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Mr Crean: I just thought I'd do a few opening remarks, and then throw to questions. I'm here in China not just for the Shanghai Expo, but I have held high-level talks in Beijing, with Chairman Zhang Ping of the NDRC. The High-level Economic Cooperation Dialogue is a major annual event between Australia and China. It gives us the opportunity to talk about the framework for (inaudible), to talk about a number of key areas of activity: our trade, our resources sector, energy, climate change, transport and logistics. And we had a very good discussion about that. Next month, we enter the 15th round of negotiations on the Free Trade Agreement, and I will have the opportunity to meet with [Chinese Trade] Minister Mr Chen Deming in Tokyo in Japan early next month.

I also visited a number of regional cities of China. I visited Tianjin, Qingdao and Jinan in Shandong Province. This is consistent with what I've been doing on a number of previous occasions, and that is: as a second track approach to the FTA, engaging with the regions about commercial opportunities in areas of activity where we either have an established base, or in which there is a challenge in terms of development of the Chinese economy, to which we believe Australia and contribute to the solution of. Urban design and development – green buildings – is one area. We also believe that financial services is another area. So too is logistics and infrastructure, finance and construction. Education services is another area. Clean energy and energy efficiency. So the engagement is with the regions, but it's also trying to identify sectors of common interest. And so, the visit in Shanghai brings together a number of those sectors, importantly green building, and I participated in a seminar that's been running for two days here in the Shanghai Expo in relation to that. Tonight we have a dinner for those involved in financial services in our respective economies. Tomorrow, in the automotive sector. And another thing we'll do tomorrow – and I hope that you have the opportunity to see this – is we'll be launching Brand Australia: a marketing attempt at presenting a business plan, that Australia is not just a destination for tourism, its also a place to do business, to invest, to build global and regional headquarters, to expand trade opportunities and forge partnerships. In many senses, it's demonstrating the strength of our creativity, our innovation, our welcoming nature, our inclusive nature. And to say that all of this is part of the Australian brand. So this will be a busy two days, and it has been a busy week. As always, it is exciting to come to China – the opportunities here are enormous, the challenges are large, but in our view, working together, and particularly looking for areas in which we don't have to compete, but in which we can cooperate, and through that cooperation, strengthen both economies – that's the win-win outcome we seek here.

Reporter: Minister – the new super-profits tax. Can you comment on what influence it would have on the export of resources, like iron ore, into China?

Mr Crean: It is likely to increase the supply of those exports.

Reporter: How so?

Mr Crean: Well, it will not increase the price, because it's not a tax on consumption, it's a tax on profits. Already, mining resources onshore are taxed by the states. But they're taxed through a royalties system, that attaches the tax to every ton of resource that's mined, regardless of whether a profit is made. Under the new proposal, the tax will only apply after profit is made, but immediate deduction will be available for all of the costs associated with undertaking the investment. For companies that are marginal operators, or less profitable, the tax will actually be a benefit to their operations. The reason why there are high prices for iron ore and coal is because demand is exceeding supply. The only way to address that imbalance is to increase supply. And the best way to do that is to devise a more modern taxation regime, that encourages the expansion of supply. From the economic modelling that has been done in relation to this tax, the conclusion is that it will result in a 6-7 per cent increase in mining investment.

Reporter: Big mining companies, such as BHP and Rio, the China side is really worried they will have to pass the tax burden on to their products, even if the tax is not directly on consumption. So I'd like to hear how you explained that to the NDRC people. There are Australian reports that you invited the Chinese to participate in the consultation process on the super-profits tax. So could you explain how the Chinese side can participate – mining companies, the government – can you give me more detailed explanation. Also I read you warned the Chinese Government not to impose any import tax on iron ore from Australia – how was the feedback from China on this?

