Thank you for the opportunity to speak to you today on a most salient topic.
China is of course a particular focus for me, because of the enormous scope to further broaden and deepen an already strong trade and investment relationship.
We are working hard to conclude a Free Trade Agreement this year which remains a realistic objective. I will return to this a little later.
But first, prior to coming here today I was reminded that HSBC can trace its history back to 1865, founded on the business of two of Asia’s great trading cities, Hong Kong and Shanghai.
It’s not such a great coincidence that Australia’s first Trade Commissioner, a forerunner of today’s Austrade, was posted to one of those cities, Shanghai, back in 1921.
Mr Edward Selby Little, a businessman and fluent Chinese speaker was sent with the aim of increasing Australia’s exports to “the East”.
From all accounts he did a good job, albeit in difficult circumstances and among his many sound pieces of advice to Australian companies was this one, reported in the Australian press at the time, and I quote:
“We must give the Chinese what they want, not what we think they need.”
Apparently, he was not impressed by some of our early manufactured exports which included phonographs.
He also had a lot to say about our early attempts at packaging for the Chinese market, including jam exported in tins rather than glass bottles, weakening its appeal compared to rival products from the United States and Canada.
Mr Little’s observations are still relevant, and they’re worth repeating for this reason, however, it’s also fair to say our trade with China has come a long way.
Today, our industry strengths play right to the centre of what China will need to sustain its economic growth and increasing prosperity.
Our agribusiness, resources and energy, education, tourism and hospitality, our health and medical sector and the specialised services that cluster around those are all capable of delivering significant benefit to both our economies.
These are the things we do as well as any and better than most and the demand from China will continue to surge.
Over recent decades this is a country that has performed a humanitarian miracle.
It has moved a staggering 500 million people out of poverty.
It is committed to the task of moving hundreds-of-millions more out of poverty which will require ongoing economic adjustment.
To do this, the shift from export and investment led growth to consumption-led growth will continue apace.
China for example realises that growth in services is fundamental to meeting the demand of a burgeoning middle class.
It is the sector which can provide vast numbers of future jobs.
Australia has a major role to play in this regard given the strength of our services sector across an array of areas.
I’ll talk further about this potential shortly, but for a moment let’s look at the current state of our existing relationship.
While China is our biggest export market, this also true for well over 100 other countries.
Still, we are China’s 6th biggest import market and 11thlargest export market, so we are important despite a generally smaller economy and the relative size of our population.
Our ability to supply China with resource commodities has of course formed the backbone of our relationship.
BHP or Broken Hill Propriety Limited was exporting to China as early as the 1890’s and even in 1971 at the height of the Cultural Revolution, when China was closed from much of the world, shipped major tonnage of iron and steel.
We have continued this with our exports of coal, iron ore and LNG.
And while these are very important and will continue to be so, our trading and investment ties are far more complex than just this.
Australian companies are active across China in almost all industry sectors you can name.
We have great architects working on town planning and major buildings, our vocational education and training institutions are assisting China with skills and employment opportunities.
We are supplying to China’s automotive industry through complex global value chains.
Many of our leading medical technology companies are there working to secure more market but also improvements in health services to China’s ageing population.
Our education and research institutes have many hundreds of agreements focusing on exchanges and research collaboration, and China is our largest international student market.
Consultants and professional service providers are active in everything from agribusiness to information technology.
Our banking sector has a strong presence and has the potential to undergo significant expansion.
China is now our second largest tourist market, with the tourist profile changing rapidly to high value tourists.
There is increasing demand for our food exports, which we read about almost daily, driving rapid growth in sales of dairy products, meat, fruit and vegetables, quality wine and packaged foodstuffs.
Exports of our beef and veal in 2013 increased by 380 per cent from 2012, to position China as our third largest beef market, and have continued to rise this year.
Clearly the opportunities for further growth are immense.
In order to understand them, however, we also need to understand the huge future challenges that China will face.
When we talk China, the numbers are always huge, almost too big to comprehend.
In the eighties we used to say that if we could sell one woollen sock to each person in China it would keep our wool industry busy for decades.
And we are still working on that!
The challenges China faces, as I said, are substantial and with increased prosperity and development come increased expectations.
- Transitioning from a state controlled infrastructure-spend led economy to a more services and consumer led one.
- Maintaining and expanding the current standard of living for a large number of its middle class, estimated to be around 630 million by 2022 – that is roughly three-quarters of urban Chinese households and 45 per cent of the entire population.
- Providing for those that haven’t been part of the “China dream”, integrating the millions of migrant workers from rural areas into mainstream urban society.
- Tackling corruption, the “grey” economy and wasted resources.
- The environment, domestic security and social stability.
- Dealing with the ageing population and the health services it will require.
All these are substantial challenges, but as we know China’s real challenges tend to be in areas where Australia is well-placed to help.
Water and Agriculture
Perhaps the most fundamental and significant challenge, among the many China faces, is the provision of clean, unpolluted water.
- Despite China having 20 per cent of the world’s population it has only 7 per cent of its fresh water.
- A 2013 report from the Geological Survey of China estimated that as much as 90 per cent of China’s ground water is polluted.
- The Chinese Ministry of Environmental Protection has stated that the water from approximately 25 per cent of China’s major rivers is so polluted that it could not be used for industry or agriculture.
This water crisis severely inhibits China’s ability to produce enough food and particularly high quality “clean and green” food that consumers want.
In stark contrast and to highlight this point, there is an estimated 152,000 GL in total surface water run-off across Northern Australia; around 60 per cent of the water that falls in Australia.
We currently capture just 2 per cent of it.
If we increased this to just 6 per cent and utilised vast tracts of the north for agriculture, the benefits in helping food security in China and other countries in feeding millions of people would be enormous.
