How can we double our trade with China over the next ten years?

China is our largest trading partner. As this week’s Partnership for Change report clearly articulates, the terms of this relationship are shifting. Fundamental changes will be required if the benefits of this relationship are to continue.

We are seeing a ‘once-in-a-generation’ transition.

Heralded as the most comprehensive review between the two countries for several decades, the Australia-China Joint Economic Report is a study by leading thinkers in both countries. Corrs Chambers Westgarth was proud to be part of this dialogue, working with leaders from business, government and the wider community to define what opportunities exist and establish how both countries can maximise them.

Merchandise and services trade with China now accounts for more than a quarter of Australia’s overall trade. A ‘baseline’ scenario for Chinese growth would see our exports grow by 72%. But how does the relationship evolve beyond this?

How can countries with different values and systems collaborate in a way that maximises their combined potential? What changes are necessary and how will they be implemented?

It will involve a new policy framework – no mean task.

While China’s continuing industrialisation and complementary nature of Australia’s resources sector will remain a key theme, the scale and complexity of the relationship is growing, as services and investment take a more prominent focus. Political and security considerations will also play their part in this transformation.

The report argues that a ‘comprehensive strategic partnership’ is needed, fostered through a portfolio of initiatives.

A substantial investment in China’s innovation ecosystem will see opportunities in education, tourism and the financial sector. The banks will require complex and diverse systems if they are to efficiently allocate capital to the most innovative firms. Australia can inform and partner.

But as a nation, we must go beyond; increasing competition in more of our economic sectors, openness to foreign investment and skills and facilitating investment in social and physical infrastructure.

A new set of national capabilities will need to be established in China as well. It must successfully implement financial reform, state-owned enterprise reform, increased openness to foreign investment and capital account liberalisation. Australia can act as a guide to Asia’s biggest economy, providing insight as an advanced regional services-based economy.

The report urges the countries to build on the China-Australia Free Trade Agreement (ChAFTA), establishing joint policy working groups to advance ongoing policy development and reform. Working this way will ensure commitments in areas such as investment liberalisation take hold.

The report also envisages the creation of the Australia-China Commission acting independently of both governments, similar to the Australian-American Fulbright commission established following World War II. This would focus on a range of initiatives, from education to culture, from science to technology. Importantly, it will boost the level of policy and research exchanges.

The report also argues that a Basic Treaty of Cooperation would provide comprehensive settings of strategic bilateral objectives.

Investment flows between the two countries will play a critical role in the development of the new economic relationship. But the broader community, Australia and China, will need to be convinced and the true benefits that come with foreign investment in both our countries. A reform of foreign investment settings will need to be considered and debated.

Structural changes to the Chinese economy will inevitably bring about changes in the way it trades. While there have been notable slowdowns of late, China has undeniably been the world’s main economic growth engine throughout the early 21st Century. Should China’s reform agenda succeed, the report believes China will achieve annual growth of around 6 per cent per annum over the next ten years.

The way in which China’s growth affects Australia will be very different over this next period. If the reform agenda is successfully implemented, the report estimates Australian exports to China have the capacity to grow by 120 per cent in real terms.

Even a worst case scenario - Chinese growth falling below 5 per cent over the next decade – would still see Australian exports to China growing by 28 per cent.

Living up to the promises is one of Australia’s biggest 21st Century strategic challenges. Are we up to creating the architecture required to succeed?