ChAFTA and beyond
The China-Australia Free Trade Agreement (FTA) entered into force on December 20 2015. Tariffs have already been reduced and the opportunities for Australia in China are expanding.
How will the FTA continue to play out in practice? What are the next steps? How does the does the former Minister and architect of the FTA see Australia-China economic relations developing?
Australian Special Envoy for Trade the Hon Andrew Robb AO MP explored these questions in a timely and fascinating keynote address to the Australia-China Relations Institute (ACRI).
See below for the text of Mr Robb's speech.
View the full event photo gallery here.
This event was made possible with the kind support of Bloomberg Sydney.
Andrew Robb AO MP, Special Envoy for Trade
Address to Australia-China Relations Institute
Sydney, March 10 2016
Thanks for this opportunity, and congratulations to ACRI for the terrific work you do to enhance relations between our two countries and thank you to Bloomberg for kindly hosting tonight’s event.
And special mention to the generosity of YuHU Group Chairman Mr Huang in supporting the establishment of the institute.
I’d also like to pass on my gratitude for the very public, factual information campaign that ACRI led with regard to the China Australia Free Trade Agreement.
This came during a period when the FTA was under quite fierce attack from militant, anti-trade elements of the union movement.
These efforts helped put the facts on the table – from a respected quarter, independent of government – and this had a very material effect in helping inform debate, and ultimately in turning public opinion strongly in favour of the China Australia Free Trade Agreement.
So again thanks to ACRI, to Bob Carr, and to people like James Laurenceson who wrote some excellent and timely opinion pieces in the daily newspapers.
Our relationship with China – our biggest trading partner – is of course one of our most important, with over $150 billion in two-way trade in 2014-15.
China is our top overseas market for agriculture, resources and services exports and accounted for $90 billion of our exports last year, while Chinese direct investment in Australian stocks was worth AUD $30 billion.
The subsequent FTA represents something of a high water mark, providing a platform to deepen and in some ways recalibrate our economic, trade and investment relations in this critical post mining boom phase.
It also coincides with China’s transition from a manufacturing, export and investment based growth model to one more centred on rising consumption and services.
ChAFTA entrenches our competitive advantage where we’ve traditionally been strong, and opens new doors to diversify, especially in regard to services, agriculture and high-end manufacturing.
Yet despite this, many international analysts and fund managers, apprehensive of slowing growth in China and the sluggish global economy, combined with the end of the mining and energy boom, have gone underweight in Australian stocks.
Australia is being judged as simply and economic derivative of China.
In my view, this highly superficial analysis can be challenged on two grounds.
Firstly, despite the many challenges China faces, the slowing growth figures can be misleading.
In 2000, China’s GDP was around US $1.2 trillion with growth at 10 per cent, or roughly growth valued at US $120 billion for that year.
Today, China’s GDP is nearly 10 times the size it was back in 2000, at close to US $12 trillion, with growth rates around 6.5 per cent per annum.
This growth rate delivered growth last year valued at US $800 billion, compared to the US $120 billion at the turn of the century.
The IMF reports China still adds an economy around the size of Turkey’s to the world each year.
While over the past 30 years, China has also lifted more than 500 million people out of poverty; both an economic and a humanitarian miracle.
China, and the emerging economies of Asia, will have setbacks along the way, but one major factor in their favour is the sheer size of their domestic markets.
For example, insufficient weight is being attached to the success in China of transitioning to a consumption based economy, with a growing services sector.
Last year around two thirds of China’s growth was attributed to growth in consumption.
As consumption continues to rise it plays to Australia’s strengths, with increasing demand for things like our high quality agriculture and food exports, our pharmaceutical, health and wellness products and our world class services; everything from tourism and hospitality, health and aged care, through to banking and finance, water and environmental management, construction, transport, logistics and the list goes on.
The China FTA turbocharges this opportunity because we have received very extensive concessions on the access of our goods and services, concessions which have not been made available to any other major developed country.
To this end, with our highly sought after ‘clean, green and healthy’ agricultural products, our high end manufacturing and our ‘gold standard’ services, we are really positioning our offerings to the top two or three per cent of consumers; the high net worth segments of the emerging middle class.
And the numbers of consumers emerging into the middle class are such that our productive capacity could only ever meet the needs of the very premium end of the market.