The opportunity for collaboration is obvious. And it is already happening.
Chinese company Shanghai Zhongfu is developing 13,400 hectares of land in the Ord River region of Western Australia.
This project will see pastoral land transformed into irrigated farmland for sugar cane and other crops [sorghum] with spin off industries contributing to the local economy and major transport infrastructure.
While it is likely China will be able to maintain self-sufficiency in wheat and rice and a number of other major products, demand for untainted, safe products will continue.
We are already seeing changing consumption patterns, including demand for more beef, milk, eggs and high quality fruit and vegetables.
All the good things Australia can produce.
Our challenge is to maintain our supply capability to meet such demand, not just from China but from all over Asia.
Once again, the opportunities for collaboration are obvious and one example illustrates this well:
Western Australia’s largest meat processor V & V Walsh recently concluded a $1 billion joint venture with the Inner Mongolian Government and the Heilongjiang [pron: Hey loong gee-ang] Grand Farm Group that will boost its operations by 500,000 lambs and 30,000 cattle a year.
The company wants to deliver up to 50 sea containers of lamb and beef per day, requiring investment in both Australia and China.
China is the world's largest energy consumer and producer in the world.
It is the world's second-largest consumer of oil and projected to move from second-largest net oil importer to the largest in 2014.
China is also the largest producer and consumer of coal in the world and accounts for almost half of the world's coal consumption.
Maintaining energy security is critical for China and its future economic growth.
Australia has a major part to play.
We can expect Australia to become the world’s largest exporter of LNG by 2018 with $200 billion worth of oil and gas projects currently under construction.
We are then a natural partner for China.
And it won’t just be energy itself but all of the sophisticated services, equipment and technology along the supply chain.
We have already seen commitment from China to investment in our resources sector, something which began in the 1980’s but has accelerated recently.
In May this year, China Merchants Group committed to investing $1.45 billion jointly with Hastings to secure a 98-year lease of the Port of Newcastle.
Recently I received a letter from China Merchants Group Vice-President Mr Raymond Yu acknowledging the progress our Government has already made to encourage greater foreign investment and how this played a major role in their decision.
There is competition for the world’s capital and our challenge will be to increase efficiencies and competiveness, and decrease costs to remain a preferred destination.
As you may know, I hosted the G20 Trade Ministers meeting here in Sydney at the weekend.
We have placed a very strong emphasis on trade and investment in this our host year.
Over the weekend, following the B20 meeting, attended by 500 world business leaders, I also chaired the Australian Investment Forum organised by Austrade which brought together some of Australia’s largest firms and investors from across the globe, including China.
Can I just say the interest in Australia from China as an investment destination is most definitely on the rise.
Given that since the First Fleet we have always been a country reliant on foreign capital this is a very positive development.
Greenland for example, China’s largest developer says it now sees “no ceiling” for Australia’s investment potential.
Greenland chairman Yuliang Zhang referenced the company’s three current projects in Sydney and Melbourne worth a combined $1.5 billion. These include hotels and residential developments.
The company has also joined forces with Crown Resorts to vie for the multi-billion-dollar Queens Wharf casino and tourism precinct in the Brisbane CBD – a very tangible example of joint Australian-Chinese investment cooperation.
During the forum Mr Zhang foreshadowed another $3-4 billion of investment in Australia’s infrastructure, tourism and agriculture sectors.
Such investment also brings with it new perspectives, world-leading expertise and competition to drive innovation. It helps us maintain a critical competitive edge.
The fourth and last challenge I will touch on today is employment. This goes to the heart of a successful and vibrant society.
China needs to find jobs for approximately 10 million new graduates each year as well as many other school leavers.
This is becoming increasingly difficult as the economy moves away from a heavy reliance on export and manufacturing.
As mentioned earlier services will become an increasingly important source of employment – in Australia, for example, services account for about four-in-five jobs.
We have the expertise and experience to help China manage this transition, providing skills and training as well as research collaboration to support the development of new industries and technology.
China is already our third most important research partner and Australia is China’s 6th, according to scientific publications.
Our collaborations have contributed to breakthrough discoveries in areas as diverse as medical research, disaster management, biodiversity, water conservation, food security, wireless communications, and new alloys for manufacturing and clean energy.
Freer Trade (FTA)
Since coming to office I have visited China six times as any strong trade and investment relationship is built on trust.
This does not mean we have neglected our other important trading partners.
The conclusion of high-quality trade agreements with Japan and Korea are testament to this.
But it does mean we are serious in making the strong foundations and relationships needed to take our commercial relationship with China to the next level.
Again, expanding China’s domestic services sector will be absolutely critical for its economic transition.
That is one reason why our push to negotiate a Free Trade Agreement with a strong emphasis on improved access for Australian services is so timely.
China needs our services and we need their investment.
There is a great imperative for both of us to conclude an FTA.
Achieving a good deal on services is a top priority for me and our negotiators.
We are looking for a strong and collaborative partnership with China building on our respective strengths, based on different systems but common challenges.
Australia’s existing trade and investment links with China are already strong but they can become even stronger.
As China grapples with the challenges thrown up by its extraordinary period of development, Australia has an increasing role to play, especially if we get ourselves in the best competitive shape.
With a Free Trade Agreement in place, we will be even better positioned to do so, providing some of the products and solutions China needs to meet its economic goals.
In conclusion, let me return to our Trade Commissioner, Edward Selby Little and his problem with jam.
Our exports of this product to China continue.
South Australia’s Beerenberg Farms, for example, has a substantial market in China, particularly in the hotel and hospitality industry where its very high quality jams are highly prized.
And I’m pleased to report they are available in very attractive, small jars made of glass.
Thanks for the opportunity.
- Trade Minister's Office: (02) 6277 7420
- DFAT Media Liaison: (02) 6261 1555