy between Australian government and business by exempting BHP Steel from its import safeguard measures - which could lift BHP Steel's exports to China by 70 per cent this year over 2002 levels.
• In mid 2002, Hamersley Iron (Rio Tinto) and the Shanghai Baosteel Group concluded a joint venture agreement to supply iron ore products worth over $300 million per year to China for 20 years. 
• Chinese steel producer Shougang recently agreed to take a 5 per cent share in Rio Tinto's planned commercial-scale HiSmelt direct reduced iron smelter in West Australia. This will strengthen the already long standing Australia-China iron and steel relationship.
• In 2001, French-Australian company Thales/Airsys ATM won a $200 million contract to supply and install an air traffic management system covering China's major air routes - and there is promise of more.

These are the headline grabbers, but as well China is now Australia's top source of overseas students (around 30,000), and the-fifth largest source of tourists visiting Australia (around 170,000), with both growing very rapidly.

These developments promise tremendous long-term benefits from people to people contacts as well as immediate economic gains for Australia.

The relationship is also very vibrant politically; indeed relations are the best they have ever been. 

Ladies and gentlemen

After such a busy year in our bilateral relationship with China, it is a particularly opportune time to reflect about where we are heading.

In 2003, we will consolidate the great advances Australia has made

with China and harness the goodwill we have already developed to provide further impetus to the economic relationship.

Negotiating a Framework Agreement to enhance the bilateral

economic and trade relationship - launched by Prime Minister Howard and Premier Zhu in Beijing last May - is a key priority.

Such an agreement would further enable Australian and Chinese businesses to take advantage of the strong economic complementarity between our two countries.

It will also help business maximize the opportunities arising from China's entry into the WTO, it's hosting of the 2008 Olympic Games and Shanghai's hosting of the World Expo 2010.

In this regard, I want to acknowledge the contribution which your Council is making in the identification of issues which need to be addressed in the negotiation of the Framework.

The framework will have three key elements:

• A joint study - to be completed in the first half of 2003 - to identify evolving economic complementarities and advise on strategies to facilitate trade and investment.
• business cooperation through targeted measures in specific areas including energy and resources, agriculture and financial and social services, to ensure we maximise mutual benefits arising from China's WTO accession.
• an enhanced economic dialogue, with more frequent high-level visits so that we work more closely together on bilateral and multilateral trade issues, including WTO issues.

Clearly we have another challenging and fruitful year ahead of us in the Australia-China relationship.  

Conclusion

Ladies and gentlemen

In conclusion, what we see in China's accession to the WTO, as well as in its leadership in APEC, is an important nation building its trade, economic and foreign policy linkages in the region and in the world.

So it is fitting, that, after last year's celebration of three decades of diplomatic relations, we set high ambitions for the bilateral trade relationship in the years ahead.

We do so confident that China will continue down the path of modernisation and reform, and that there will be resulting opportunities for Australia and China alike.

I'm sure that the ACBC and its members will continue to play a valuable role in that work.

I look forward to working with you, and Australian business in general, in making the Australia-China relationship even more dynamic and mutually beneficial in the future.

Thank you.