Remember, the OECD estimates that the region’s middle class will go from 525 million in 2009 to over 3 billion, not in 100 years, or even 50 years but by 2030.
Even if the figures are only half right, they are almost inconceivable.
And with this growth will come challenges, but also enormous opportunity, limited only by our imagination.
In any event, we are a high cost country, because of our high living standards, so we need to be at the premium end of markets to attract premium prices which provide returns sufficient to meet our relatively high cost structures.
The second highly superficial aspect of the analysis about Australia’s attractiveness as an investment destination by global equity and funding markets, is how it ignores the remarkable rebalancing of our economy that is taking place, despite the sluggish global economy, the loss of construction investment in mining and energy and the related fall in these commodity prices.
All the naysayers and many of the economic commentators are still struggling to accept that their dire prognostications of the last three years; post the mining boom, have not materialised.
With a couple of notable exceptions, if you read the daily hand-wringing and demands to “turn the economy around”, as featured in one financial daily’s editorial yesterday; you would be excused for thinking that economically Australia was on its knees.
Yet, as I have travelled the world conducting over 80 investment roundtables across 28 countries since we came to office in 2013, the global business community, familiar with Australia, marvel at the speed and breadth of the post mining boom transition.
In Australia, as a consequence of a remarkable opening up of our economy over the last three decades, we are in our 25th year of uninterrupted economic growth, averaging 3.3 per cent annually over this period.
Since the end of the mining boom demand has been maintained and grown, driving the creation of more than 300,000 new jobs in the last year alone, and seeing unemployment drop from 6.5 per cent, to 5.8 per cent (which last month ticked up to 6 per cent), despite very high participation rates.
Historically low interest rates, higher job creation, the 30 per cent fall in the Australian dollar to more traditional levels, our new free trade agreements covering 52 per cent of our export markets, rising consumer and small business confidence, stemming from higher house prices and policies such as accelerated depreciation, have all combined, along with our open economy, to see economic growth rates heading back to three per cent, the highest in the developed world.
These things have all contributed to higher household spending, as well as the increased competitiveness of tourism, education, health, IT, and financial and other services to significantly drive non-mining investment and profits.
We are also seeing for example jobs in construction move away from mining and resources projects and into housing and commercial construction. And in Queensland we are seeing job numbers lost in mining more than soaked up by job gains in services.
This is there for all to see in the just released GDP estimates for the December quarter.
And the analysis also ignores the impact of Australia becoming the biggest global exporter of LNG by 2018.
Along with long-term mining exports, one of the lasting legacies of the mining and energy boom, is the quadrupling of LNG exports from around 20 million tonnes just four years ago to 80 million tonnes by 2018, adding further and lasting per centage points to our GDP.
Furthermore, the three north Asian free trade agreements are just starting to take effect.
The Japanese and South Korean FTAs came into force around 12 months ago with some already stunning results.
The China-Australia FTA entered into force less than three months ago and we are already seeing strong initial uptake of the agreement.
For example early shipments of Australian quality exports under ChAFTA include fresh Tasmanian cherries – the day after ChAFTA entered into force – Australian mutton imported into the northern port city of Tianjin; continuing imports of frozen beef, wine and coal into the large south-eastern coastal city of Xiamen; coal into the large industrial centres of Ningbo and Zhuhai; beef and seafood into Shanghai, and several batches of seafood airfreighted to the main airport in Guangzhou.
We’ve also seen early positive results that are indirectly linked to ChAFTA, and the stronger relationship that comes with it.
For example we have seen the speedy conclusion of a new air services agreement with China which granted increases in the number of permissible airline seats to Australia from 22,000 to 67,000 seats per week, plus access to all the Tier 1 and Tier 2 airports in China.
With these opportunities in China and similar opportunities emerging in other countries across the Asia Pacific, the next 10, 20, 30 years can be spectacular for Australia; setting us up to take advantage of what in many respects will be the century of Asia.
Again, I would like to thank ACRI for its ongoing contribution to our common cause – namely greater trade and investment links with China, for the mutual benefit of both communities.
On a personal note, I believe I’m leaving the trade and investment relationship with China in good hands with Steven Ciobo.
I look forward to visiting China again next month, with Steven and many hundreds of Australian business people, for the second Australia Week in China, and I hope to see some of you there.
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