The Hon De-Anne Kelly MP
Parliamentary Secretary to the Australian Minister for Trade


Speech at the Australia China Business Council, Queensland Branch Business Dinner

Brisbane, 3 May 2006

Mr Hobgood-Brown,
Mr Lai,
Distinguished Guests,
Ladies and Gentlemen,

It is a great pleasure to be here in Brisbane this evening to say a few words about Australia's trade with China, and in particular about our minerals and energy trade.  At the outset, I would like to congratulate the Australia China Business Council for the excellent job it is doing in advancing the bilateral relationship and in increasing trade between our two great nations.

Australia and China have more in common than many people know, and in this job I'm picking up more and more linkages.  Those of you who have travelled in southern China will know that it is covered in gum trees, which few locals would know is an Australian icon.  Cathy Freeman, our Aussie hero of the Sydney Olympics and a great aboriginal Australian, has some Chinese heritage and was an active supporter of Beijing's bid for the 2008 Olympics. And I'm told that the Australian phrase “fair dinkum” stems from Chinese gold miners in the nineteenth century arguing that their gold discoveries were real and saying “din gum” which means real gold.

China is assuming an ever greater prominence in the region and the world – economically, politically and strategically.  The country's growing importance rests in large part on its phenomenal economic growth, which has averaged over 9 per cent over the past two decades.  China should be able to maintain a rapid pace of growth for some time to come.  Indeed, China's economy is expected to double in size over the next ten years.  If so, it would surpass Germany as the world's third largest economy at market exchange rate terms, after the United States and Japan.  By 2030, China could even rival Japan as the world's second largest economy.

China is already the world's third largest trading nation (after the United States and Germany), and its economy now plays a significant role in the region's prosperity.  China is a large market for the countries of our region, as it is for Australia and, of course, Queensland – and it holds much promise for future growth and expansion.

However, it is worth sounding a mildly cautionary note here.  Despite strong growth, China has had two economic downturns over the last 25 years.  Another slowdown is probably inevitable at some point.  Both countries share challenges on the economic front: ensuring a good middle-class lifestyle for all; balancing rural and urban needs; overcoming infrastructure bottlenecks; balancing development and environment; and meeting the challenges of growing health case needs and an ageing population.  The proportion of Chinese aged over 65 is forecast to rise from around seven per cent today to about twenty per cent by 2040.

The Government has so far dealt with the economic challenges facing China with mostly sure hands.  And the current leadership team is very aware of the need to tackle these problems head on over the coming years.  In his speech at the opening of this year's National People's Congress in Beijing, Premier Wen Jiabao (pron. Wen Jar-bow) said China's modernisation was “now going through a very difficult period” and he pointed out that “many longstanding and deep-seated problems have yet to be fundamentally solved”.  This sober realism is encouraging.  It indicates that China's leaders are determined to implement the kind of policies which will maintain growth and address the economy's imbalances.

So we can reasonably assume at this point that China will continue to grow strongly over the five to ten years despite the persistence of some of difficulties.  The sheer scale of China's development is staggering. Chongqing (pron. Choong-ching) in the country's west is now the fastest growing urban centre in the world.  Builders lay around 140,000 square metres of new floor space every day, erecting new homes, shopping precincts and factories.

Powered by this phenomenal growth, the Australia-China relationship continues to go from strength to strength.  Indeed, Australian urban planning companies are active in the Chongqing area.  The figures speak for themselves.  In the past decade, our trade with China has quadrupled, reaching over $37 billion last year.  China is now our second largest merchandise trading partner and export destination after Japan.  There is a natural fit between our two economies.  Australia has many of the things that China needs – not only abundant and diverse resources, but also management know-how, workforce skills, advanced technology and a strong culture of innovation.  In turn, China offers Australian business a large market with huge potential for further development.  As a trip to any supermarket or department store shows, China is also a source of affordable consumer goods. 

Australia is well-placed to benefit from China's rapid industrial expansion because of our considerable strengths – our flexibility, our dynamism, a reputation for reliability and honouring contracts, and the competitiveness of our open economy.

China is our fastest growing export market, an achievement driven largely, but not entirely, by our resources exports.  Today, energy and minerals account for around two-thirds of our merchandise exports to China.  And our merchandise exports to China were worth $16 billion last year.  Just as Australian raw materials helped fuel the first wave of economic modernisation in Japan and South Korea several decades ago, we are now feeding China's rapid growth and industrialisation.  Our exports of raw materials underpin China's ongoing development, high growth rate and booming export sector. 

Over the past decade alone, our exports of minerals and fuels to China have grown by an astounding 700 per cent, delivering more jobs and increased prosperity for Queensland and Australia.  In 2004, China overtook Japan as our number one buyer of iron ore.  Last year, we sold $5.7 billion worth of iron ore to China, equivalent to over half our total exports of iron ore to the world.  China is also a major market for Australian alumina, copper ore, nickel, manganese, zinc and coal. 

