Author: yinghui

During the APEC meeting in Beijing, President Xi Jinping announced China will spend US$10 trillion on imports over the next five years and US$1.25 trillion in foreign investment over the next ten years. While these are very large figures, they do not amount to much of an annual increase over current volumes. Instead, they signal China’s long-term commitment to further globalisation.

The China-Australia Free Trade Agreement is a game changer in more ways than one. It improves the business outlook for Australian exporters. It also dismisses concerns that Australia’s relations with its traditional allies have alienated China and harmed economic relations.

Australian goods and services are now supported by invigorated business links to China and better access to global markets. If Australia maintains its share of Chinese total imports and outbound direct investment, China will be Australia’s major trade and investment partner for the next decade at least. Expectations are that mutual self-interest will continue to pull Australia closer to China.

From a business perspective, the pull effect has been operational during most of the mining boom. This really was a China boom, driven by the large demand from China for Australian resources.

The agreement ensures trade will increase by billions of dollars. China has been Australia’s biggest trading partner since 2009. In 2013, Australia’s two-way trade with China surpassed $150 billion.

The main winners will be Australian agriculture, service industries, resources and certain manufacturing industries. Tariff reductions across the board will create new opportunities for Australian businesses and increase their competitive advantages in the Chinese market. Chinese consumers and producers will also get better access to Australian agribusiness products, new financial services and manufacturing products.

Beyond the FTA

This new China boom will pull Australia into the Chinese business orbit, but it will take significant effort on the Australian side to break into Chinese consumer and producer markets. The much-quoted “dining boom” will require deeper integration with Chinese businesses across different industries and involve risks.

In many areas covered by the agreement, Australian businesses and their Chinese partners face a “liability of newness”. This will be particularly apparent in markets that are newly open to Australia including wealth management, insurance and private health care.

The Chinese market is highly fragmented and fiercely competitive. For example, China’s dairy supply chain is long and complex with many parties involved. To overcome supply chain constraints, agribusiness companies such as New Zealand dairy co-operative Fonterra have chosen to partner with Chinese food manufacturers.

Australian business are now investing in supply chains that stretch from the Australian countryside to Chinese consumers in second and third-tier cities. This investment requires new infrastructure at both ends to convert lower tariffs into better consumer prices. This could mean a new way of economic engagement between Australian and Chinese businesses.

Previously, Australia-China trade was characterised by large resource deals with a small number of multinational corporations. Increasingly, we will see an increasing number of smaller deals involving many more parties. These deals will require a more sophisticated understanding of the Chinese market and closer coordination with Chinese partners.

In the services sector, the ground for new markets and products has only been established by recent reforms. Xi initiated these with his deregulation agenda during the Third Plenum in November 2013. Australian providers will be among the first to trial these new policies.

If experience from previous reforms is anything to go by, early movers will reap huge benefits. However, as Chinese domestic competitors increase in number and sophistication, they will also exert pressure on Australian service providers. For example, the increasingly globalised Chinese banks are undergoing rapid reform to improve their performance and competitiveness.

Australian manufacturers will need to invest time and effort to build personal relationships and inter-organisational trust. Results from a recent Australia China Business Council survey show that on average Australian businesses spent around 12 months researching the China market before entry. Building effective personal relationships and inter-organisational trust can take much longer than that. These manufacturers will be keen to enter Chinese domestic supply chains and through their Chinese contacts gain access to global value chains.

Chinese direct investments in Australia will increasingly play a bridging role between businesses on both sides. The easing of investment approvals for Chinese private investors is important. It will enable smaller Chinese investors who are closer to their domestic consumer market to partner Australian business seeking access to consumers and supply chains. The lifting of the investment threshold to $1.1 billion for private investors will mean increasing numbers of Chinese businesses enter Australia to invest.

The new Free Trade Agreement with China has raised fears of for mining safety standards, in light of new terms which will allow Chinese mine owners to bring in their own Chinese workers on temporary work visas.

Australian Mining Association chairman George Edwards told SBS he feared Chinese workers were used to lower safety standards, which would make it difficult for them to operate in an environment with higher standards.

Australasian Institute of Mining and Metallurgy CEO Michael Catchpole said workers’ skill levels should be of the standard expected in Australia.

“As far as the FTA is concerned, we would want to ensure that if miners are brought in at a technical, operational or professional level that they have the required skills and training, and that they work within the same health and safety conditions that we expect in all Australian operations,” he said.

However, Catchpole also expressed his concern about the impact of bringing in temporary workers in a period of rising levels of mining industry unemployment.