Mr Crean: Okay, well there's a number of questions that are involved there. First of all, as I said before, it's not a tax on consumption, it's a tax on profits. Iron ore is traded in a global environment. There clearly is international competition for iron ore. That competition determines the price. It's a function of supply and demand, and the competitive pressures. That tax will not, of itself, put the price up. That's the first point, and I explained the reasons for that before. I note the concerns of BHP and Rio, but have you ever known anyone who welcomes a new tax? What we have to do is compare the regime which is existed until now, where the Australian economy has not seen a fair return for its resources to the nation. But also a complex set of taxing arrangements amongst the states, which we are trying to simplify, and put the taxing regime on a footing that reflects a better return to the nation, but only after profits have been made, and which allows for the first time an immediate deduction before any profits are made. At the moment, people can't claim deductions or seek rebates unless they've made a profit – there's nothing to deduct from. But they can actually carry forward, or claim them in the year they're incurred. So this is a more balanced arrangement in terms of the taxing arrangements.

The discussions we've had with the NDRC go in two directions. First of all, if the concern is about price, it is very interesting that China no longer argues that governments should intervene to affect prices – and this is a point we've been consistently been pushing back on for a number of years. We've said that if China wants to be recognised as a market economy, it has to act like one, and it has to accept market prices. The reason resource prices are high is because demand is so strong, and China's demand particularly is so strong. What we need to do therefore is increase the supply side of the equation, and that's why encouragement to investment and developing tax regimes that are more conducive to greater investment, is important.

Now on the question on inviting them to participate in the review panel, that's an invitation open to any company, any business that has concerns about the implementation and transition arrangements for the new tax. We announced at the time of the tax that we would establish this new panel. We have suggested to those who want to make input into the transition arrangements, they can do so. I have extended that invitation through Chairman Zhang Ping, but obviously it's up to the companies, if they have concerns, to involve themselves. It will be interesting to see whether they do respond, and the nature of the concerns that they rise. It will be panel taking them up.

As for the import tax, that did not get raised. Our concern has been clear: introducing new taxes at the border is not conducive to trade or to market economies. In fact, it is also increasing the input costs to the Chinese market. What is in its interest is having the most efficiently-priced resources coming to them. That's not going to be efficient, or priced according the market, if you impose another level of import tax.

Reporter: A lot of country have come to Shanghai Expo, hoping to enhance cooperation between their countries and China. The USA and UK are also concerned about green energy and financial services. I would like to know how Australia can step out from these countries.

Mr Crean: Well, first of all, Australia has been very innovative with understanding and coming up with solutions to clean energy and urban design and smart buildings and more efficient buildings. This is increasingly being recognised in the cities and the provinces I've been visiting. That's why we've signed, I think 4 MoUs already, and in discussion with the Governor of Shandong yesterday, they also wanted to develop a MoU to talk about expanding areas of opportunity, including green building and energy efficiency. Secondly, on energy efficiency, Australia and China have a lot in common. We are both heavily reliant on coal. It is therefore in our interests to develop clean coal technologies, to work together to develop carbon capture and storage techniques, sequestration, that sort of thing. It's also the case that China, in terms of its energy needs going forward, has now entered into long-term contracts for our gas supplies, and Australia is in a unique position to be a stable supplier of gas to this market. Australia is the Saudi Arabia of gas. It is the most reliable, efficient supplier, but again decisions about investment require long-term commitments. So understanding the importance of committing to long-term contracts has also been an important part of the equation. But in renewable: wind, solar, thermal, hydro – these are all areas that we have in common. They're all areas in which we already work. They're all areas in which we have cooperation, and we can build on that cooperation. But we don't mind if the US is competing, or any other country: the challenge is to find the most efficient and effective solution to what is a huge challenge for China. I know it's a challenge, because every leader I meet, whether it's at municipal level, or at the provincial level, is under pressure to meet targets, and if they fail to meet the targets, they've indicated to me that their job is on the line. So, this is an opportunity for us going forward. On the question of financial services, why are we better-placed than the United States? Because we were not exposed – and nor was China – to the sub-prime collapse. Australia's financial system is amongst the safest in the world. There are only nine banks in the world that retain AA ratings, and Australia's four major banks are amongst the nine – all of them. We didn't have the exposure to the sub-prime collapse. We've developed a regulatory regime that encourages on the one hand openness to innovation and creativity in terms of financial services, but also strong prudential requirements under one regulatory body, and strong regulatory requirements as far as the security and exchange area is concern. So the model of regulation works from Australia. In all of the discussions I've had in China, the first thing they mention in relation to the economy is not just the congratulations for the fact that we've avoided the recession, but also praise for our financial services sector. Now, as China moves forward, Shanghai itself is positioning itself as a centre for the financial services sector, there is great opportunity to play of our strengths. A strength we have that Europe and the US doesn't.

