Speech
Sydney, 12 November 2003
Keynote address to the Hong Kong Shanghai Banking Corporation (HSBC) Business Breakfast
Distinguished guests, ladies and gentlemen.
I am delighted to attend this business breakfast, with the well-chosen theme of “Investing and Exporting to China –Gamble or Calculated Risk?”.
And it is great to see such a strong business presence here. It is yet another sign of Australia’s growing commercial links with China.
I congratulate the Australian Institute of Export, HSBC Bank of Australia and the Australia China Business Council for this initiative.
Indeed, China’s rise as an economic and trading power and its opening to the world underline the importance to Australia and to Australian business of understanding the profound changes underway there –so our dealings with China are less of a “Gamble”than a “Well-Calculated Risk”.
The bilateral relationship
Ladies and gentlemen
Not only have we seen great change in China in recent years, we have also seen our bilateral trading relationship change - dramatically.
Let me start with a few basic facts:
China is Australia’s third largest trading partner. In 2002-03, two-way goods and services trade reached $24.5 billion, behind only Japan and the United States.
This means every year we are now trading with China approximately the entire 25-year value of last year’s LNG export deal, proving the robustness of the commercial partnership.
Since the mid-90s, two-way trade with China has almost trebled –making it by far our fastest-growing major trading relationship.
China's rising incomes, rapid industrial expansion, increasing openness and market orientation, and growing demand for raw materials mean that its significance as an Australian export market will continue to increase.
Just as Australian raw materials helped fuel the first wave of economic modernisation in Japan and South Korea several decades ago, we are now feeding China’s growing appetite for resources commodities.
In 2002, Australia was China’s number one supplier of commodities such as iron ore, alumina, and coal and is now our second largest customer, after Japan, for mineral and energy commodities.
Indeed the future for the minerals and energy sector looks very promising. Demand for Australian minerals and energy will continue to increase rapidly in coming decades as Chinese industries and utilities expand their output to build China's infrastructure and cities, and supply local and export markets.
And, of course, last year’s deal to supply LNG to China and other potential deals which you would have seen recently mentioned in the press, are tremendous developments for both countries, locking us more deeply into a long-term strategic energy partnership.
China’s WTO entry commitments to reduce agricultural trade protection will generate considerable changes in Chinese agricultural production and trade, and boost demand for Australian goods, services and technologies to help lift Chinese farm productivity.
But China's importance to Australia goes beyond resource exports.
Recent figures show China is now Australia's top source of overseas students –around 34,000 Chinese students are currently attending Australian institutions - and fifth largest source of visitors - over 190 000 in 2002.
The development of these people-to-people links promise tremendous long-term benefits for the bilateral relationship.
Investment links also are expanding. China is now Australia’s 17th largest investment destination and the 13th largest investor in Australia. Chinese enterprises are becoming increasingly important investors in Australian primary commodity projects.
The Australian and Chinese Governments are working closely to strengthen this vital commercial partnership.
To that end, we’ve recently concluded a forward-looking Trade and Economic Framework with China –I signed this in Canberra with Vice Minister of Commerce Yu during the visit of President Hu Jintao last month.
In the framework, Australia and China agree to cooperate to achieve comprehensive trade facilitation. It includes opportunities for work towards liberalisation and intensified cooperation in a wide range of important sectors like resources and energy, agriculture, information and communications technology, tourism and education.
The framework will enable Australian companies to take advantage of opportunities arising from China’s WTO accession and Beijing 2008 Olympic Games –through further cooperation in the areas of services and intellectual property rights.
It also provides for improved consultative mechanisms between our two countries, and most significantly, commits Australia and China jointly to undertake an FTA feasibility study, to be completed by October 2005.
As such, the Framework is an ambitious, far-reaching initiative, setting a basis from which to advance Australia-China commercial relations for the next ten years and beyond.
This bilateral agreement offers unprecedented potential for building on existing strengths in the relationship –and is a testament to both governments’focus on practical, hardheaded trade policy outcomes.
China embraces the world market
The framework in no way detracts from our dealings with China in the WTO.
China's accession to the WTO in 2001 was one of the most important and encouraging developments for the multilateral trading system in many years.
Bringing China, the world's sixth largest trading economy -- and Australia's third largest trading partner -- into the global rules-based trading system was a major event for the WTO, China and Australia.
Most visibly, it commits China to further cut trade barriers and significantly improve access for foreign investors, particularly in services.
China has reduced its average tariffs from over 40 per cent in the early 1990s, to 11 per cent after WTO entry in early 2003. Average tariffs should be about 10 per cent by 2005.