“Mining professionals in Australia are experiencing a level of unemployment that really we haven’t seen in more than a decade,” he said.

Catchpole indicated unemployment among geologists and mining engineers is more than double the national figure of 6.2 per cent.

Earlier this year it was found the unemployment level among geologists was 14.8 per cent, and in Western Australia that rate soared as high as 19.6 per cent.

Last week the WA Resources Outlook forecast a 20 per cent drop in the requirement for mining labour in the state over the next six years.

“Any moves that could further exacerbate unemployment across the professional sector would be of concern,” Catchpole said.

“As a professional services organisation we are very interested in what provisions in the FTA that assist mining service organisations to extend their business in China.”

The new Free Trade Agreement will allow Chinese workers to be brought in on infrastructure projects worth $150 million or more, far lower than the existing threshold of $2billion, according to Australian Council of Trade Unions president Ged Kearney.

“We have fears that they have lowered the threshold so low … and this could be a real problem for Australian workers,” she said.

Employment minister Eric Abetz said unemployed Australians should see the Free Trade Agreement as “a very real opportunity for them, their families, their sons and daughters, to be able to gain employment in circumstances where we now have access to the world’s largest market,” he told ABC.

When asked if Australian workers could be shut out of employment by Chinese companies specifying a requirement to speak Mandarin or Cantonese, Abetz said he could not see that being widespread, albeit a potential need for a small number of jobs.

“They would have to make out a very strong case as to why, in Australia, where we speak Australian, why the particular language skill is so vital,” he said.

Senator Abetz warned that this would not be an opportunity for Chinese companies to undercut Australian pay conditions.

“If people want to play that game then they will have the full force of the Australian law to deal with,” he said.

Chinese banking figure Li Ruogu, who is chairman and president of the Export-Import Bank of China, applauded the opening of labour freedoms to Chinese companies, but asked for labour issues to be reconsidered for greater freedom, according to The Australian.

“We know it is very difficult, but if Australia can give permission for Chinese labourers to help with infrastructure construction, then the mines and other projects we both need will be completed ­quickly, and the workers will go back to China. They won’t remain in Australia,” he said.

“Then Australia will employ local people to work in those mines and other infrastructure. That will be good for employment, and therefore beneficial for Australia.”

Li acknowledged this would be difficult to pass through the Australian parliament, and added “but Australian labour costs are too high”.

He said that in return it should be easier for Australian companies to get listings on Chinese stockmarkets, which would make it easier to raise capital for Australian projects.

The landmark China-Australia Free Trade Agreement (ChAFTA) will unlock substantial new benefits for Australians for years to come.

ChAFTA will add billions to the economy, create jobs and drive higher living standards for Australians.

Australian businesses will have unprecedented access to the world’s second largest economy. It greatly enhances our competitive position in key areas such as agriculture, resources and energy, manufacturing exports, services and investment.

Building on trade deals already concluded with Korea and Japan, ChAFTA forms part of a powerful trifecta of agreements with Australia’s three largest export markets that account for more than 61 per cent of our exports of goods.

More than 85 per cent of Australian goods exports will be tariff free upon entry into force, rising to 93 per cent in four years. Some of these goods are currently subject to tariffs of up to 40 per cent.

On full implementation of ChAFTA, 95 per cent of Australian goods exports to China will be tariff free.

Australian households and businesses will also reap the benefits of cheaper goods and components from China such as vehicles, household goods, electronics and clothing, placing downward pressure on the cost of living and the cost of doing business.

Significantly, tariffs will be abolished for Australia’s $13 billion dairy industry. Australia’s beef and sheep farmers will also gain from the abolition of tariffs ranging from 12-25 per cent and all tariffs on Australian horticulture will be eliminated.

Tariffs on Australian wine of 14 to 30 per cent will go within four years, while restrictive tariffs on a wide range of seafood, including abalone, rock lobster, and southern bluefin tuna will also cease within four years.

Tariffs will also be removed on a range of Australian resources and energy products, including the eight per cent tariff on aluminium oxide on the first day of the Agreement, benefitting our exports worth around $1.3 billion a year. The tariffs on coking coal will be removed on day one, with the tariff on thermal coal phasing out over two years.

Tariffs will be also eliminated on a wide range of Australian manufactured goods, including pharmaceutical products and car engines.

The Australian Government has secured the best ever market access provided to a foreign country by China on services, with enormous scope to build on an export market already worth $7 billion.

Legal services, financial services, education, telecommunications, tourism and travel, construction and engineering, health and aged care services, mining and extractive industries, manufacturing services, architecture and urban planning, as well as transport, among others, will all benefit from being able to do business in China more easily.

