Transcript
20 May 2009
Interview by Fran Kelly, ABC Radio National Breakfast.
Subjects: The Chinese economy; trade with China; trade with the Asian region.
FRAN KELLY: China will save us - that's the message from the Reserve Bank minutes released yesterday. And Treasury's also singing from the same song sheet, with the federal budget basing its optimistic recovery figures on a resurgent Chinese economy.
And certainly the forecasts for China are pretty good. But how linked are our fortunes? And should we be so optimistic when other major trading partners in the region - like Japan for instance - are looking positively disastrous?
Trade Minister Simon Crean is at the Melbourne Airport. He joins us now.
Simon Crean, thanks very much for being on Breakfast.
SIMON CREAN: Pleasure Fran.
FRAN KELLY: Minister, you're just back from China I know. How would you describe the state of the economy? What signs are you seeing of these so-called green shoots?
SIMON CREAN: Well, they're more than green shoots. China is actually booming right across its regions.
I didn't visit Beijing on this occasion. I went to the regions - the south-west; the central part of China; Shanghai. There's enormous investment going into infrastructure; into steel making; into regenerating, revitalising their steel making capacity; into urban renewal interestingly enough. They're going to have to house 400 million people in city centres. This puts big demands for housing design, construction, all the sorts of things Australia's good at - smart housing, energy efficient housing.
This was a business mission that I took to the regions of China to demonstrate our ability to help them develop in this direction.
So, our, China is growing really strongly Fran, and our future is tied very much to them - not exclusively...
FRAN KELLY: But how tied? I mean, can you give us a sense of what level of growth you think China would need to be at for us to achieve the four and a half per cent forecast of, by 2011?
SIMON CREAN: Well I think there are a couple of contributors to the four and a half per cent. China is one of them. The other is the significant injection we've put into infrastructure in our economy. All the economic evidence shows Fran that nations that invest better in developing their skill base and lifting the skills of the nation increase their GDP better. Nations that invest in infrastructure - renewing it, building it - those that do that better also lift their GDP.
But you've also got the importance of our trade. And trade has been growing very strongly for Australia, despite the global downturn. China has been an important part of it, but not just China. Even Japan, which is forecast to contract six per cent this year...
FRAN KELLY: Mm.
SIMON CREAN: ...our exports are still holding up very strongly in Japan.
You take India - which is forecast to grow four and a half, five per cent - you've got Vietnam; Indonesia. We've just concluded the ASEAN Free Trade Agreement to give us better access into those sorts of markets. Emerging Asia is still forecast to grow.
So, as important as China is, because it's not just the biggest population, it's the fastest growing economy, not just this year, but next year, the year after - these are the places Australia has to be. This is why...
FRAN KELLY: But minister, isn't there...
SIMON CREAN: Yes.
FRAN KELLY: ...isn't there another story in China too - and we've had this discussion on Breakfast before - for instance half of China's toy factories have shut down; at least 67,000 factories closed in the last half of last year; 27 million Chinese were out of work - that's at the start of this year, and there's been many more millions since then. I mean, isn't there a question mark over the internal demand? It's got to be patchy; if we're looking at keeping China at above eight per cent growth.
SIMON CREAN: Two things. I think you've got to understand with China, the aspects that you talk about, their export driven economy is a small proportion of the total economy - probably 15 per cent, dependent upon export growth. And those regions that have been heavily dependent on export growth, they are suffering. That is true.
But the rest of the economy - and bear in mind that not only has there been an eight to 900 billion dollar US fiscal stimulus injected into the Chinese economy, there's been significant easing of monetary policy. So the state-owned enterprises are being able to borrow and to build.
And so in the case of Wuhan province - which is a big steel making place - you see a lot of rationalisation going on in that city, where the old, less environmentally friendly steel mills, they're closing them down and building state-of-the-art, if you like, steel making facilities, because there's a huge demand for steel in construction in the country. If there's that demand for steel and construction in the country, that's got to be good for our, for our iron ore exports in particular, and our resource sector.
That's where the opportunity for Australia comes. But, it's not just in that sector. As I said before, urban development is also a huge opportunity for us. Financial services is a huge opportunity. Export...
FRAN KELLY: Okay, well that brings us...
SIMON CREAN: ...education services, a huge opportunity. What we have got to do is to understand the opportunities that present themselves in China; understand that from the perspective of the regional economic development - and bear in mind in China Fran, retail sales up 15 per cent; auto sales have been up six per cent in the first quarter; that's on the consumption side of the economy. Fixed asset investment in China overall, up 30 per cent. And in infrastructure, up 100 per cent.
So don't tell me that...
FRAN KELLY: What are the implications...
SIMON CREAN: ...don't tell me that's not strong growth.
FRAN KELLY: That might be strong growth, but what are the implications for our economic recovery and our getting a slice of that if you like if we don' achieve a free trade agreement?
I think you've had 13 goes at striking a deal on the FTA so far; with no luck.
SIMON CREAN: That's true, and we'll persist, and I'm confident that we can get there if the political will remains. And I think the political will is there. The Prime Minister and I, Foreign Minister, Economics Ministers in resources, in agriculture, all have been up there pushing this argument.
But the Free Trade Agreement is one level of engagement Fran. The other is this second track approach, which I'm convinced we've got to step up much more on since my recent visit, and that is, whilst we're still trying to conclude the Free Trade Agreement, let's look at the commercial opportunities now. Let's look at where we can do the matching; do the complementarity; sell the point that we can help them in terms of the investment that they're undertaking internally.
FRAN KELLY: Okay. Minister can I just switch topics now and talk about share ownership which every government likes to see. Will you reconsider the tax changes for employee share schemes? I mean isn’t the government targeting the wrong people with this? $60,000 a year as the cut off point isn’t that much. Unions are now warning this could lead to a wages break out.
SIMON CREAN: Well we’ve got to get the targeting right that’s for sure Fran and I think the finance minister has said there’s preparedness to look at that.
FRAN KELLY: You think the targeting might be a bit askew?
SIMON CREAN: Well again that’s a judgement for those that develop the proposition to look at and develop propositions, but what you do have to understand is that this is a scheme that allowed itself to be manipulated because it gave options as to which price would apply to the shares that are issued. Now we have been a government in the past, and I recall this because I’ve been actively involved in the past in encouraging share ownership for workers within the operations. Why? Because it gives them a better understanding of why you’ve got to lift the productivity of the business and share, not just in the development, but subsequently in its profitability. So it makes common sense. You’ve got to get the targeting right and I’m sure the government will continue to look at this and make the necessary adjustments.
FRAN KELLY: I’m sure you’ll be having something to say about it too. Simon Crean thanks very much for joining us on Breakfast.
ENDS
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