China is also removing or relaxing many non-tariff barriers, particularly on agricultural trade, and relaxing investment barriers in the services sector, including on finance, transport and distribution, as well as telecommunications and professional services.
However, beyond the headlines, China's entry to the WTO consolidates and extends the reform programme it began almost a quarter of a century ago.
Continual –though gradual –market-oriented reform has delivered China extraordinary economic growth, and rapid improvements in living standards.
China's population now has a GDP per capita of just over US$1000, and its economy is already the sixth biggest in the world.
On current growth rates, China is expected in 2007 to pass the UK and France to become the world's fourth biggest economy –just a few years away.
China’s WTO entry commits it to deepening and accelerating reforms in a range of other areas which are crucial to modernising China's economy, its key institutions and its business environment.
These include reforms to the legal system, bureaucracy, financial markets, state-owned enterprises, foreign exchange regime and in corporate governance.
The reform of the banking and state sectors continues –I am sure Ernest Li, Senior Vice President Corporate Banking of HSBC in China, will tell you more about the changes underway there.
The rule of law, particularly in the areas of intellectual property and contract law are strengthening –albeit not at a universal rate –delivering a more predictable business environment.
Hence, WTO entry 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.
As a result, China is anticipated to average at least 7 per cent real growth a year, positioning itself to become a middle income, and eventually developed economy, in coming decades.
All these elements augur well for China and for those nations like Australia that see their economic future well-being bound up with China’s.
The practical challenges
Although there are still hurdles that need to be cleared, China has shown through the last two-and-a-half decades its commitment to integrating its economy with the world.
WTO entry and other reforms are making the Chinese business environment more certain and predictable. New, better enforced laws and stronger institutions should reduce the costs of trading and investing in China, benefiting Australian business.
That said, I don’t want to downplay the difficulties of doing business in China. Many of you around this room know first-hand the opportunities and challenges involved in operating in the China market –indeed I recognise here representatives from companies with long experience trading with or investing in China.
We need to remember that improvements to the business environment in China will be gradual.
We need to remember that the process of transforming China’s economic system is very complex, and will take time.
Many WTO-related reforms are yet to be implemented –and China's size, complexity and development level will make that process administratively and socially very difficult.
Also, as you well know, there are still certain structural constraints and market realities to be taken into account.
And I am sure many of you have experienced first-hand the challenge of coping with the language, cultural differences, a complex bureaucracy and a developing legal and banking system.
You are no doubt intensely aware that China is a highly competitive market, with strong local and international firms jockeying for market share. China’s WTO accession has generated more intense competition, particularly from industries in the United States, Canada and the EU.
So to go back to the theme of today’s business breakfast, I am sure that you are not taking a gamble in the Chinese market. You are exporting or investing to China because you are strongly committed, and have a well-prepared business plan. It is a calculated risk, but one worth pursuing.
I can assure you that the Australian Government is committed to helping you take full advantage of all the opportunities that the Chinese market offers.
We are working hard to improve market access and help Australian industries to compete on fair terms with other suppliers.
Before I conclude, let me give you one specific example of how the government is helping exporters.
As you may know, horticultural exports to mainland China via Hong Kong do not involve any official Australian Government regulatory oversight such as phytosanitary certification.
The trade is not supported by formal market access protocols and carries high commercial risks. Despite this lack of regulation, according to industry estimates, Australia exported $140 million worth horticultural produce to Hong Kong in 2002 - of which $100 million was re-exported to China.
The Department of Agriculture, Forestry and Fisheries and my department are working closely with the Horticulture Market Access Committee, an industry-led body to identify and pursue market access priorities.
At its August 25 meeting, this committee identified citrus, mangoes, lychees, stone fruit, cherries and table grapes as its top priorities for China. The first three import requests have already been registered with Chinese authorities and the latter three were registered during the visit of Mr Truss to China in early September.
The signature of the Sanitary and Phytosanitary (SPS) Cooperation MOU during President Hu’s visit to Australia in October 2003 will certainly help advance our key horticulture market access issues in China.
This is just one example of the Government’s push to unlock opportunities for Australian exporters in China.
Conclusion
Looking ahead, the Australia-China trade and investment relationship is in excellent shape. The complementarity of our economies, continuing implementation of China’s WTO commitments and the good prospects for continuing growth in both countries set a firm foundation for continuing mutual benefit.
This business breakfast is a wonderful opportunity to discuss our commercial future in China, and the considerable challenges and opportunities that lie ahead.
I would like to close by congratulating all those here today who are leading the export charge to China. The Government will continue to support your magnificent efforts. Thank you.