A key feature of ChAFTA is a built-in mechanism to allow for further liberalisation and the expansion of market access over time, including a first review mechanism within three years. This places Australia in a strong position to secure additional gains as China undergoes further economic reform into the future.

ChAFTA contains investment provisions which will boost and diversify our bilateral investment relationship with China. The Chinese Government estimates total outbound investment of US$1.25 trillion (A$1.44 trillion) over the next 10 years.

ChAFTA will promote further Chinese investment in Australia by raising the Foreign Investment Review Board (FIRB) screening threshold for private companies from China in non-sensitive areas from $248 million to $1,078 million.

Consistent with the promise made by the Coalition at the last election, the Government will be able to screen investment proposals by private investors from China in agricultural land valued from $15 million and agribusiness from $53 million.

Furthermore, FIRB will continue to screen proposed investments by Chinese State Owned Enterprises regardless of value. These provisions are consistent with Australia’s trade agreements with Korea and Japan.

ChAFTA will also contain an Investor State Dispute Settlement (ISDS) mechanism. This will enable Australians to invest in China with greater confidence. The ISDS provisions contain strong safeguards to protect the Australian Government’s ability to regulate in the public interest and pursue legitimate welfare objectives in areas such as health, safety and the environment.

With a view to maximising the benefits of the FTA for business, Australia and China have also agreed to review their bilateral taxation arrangements, including relief from double taxation.

Negotiations for a free trade agreement with China commenced under the Howard Government in 2005 and languished between 2007 and 2013.

China is Australia’s largest two-way trading partner in goods and services (valued at more than $150 billion in 2013), our largest goods export destination ($95 billion in 2013), and our largest source of goods imports ($47 billion in 2013). China is Australia’s largest services export market ($7 billion in 2013).

ChAFTA assures the future competitiveness of our exports. Trade and Investment Minister Andrew Robb and Commerce Minister Gao Hucheng today signed a Declaration of Intent in the presence of Australian Prime Minister Tony Abbott and Chinese President Xi Jinping at Parliament House in Canberra.

Both countries have undertaken to conduct respective legal reviews of the concluded text and prepare Chinese and English language versions for signature in 2015.

 

 

Prime Minister
Minister for Trade and Investment

The mining sector has welcomed a new free-trade agreement (FTA) signed with China yesterday; a deal that was 10 years in negotiations which will lift export tariffs and provide for the importation of Chinese labour.

The FTA eliminates all Chinese tariffs on Australian resources and energy products.

Coking coal tariffs in China will be lifted immediately, and thermal coal tariffs will be gone within two years.

With 14 agreements affecting various Australian export industries, the deal is one of the most significant China has ever signed with a developed country, federal trade minister Andrew Robb said.

The new FTA will also allow China to bring skilled labourers to work on major Australian projects.

Robb has insisted this is no different to current legislation.

“It means that if there are no Australian labourers available – and it won’t be labourers, it will be skilled workers – for a particular project, they will be able to apply to get an investment facilitation agreement,” he said.

Labor opposition highlighted that the government has refused to release the full details of the FTA.

Senate opposition leader Penny Wong said the text of the agreement would not be released until after it has been signed next year.

NSW mining said the new agreement will help to underpin future investment in NSW and help to secure jobs.

China accounts for 22 per cent of NSW coal exports, up from 1.1 per cent in 2007-08.

The International Energy Agency estimated that global demand for electricity may double on 2009 levels by 2035, and NSW Mining said coal is forecast to meet than increase in the next five years, over and above oil or gas.

Talk radio shock jock and Liberal supporter Alan Jones criticised Prime Minister Tony Abbott for the deal on air yesterday, criticising the purchasing freedoms the new agreement will allow China in Australia.

“Can Tony Abbott go and buy a farm in China? No, the answer is no Prime Minister, the answer is no he can’t, nor can he buy a coal mine, nor can he buy a steel mill.”

Jones said the new agreement would fail the “pub test” and affect the Liberal party at the next federal election.

Metal-Expo’2014, the 20th Jubilee International Industrial Exhibition with 650 exhibitors from 35 world countries was held on November 11-14 in Moscow. Around 30 000 users of ferrous and non-ferrous products from different industry segments including construction, heavy engineering, fuel & energy, transportation & logistics, steel trading, research etc. visited the event. The majority of exhibitors sum up their participation as highly efficient expressing intention to exhibit in the next Metal-Expo event.

It’s our 7th continuous attending to the Expo. We meet old friends here, and know new friends as well.

See you next year, METAL-EXPO 2015, in Moscow.