There is an old Chinese proverb that talks to missed opportunities and the ability to make amends: The best time to plant a tree was twenty years ago. The second best time is today.
China’s economic and political ambitions are shifting and Australia may well miss today’s opportunity. As policy has evolved in Beijing, Australia has constantly strived to adapt. But are the existing policy mechanisms sufficient to support China’s latest transition? This may be an oversight we’re struggling to rectify in twenty years’ time. Sowing the seeds begins now.
There are few more important economic relationships for Australia than the one it has with China. It’s a country that’s exploring how to adjust to a services-based economy, how to exert its influence on a world stage and how to shape global trade policies in a way that suits its needs. This comes as Australia evolves, in a complementary direction. While continuing to rely heavily on the export of mineral resources, greater emphasis is now being placed on new service-based export opportunities. These range from technology to financial services, education to agriculture, health and aged care to tourism. Service exports have grown by an average of 3.2% over the last five years and account for almost a fifth of our total exports.
Evolving this portfolio of export-led growth demands a change in thinking, cultivating our relationship with China. If we are to complement each-others’ transformation, then government and business need to address this changing landscape at policy level, ensuring the community is engaged effectively.
A critical factor will be establishing common reference points rather than relying on gut-instinct or hunches. We know that China’s transformation into a more services-based economy is necessary for sustaining its economic development. As part of the ARC Linkage Project on Chinese Overseas Direct Investment (ODI), Corrs takes a particular interest in the differing Chinese economic reform scenarios. The alternative outcomes that might result will affect Australia as an exporter of goods and services and as an importer of capital.
While the effects are manageable for the Australian economy, they are matters that are of concern for us and our clients. As our CEO John Denton recently commented: “The number one concern of the C-suite is global geopolitical insecurity. One of the big questions centres on the consequences of the Xi Jinping regime in China. What does it mean for global or economic growth? China is fundamental to that growth and different pathways may emerge.”
While this conversation takes place in the boardroom, it appears to be falling on deaf ears outside it, as Australia drags its feet. This at a time when barriers have never been lower. When the China Australia Free Trade Agreement is fully implemented, 96 per cent of all tariffs in goods will be eliminated. So Australia must invest, trade and create growth. This is an opportunity to create jobs, deliver value and bring economic prosperity to both countries for years to come.
ONCE IN A LIFETIME
In the coming decade, China’s ongoing capital account liberalisation will profoundly alter the global investment landscape. According to World Bank projections, China could account for almost 30 per cent of global investment by the end of the next decade, as its huge and ever-increasing pool of savings looks offshore for broader investment opportunities.
The next stage of China’s development and integration with global financial markets will broaden its trade and investment ties with the rest of the world. Australia must ensure policy settings enhance the opportunity for sustainable Chinese investment. If these settings aren’t in place, investment will flow to those countries where policies are more open.
Quite simply, China’s transition is a once in a lifetime opportunity. As it negotiates its reform challenges, there will be a greater onus on Australia to collaborate, share business practices and its institutional knowhow. One of these initiatives is our role on the ambitious One Belt One Road (OBOR –一带一路).
ONE BELT ONE ROAD
As our China Business Group Co-Chair Dr Geoff Raby recently commented, many Australians fail to appreciate that Australia is a part of the One Belt One Road.
Since becoming President, Xi has made OBOR central to his vision of China's greater standing and influence in the world. The official Xinhua report on the Malcolm Turnbull/Xi Jinping meeting highlighted Xi's call for the "alignment of China's Belt and Road initiative with Australia's Northern Development Plan". Despite the “noise” over the sale of the Port of Darwin to private investors from China, Xi still went ahead with this giant step forward in the bilateral relationship – putting Australia firmly on the OBOR map is a very big deal.
According to some estimates, in today’s money, OBOR and the Asian Infrastructure Investment Bank could be more than 12 times larger than the Marshall Plan - America's aid contribution to post-second-world-war Western Europe.
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Australia has a place on the One Belt One Road Strategy (Image Source: Charting the Belt and Road)
In a recent visit to Xinjiang in China's far west, the Corrs China Business Group met with numerous officials who enthusiastically shared their role in the China-Pakistan Economic Corridor (CPEC). This initiative (one of a number of initiatives encompassed by OBOR) is intended to promote connectivity across Pakistan with a network of highways, railways and pipelines accompanied by energy, industrial and other infrastructure development projects to address critical energy shortages needed to boost Pakistan’s economic growth. Eventually, CPEC will also facilitate trade along an overland route that connects China to the Indian Ocean, linking the Chinese city of Kashgar to the Pakistani port of Gwadar.
In a world that is increasingly interconnected and as a trading nation, Australia has a significant role to play in the policy thinking on global maritime economic issues. Australia is working with Chinese officials as they develop the country’s maritime economy strategy. As a maritime trading nation, these strategic issues of vital importance to us, including their political dimensions. Attracting capital to Northern Australia as part of OBOR will be a key focus. Darwin is intended to be a crucial link in China's new 21st Century Maritime Silk Road. The recent Darwin Port deal will provide Chinese shipping and naval vessels with facilitated access to Australia, the Indian Ocean and the South Pacific, as well as to Indonesia and PNG over the coming century.
PART OF THE FABRIC
Chinese ODI will bring considerable benefits to the Australian community. Many quarters recognise this, indeed, recently the chief executive of the Northern Territory Cattlemen's Association, Tracey Hayes said: "Foreign investment is part of the fabric, it's not new, it's not something to be afraid of and our experience is that it adds to rural economies." While the ABC Vote Compass shows that 80 per cent of Australians want even greater restrictions on foreign investment in agriculture, it does not accord with the reality of Australian agriculture. Yet how many of these survey participants would know that in 2015 Australians acquired Chinese assets worth $10.5 billion? That’s some $2.7 billion more than the value of Australian assets acquired by the Chinese!
As the Northern Territory Chief Minister Adam Giles says: “The Federal Government needs a consistent policy on foreign investment or it risks missing ‘opportunities’ for the country. I want to see a food policy developed for Australia that ensures Australia’s food security and recognises the opportunities that exist to meet emerging demand from Asia's growing middle class." There is no problem in setting rules for foreign investment but they need to be clear.
Indeed, we have previously commented that Australia's agricultural sector is on the verge of a boom. Foreign investment is needed to ensure the industry can meet its full potential. As the Australian economy transitions, there is a need to ensure foreign investors and entrepreneurs bring more funds and expertise. This is particularly so in agriculture. It is estimated $600 billion will be needed to fund capital upgrades to improve farm productivity and foreign investment will go a long way towards bridging that gap. Foreign investment in Australian agriculture provides access to new technologies and grows local skills in agriculture and agribusiness, as well as providing greater links to global food chains.
By international standards, Australia’s total level of FDI is not particularly high with our inflow well behind NZ and the UK. Australia should be under no illusions that it is in a race for capital. If we are to derive the immense benefits from the Asian Century and make good on the promise to be an innovation nation, then we need to work at being seen to welcome foreign investment in Australian agriculture and promote Australia as an investment destination. Planting the seeds today will reap a rich harvest for years to come.