Reporter: You mentioned that Australia has successfully survived the global downturn, and I'd like to know if the policies you had during the crisis will be sustained in the future, or will you change to some other policies to stimulate the economy.

Mr Crean: Well, there are three reasons why Australia avoided the recession, in my view. One was our stimulus package was substantial, and we acted quickly, decisively, immediately. One third of the stimulus package went to consumption, because consumption is important for driving our economy. All of that consumption was spent, because we had safety nets in place: compulsory retirement incomes policy, compulsory universal health coverage. So people spent the money. We also put in place programs to keep people in work during the downturn. Not only because we invested the other two-thirds in physical infrastructure: port facilities, road facilities, rail facilities, school buildings, a whole range of initiatives that kept people in work. But also because our businesses understand that their people and the skills of their people are their most important asset, so even when there was a downturn, they didn't put people off – they reduced their hours, but they didn't put them off. So we didn't have an unemployment rise. In fact Australia's unemployment rate is still 5.2, 5.3 per cent. We have created over the last 12 months, somewhere in the order of a quarter of a million jobs. Now we have a workforce of 11 million. So, even through the crisis we grew jobs. But importantly with the investment in infrastructure, that is also expanding our productive capacity, particularly in the mining sector and the resources sector. A large chunk of that money that's going to be obtained through that new profits tax, is also going to physical infrastructure, to ensure that bottle-necks that were holding up supply and were also affecting price, we're addressing the future. We're also investing heavily in the skills of our people going forward, in our universities and in our research. Why is that important? Because it raises the productivity of the nation. So the stimulus package worked.

We also undertook major structural reforms over the last twenty-five years which have made Australia a very competitive and productive economy. And third, we took the decision a long time ago to engage with Asia, and in particular with China. These three factors: structural adjustment, engagement with Asia – the fasting growing region in the world, and the stimulus package, is why we avoided the recession.

Reporter: What's your forecast on China-Australia trading ties. And also you mentioned the tax won't actually increase the price of iron ore – so you don't expect that to impact on the iron ore supply to China?

Mr Crean: No, I expect that the tax will increase the supply of iron ore. And if we get a Free Trade Agreement, and an investment chapter, that can also be more conducive to investment in expansion of greenfields operations. The tax at the moment, the tax regime on resources that exists at the moment, does not encourage investment in lower-profit returning developments. The new tax will, so if in fact the argument for addressing pricing in the long-term, in the medium to long-term, is to get a better match between supply and demand, then any arrangements we're taking to develop, to further develop our resources, have got to be helpful to a greater match between the supply and demand equation. Now investment in infrastructure, the new taxing regime, should all contribute to an expansion in mining activity.

Reporter: What is the state governments' attitude towards it – it seems royalty from the mining sector is a big financial income for the state governments.

Mr Crean: The state governments will still keep them. The state governments can keep theirs but it can be deducted from our tax.

Reporter: Can the company face two systems for the tax?

Mr Crean: They already pay the royalty, but the royalty can become part of the deduction, and that deduction can apply immediately, before a profit is returned. At the moment they have to pay the state royalty regardless of whether they make a profit. Under the new regime, they're not taxed twice, we're not taking away the state royalty, but we're treating it as an up-front deduction. That's got to be better for the mining sector, looking to expand its operations. Thank you.

ENDS

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