China Investment Summit – The Australia-China Investment Relationship

Speech, E&OE, check against delivery

15 November 2011

I bring you greetings from Australia and I thank you for the invitation to address this important conference on China's overseas investment.

I would like to acknowledge all the distinguished Chinese participants in the conference.

I would particularly like to acknowledge my old friend Rui Chenggang who has interviewed me many times over the years, both as Prime Minister and now Foreign Minister of Australia.

Today I would like to make three sets of remarks:

First, on the importance of the Chinese and Australian economies to each other.

Second, the history of the investment relationship between our two countries.

Third, the importance of the China-Australia FTA to the future of that investment relationship – a win-win partnership for the future.

The importance of the Chinese economy

China has become the world's second-largest economy after the United States.

Depending on the measure, China is likely to become the largest economy in the world within the next two decades.

China is likely to retain that position, possibly until mid-century.

Then, because China's population will peak in 2023 and because India's population will continue to grow, India is likely to become the world's largest economy.

China therefore is likely to be either the world's largest or second-largest economy over the next half century.

China will be a major driver of:

Because of this, China will inevitably become a major global investor.

This is particularly true for investment in resources and energy, as China pursues long-term resource and energy security.

It is also true for investment in agribusiness as China seeks to underpin long-term food security.

And for investment in the world's manufacturing and services industries.

The future of the world's openness to Chinese investment will also be shaped by the degree of China's openness to investment within China from around the world.

This includes not just manufacturing but also the mining and services industries.

In these sectors, there are still many significant restrictions to foreign investment in China itself.

Importance of the Australian economy

Australia, like China, is a member of the G20 largest economies in the world.

Australia is the 13th-largest economy in the world and the fourth-largest economy in Asia after China, Japan and India.

Australia is also a strong economy.

We survived the Global Financial Crisis without falling into recession, with low unemployment, with low government debt and with a low budget deficit.

And we are regarded by the IMF as the best performing developed economy in the world.

We are a resources and energy superpower and we rank 3rd in the world in terms of the total global exports of these fundamental commodities, behind Russia and Saudi Arabia.

We also have the world's most efficient mining industries and mining services industries, built up over 100 years.

Our resources and energy industries have for more than half a century underpinned reliable global supply of these critical commodities.

This has also fuelled the economic development of Japan, Korea, China and now India.

Australia is China's 7th-largest merchandise trading partner.

Australia is also China's largest source of mineral ores, its largest source of coal, its second-largest source of LNG and its 6th-largest source of fuels.

Australia has the largest uranium resources in the world, and we are a new supplier to China.

Beyond the resources and energy sector, it is important to recognise some other key facts about the Australian economy.

Mining represents only 10 per cent of Australia's GDP.

Australia has a significant manufacturing sector that represents a significant proportion of our economy, but is a much larger generator of employment.

But our services sector is the dominant sector, amounting to 70.5 per cent of GDP. It includes:

A financial services sector which has 4 of the world's top 20 banks according to market capitalisation, all of which survived the global financial crisis without assistance.

At US $1.9 trillion, Australia also has the fourth largest funds management industry in the world.

We also have a major sovereign wealth fund of US $74 billion – called the Future Fund.

Australia also has a world class education services sector.

Only the United States takes more Chinese tertiary students than Australia.

Five of our universities are among the top 100 universities in the world according to the Jiaotong rankings of research universities.

Australia has a world class medical research and health services sector.

And Australia also has globally competitive design, construction and environmental services sectors.

Australia's services sector is dynamic.

Investment Relationship

Australia is one of the most open economies in the world

In its 2011 trade policy review, the World Trade Organization said, and I quote, 'Australia is one of the most open economies in the world'.

This is supported by the Wall Street journal Index of Economic Freedom which ranked Australia 3rd worldwide.

With a large continent and a small population, Australia has relied historically on foreign investment to underpin its economic development.

Initially this investment was in agriculture.

More recently it has been in mining.

According to the Heritage Foundation's China Global Investment Tracker, Australia was the number one destination for proposed outward Chinese direct investment during the six and a half years from 2005 to 2011.

Australia welcomes Chinese investment.

Since late 2007, Australia has approved over US$60 billion of Chinese investment. Around 280 applications have been approved in this period.

Only six proposals involved conditions or amendments to the application.

None were rejected.

Australia's foreign investment policy is non-discriminatory and administered by the Australian Foreign Investment Review Board.

The Global Times in Beijing regularly attacks Australia's foreign investment policy as discriminatory.

There are no facts to support this.

It is little more than self-serving propaganda.

Furthermore, it must be emphasized there are large scale restrictions to foreign investment into China, particularly in the mining sector and the financial services sectors.

The future of Chinese foreign investment

The Australia-China relationship is 40 years old next year – and a strong political relationship has developed under successive Chinese and Australian governments.

The trade relationship has grown from 2.3 billion US dollars a year in 1990 to 96.6 billion US dollars a year in 2010.

And the trade and investment relationship will continue to grow in the future if we conclude a comprehensive FTA that opens both of our economies to each other.

This will be good for food security through liberalisation of the agricultural trade and investment relationship.

The total Australian agricultural export trade globally is equal to about 2.9 per cent of China's total domestic production.

So populist concerns in China that Australian farmers would swamp Chinese agriculture are simply statistically absurd.

An FTA would also be good for mining in both countries.

Good for manufacturing.

And good for our service industries – particularly our growing financial services industries.

And to be WTO-compatible, such an FTA must be comprehensive, covering all sectors of the economies of both countries and lifting barriers to investment in all sectors as well.

Extractive Industries Transparency Initiative (EITI)

Globally, China should also consider joining the Extractive Industries Transparency Initiative.

The Extractive Industries Transparency Initiative sets a global standard for transparency and anti-corruption in oil, gas and mining.

Australia has announced that it will implement an EITI pilot commencing on 1 July 2012.

We hope our decision to conduct the pilot will encourage other countries, including China, to adopt the EITI.

Commonwealth countries welcomed the principles of the EITI in Perth last month, and encouraged the 54 Commonwealth countries to consider supporting or implementing them – including twenty from Africa.

Chinese firms are already complying with the EITI in some countries.

The EITI is particularly good for economic development in Africa – an area where China and Australia are already big investors.

Australia has more than US$20 billion in actual and proposed investment in Africa, spread amongst about 200 firms in over 600 projects in 41 countries.

Australian companies have joint ventures with Chinese companies in Africa, and Australia has a rapidly developing aid relationship with the region.

Conclusion

I am an optimist about the future of the Australia-China relationship and an optimist about the future of the trade and investment relationship in particular.

Given the complementarity of our economies across a range of sectors including energy, resources and services there is good reason for me to maintain my optimism.

Thank you again for the kind invitation to speak to you.

I wish you a successful conference and I look forward to this conference becoming an annual event.

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