Speech to the Australian Chamber of Commerce, Shanghai
Australia-China: Opportunities and Challenges
Shanghai, 18 April 2008
Ladies and gentlemen, thank you for inviting me to join you for breakfast this morning.
I’m delighted to have this opportunity to speak to the Australian Chamber of Commerce in Shanghaiduring what is my sixth visit to China.
Shanghai is the leading city in the Yangtze River Delta region that embraces China’s fastest growing and biggest economy.
Australia has a large and growing commercial presence in this region.
My department’s figures show that there were 936 Australian investments in Shanghai and surrounding areas at the end of last year, including some of Australia’s largest investments in China.
The discussions I have held with Chinese officials in Beijing this week and will have here in Shanghai intersect with issues that matter to you as Australian businesspeople.
I’d like to talk about some of those issues with you here today.
Australia-China relationship: opportunities and challenges
First, I wanted to take this opportunity to make a few comments about the Australia-China relationship, particularly the FTA negotiations.
Reflecting the growing importance and strength of Australia’s relationship with China, Prime Minister Rudd visited here just last week as part of his first major overseas trip.
The visit went extremely well on many fronts.
A major objective of the Prime Minister’s visit was to restart the free trade agreement (FTA) talks with China.
Encouragingly, there was agreement between the Prime Minister and Premier Wen Jiabao to “unfreeze” what has been the frozen bilateral negotiations for an FTA between our two countries.
Yesterday in Beijing I participated in Joint Ministerial talks with Commerce Minister Chen Deming, to discuss a range of trade policy issues including the FTA.
- I am pleased to report that building on the momentum of the Prime Minister’s visit I had a productive discussions with Minister Chen about how to take forward our respective leaders’ agreement to unfreeze FTA negotiations.
- We agreed that a
high quality, comprehensive and mutually beneficial FTA will
require good outcomes in seven key areas:
- Better goods access including agriculture
- Better services access
- Investment
- Non-tariff measures
- Government procurement
- Intellectual property
- Built-in negotiations.
- We agreed that both sides will develop a work program for negotiations in all of these areas. And we will ensure that there is progress in all areas, although they could move at different speeds.
- China has agreed to table an improved tariff offer following conclusion of their FTA with New Zealand and is looking into whether it can do this in the next round in June.
- We have agreed to negotiate early outcomes to build confidence that we can reach a comprehensive final agreement. And I indicated that Australia will focus on aspects of services as a potential early outcome.
- We discussed increasing the frequency of negotiating rounds and agreed to have two more rounds this year after the June round, although we will see how the June round goes before deciding on this.
I am very encouraged by this outcome and the indications from China that it is strongly committed to progressing the FTA.
Agreement by China that all sectors are to be included in the FTA should enhance what can be achieved via multilateral trade negotiations.
The FTA must cover agriculture and manufacturing, where there are sensitive issues involved on both sides.
Significantly there is also tremendous opportunity in the services and investment sectors.
That is financial services, education, logistics, infrastructure design and development and other professional services.
Capital flows between our two countries is also critical because the whole nature of trade has changed these days.
It isn’t any longer just about producing goods and services in Australia to export to, say, China or any other country.
It’s also about direct investment into countries like China, if the trade and economic framework is supportive of that, not so much to take advantage of cheaper costs, but significantly to take advantage of significant growth in China’s domestic market.
Given China’s manufacturing export base,that will also enable Australian companies to get into global supply chains which are driving the growth in international trade.
The reason is simple.
The growth in world trade has been three times faster than the growth in world output.
If any country wants to secure its economic future, big or small, developed or developing, it must engage with trade.
And trade policy must engage with and foster a more liberal, open, accessible market culture.
That’s what our trade policy needs to adapt to.
It needs to adapt to it in policy terms at home.
And it needs to adapt to it in terms of investment flows.
So far, investment flows between Australia and China remains small compared with the wider trade relationship.
Australian companies had invested $3 billion in China by the end of 2006, while Chinese investment in Australia reached $3.4 billion.
We’re keen to expand the scale of investment flows in both directions as it is a key driver of closer economic engagement.
The incorporation of Invest Australia into Austrade will help us with this process.
Global Readiness
This week the Export Finance and Insurance Corporation (EFIC) released its first-ever Global Readiness index that examines the opportunities and challenges confronting Australian companies on the path to participating in global supply chains.
As outlined in the report, the survey takes place against an interesting economic backdrop: while Australian businesses have been finding it hard this decade to increase exports – despite a resources boom driven in large part by China – they have had more success expanding their offshore operations.
Under the last six years of the Howard Government total export revenues grew at an annual average rate of only 5.8 per cent compared with 10.7 per cent in the 18 years following the float of the dollar in 1983.
However the pace of direct investment abroad by Australian businesses has been accelerating.
We have now reached the point where direct investment abroad by Australian companies of $318 billion rivals foreign direct investment in Australia of $357 billion at the end of December 2007.
Furthermore, sales by overseas branches, subsidiaries and joint ventures of Australian companies have now caught up with and passed the value of Australian-owned goods and services exports[1].
In 2007, earnings from sales by overseas branches, subsidiaries and joint ventures of $112 billion exceeded the value of Australian owned goods and services exports of $107 billion.
As EFIC notes, this move ‘beyond exporting’ is a truly transformational change in the way Australians conduct international business.
In the past, when overseas trade and investment barriers were higher and the digital revolution hadn’t yet started, Australian companies of necessity had to look mainly to the national market place.
Any overseas sales were predominantly made by exporting from Australian shores.
But in today’s highly integrated world economy, companies increasingly target a world marketplace and are prepared to locate the different stags of their production and supply chains where ever the business benefit is greatest – and regardless of whether it is onshore or offshore.
No longer is it the case that the Australian economy pays for its import needs mainly with exports – it is now just as likely to pay its way with earning from offshore affiliates[2].
As the Australian Financial Review[3] noted having two large lines of revenue earnings – exports and investment returns – means the nations is better placed to weather external shocks.
The EFIC survey also suggests the number one driver for offshore expansion is to “increase revenues/expand market share’. Equal second was ‘take control of the supply chain’ and ‘decrease costs’.
According to EFIC, these results strongly suggest that Australian businesses primarily regard offshore expansion as a strategic path to market and revenue growth rather than a defensive ploy to protect what they already have.
It is apparent from the diversity of Australian companies located here in Shanghai that you are very much a part of this new dynamic.
The new dynamic of Australian companies building on their foundations in Australia and pursuing opportunities offshore to expand their business operations and broaden their revenue streams.
To examine these issues and to better position Australian companies to pursue the opportunities opened up by improved market access at the border I have appointed David Mortimer, Chairman of Leightons and Australia Post, to examine our trade policy settings behind the border.
This is a whole of government approach that is critical to ensuring that our policies behind the border including infrastructure, education, skills, training, innovation, and regulatory arrangements enhance our productivity performance and international competitiveness.
Conclusion
I look forward to meeting later today with Shanghai Party Secretary Yu Zhengsheng to further discuss our shared economic and trade interests in this region, including on progressing the FTA.
I’ll also be visiting the site for the World Expo 2010.
I know that our pavilion and associated programs at the Expo 2010 will reflect the breadth and depth of Australia’s relationship with China, and its future potential.
You and the companies you represent are a vital part of that future.
I’d like to wish you all well.
I’d also like to I’d like to congratulate AustCham on the continuing contribution your organisation makes to helping Australian business succeed in China, and here in Shanghai specifically.
You can be sure Austrade, and the Government as a whole, will be working to do everything we can to help you.
Thank you.