My own electorate of Dawson is home to several ports which are reaping the benefits of shipping resources, particularly coal from the Bowen Basin, to China.  While China has substantial reserves of thermal and soft coking coal, it does not have enough hard coking coal to support its steel industry.  Queensland coal is particularly attractive to China because it is notably low in sulphur, ash and trace elements.  China has traditionally relied on its own brown coal which has a high sulphur content.  ABARE predicts that China's coal imports will increase by about 12 per cent a year for the next 20 years and that our coal exports to China will increase by a similar figure: about 13 per cent a year. 

The Chinese government is actively encouraging Chinese companies to buy mineral assets and secure supplies abroad to underpin China's growth.  Australia's open mining investment regime and China's growing demand for mineral resources have already seen 15 Chinese resource companies invest US$328 million in Australian projects.

Again, Queensland has been a beneficiary of China's outward investment.  China's chief investment arm, CITIC (pron. Sit-ik), is Macarthur Coal's second-largest shareholder and has interests in the Coppabella and Moorvale mines in the Bowen Basin.  Other projects are in the pipeline.  Macarthur Coal has entered into an agreement with China's top power producer, the Huaneng (pron. Hwar-nung) Group, to develop the Monto thermal coal project near Gladstone.  The 10 million tonne a year project is subject to an extensive exploration program and a full feasibility study.  But should it proceed, the Huaneng Group would become a substantial consumer of coal produced from the Monto Project.  I am aware that China's Yunan Coal is also looking to develop a coal mine near Mount Isa in the state's far northwest. 

One potential investment project which has attracted considerable attention is Chalco's interest in developing the Aurukun bauxite deposit on Cape York Peninsula.  Chalco is the world's second biggest alumina producer after Alcoa, and China's biggest.  Current plans for the project would see up $3 billion in investment and the construction of a greenfield refinery and supporting infrastructure.  Chalco is due to submit its final development proposal in the next six weeks or so and there are still a number of outstanding issues to be resolved.  If it goes ahead, however, this would be by far the biggest single Chinese investment in Australia. 

Companies in Mackay in my electorate here in Queensland have been working in collaboration with Chinese companies to share technology and mine safety.  I look forward to this collaboration growing over time.

World wide there is a desire for cleaner energy sources such as natural gas.  As many of you would be aware, from May this year, the North West Shelf Venture will begin supplying liquefied natural gas to the wealthy, southern Chinese province of Guangdong (pron. Gwarng-dong).  The contract to supply Guangdong will boost Australia's export earnings by $25 billion over the next 25 years. 

Australia has large identified gas resources and the capacity to expand LNG production well beyond current levels.  BHP Billiton, global oil and gas exploration company Kerr-McGee, and China's state-owned oil and gas company CNOOC (pron. see-nook) recently agreed to join forces to identify further gas resources in the Browse Basin off Western Australia's northern coast.  But the market for LNG is now tight and China will have to compete with other potential customers in Asia and North America for Australian gas. 

While commodities continue to account for a large proportion of our exports, rising Chinese incomes and the opening up of China's market to foreign goods and services have made the country an increasingly important market for Australian niche manufactures, food products and services.  Last year, Australia's car sales to China reached $153 million (from only $6 million in 2004) on the back of increased sales of Holden's Statesman model, which is marketed in China as the Royaum (pron. Roy-aum).  A growing number of modern supermarkets now cater to the more westernised tastes of China's middle class, opening up opportunities for Australian exports of food, such as dairy, wine and organic foods. 

In the past decade, our services exports to China have grown more than three-fold, reaching $2.4 billion in 2005.  A large number of Australian service providers have set up operations in China, in areas such as telecommunications, banking and insurance, accounting, architecture, construction, transportation, freight and logistics.  With high-levels of technical know-how, these firms are playing an important role in boosting the competitiveness of the Chinese economy. 

There have been a number of notable wins for Australian service providers.  Australian architectural firm, Peddle, Thorp and Walker, recently won an international competition to design Beijing's National Swimming Centre, and Telstra will be the official telecommunications consultant for Beijing's 2008 Olympics – to name just two.  Several big-name Australian companies are also on the verge of completing major investments in China's services sector.  For example, IAG is negotiating to purchase nearly 25 per cent of Shanghai-based China Pacific Property Insurance, China's second largest general insurer.  ANZ Bank is awaiting final regulatory approval to acquire a significant share of China's fourth largest city commercial bank, Tianjin City Commercial Bank.

But, as Queenslanders are all too aware, our major export earners in the services sector are tourism and education.  China, including Hong Kong, is now Australia's largest source country for international students, accounting for 30 per cent of total enrolments.  Last year, 285,000 Chinese people visited Australia, and China is expected to become Australia's leading inbound tourism market in just over a decade.  The Tourism Forecasting Committee predicts that by 2014 Australia will be welcoming over one million Chinese tourists each year. 

Not content to rest on our laurels, the Australian Government is strongly committed to helping expand the access of Australian business to the China market.  The recent visit to Australia by Chinese Premier Wen provided further stimulus to commercial ties between our two countries, particularly in the resources sector.  During the visit, several government-to-government agreements were signed, including a Nuclear Transfer Agreement and a Nuclear Cooperation Agreement.

The nuclear agreements pave the way for exports of Australia uranium and related mining technology and services to China's nuclear power program.  Any uranium sales to China in the future would have to comply with our stringent safeguards and export requirements, which ensure that Australian uranium can only be used for peaceful purposes.  In accordance with Australian treaty-making practice, these agreements will be tabled in Parliament for review by the Joint Standing Committee on Treaties before they become binding.

Given the projected high growth in China's electricity demand over the coming years, there are clear environmental benefits in diversifying away from fossil fuels to low greenhouse-emission technologies such as nuclear power.  With 30 per cent of the world's medium cost recoverable uranium, Australia is well placed to supply China's growing energy needs.  I would note that Queensland has nine per cent of Australia's uranium reserves.

During Premier Wen's visit, Australia and China also signed a memorandum of understanding on coal mine safety.  Last year, nearly 6,000 deaths were reported in Chinese mines in more than 3,300 incidents.  Under the MOU, the two countries will work together to maximise cooperation in training, technology, management and equipment.  Australia has an enviable record in mining safety and many Australian companies are already active in promoting their mining technology and services in China, such as gas drainage prior to mining. 

The MOU presents a good opportunity for Australia to capitalise on its excellent safety record in the mining sector to benefit China.  Strategic direction and overall planning for cooperation under the MOU will be determined, on the Australian side, by an industry-led working group comprising five major coal companies, the federal, Queensland and New South Wales governments and national and state industry bodies, including the Queensland Resources Council. 

Premier Wen's visit also gave new impetus to our negotiations on a free trade agreement with China.  I was especially heartened by Premier Wen's comments that both sides should be looking for breakthroughs in negotiations in the next one to two years. 

There is no doubt that even without a free trade agreement between Australia and China, our trade and investment relationship will continue to grow because of the complementarities between our economies.  But a comprehensive FTA would allow us to set the terms for future trade and tackle some of the present trade restrictions.  Benefits of an FTA would include greater trade and investment flows across all sectors, more jobs and higher incomes

So far Australian and Chinese officials have held four rounds of talks. These talks have given both sides a better understanding of our respective trade and investment regimes.  We are now negotiating with the Chinese on how best to move forward on specific sectors, and expect to begin market access negotiations later in the year.  Obviously there are sensitivities on both sides, but managing these is what negotiations are all about.  Australia is not willing to negotiate an FTA with China at any price.  The Australian Government has stressed from the outset that any agreement with China must deliver real gains for Australian businesses across the board.  We will keep negotiating for as long as it takes to achieve real outcomes for Australian business.

Liberalising services trade between our two countries is a crucial area of FTA negotiations for Australia.  China has done a lot to improve access in the services sector for foreign companies since it joined the World Trade Organization in 2001, but a number of barriers remain.  For example, high capital requirements for foreign construction, banking and tourism firms tends to favour long established, large firms when the bulk of Australian services trade is carried out by medium-sized firms.  In addition, a lot of Australian companies continue to face difficulties repatriating profits to Australia and in transferring fees paid for services rendered. 

An FTA could help remove or minimise barriers for Australian service providers.  We would like to see the FTA clarify the conditions for returning money to Australia.  After all, the ability of Australian firms to send money back to Australia is a fundamental condition for doing business offshore.

The mining and resources sector is an area where liberalisation of trade and investment under an FTA could deliver significant benefits to both countries.  Australian mining companies are keen to explore and develop China's relatively untapped mineral reserves in a clean and safe way to help sustain China's economic growth.  China is home to a high percentage of the world's known reserves of manganese, lead, silver, coal and copper.  But, China has attracted less than one per cent of the world's exploration funds.  There is considerable untapped potential for Australian companies and service suppliers.

Opening the door to Australian mining companies on a preferential basis would give China access to experienced, world class mining professionals cutting edge technology, experience in developing infrastructure in remote regions, and a strong safety record.  Australian investment could make China's mining industry more productive and could help boost employment in regions which include some of China's poorest.

Ladies and Gentlemen,

As you can see from the government's forward agenda, is an exciting time to be involved in trying to further and deepen relations between our two countries.  I wish the business communities of both countries every success in capitalising on the significant commercial opportunities the Australia China relationship has to offer.

Thank you.

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