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DAVID SPEERS: Stephen Smith, thank you for joining us. The Chinese Government has apparently expressed some concern over Australia's new 40 per cent resource super profits tax. Has any of that concern been expressed to you?

STEPHEN SMITH: I'd describe it as interest rather than concern. My colleague, the Trade Minister Simon Crean, was yesterday conducting Ministerial level annual economic dialogue talks, and he discussed it with the Chairman of the Chinese National Economic Commission.

We're a long-standing reliable safe secure supplier of both minerals resources and petroleum resources to China.

China needs that secure exporting of minerals and resources, not just from Australia, but from other countries, to continue its economic development. So of course there'll be interest, but I don't believe in any way that this will adversely impact on the relationship, the economic relationship that China and Australia have in the minerals resources area.

DAVID SPEERS: You say there's interest on the part of the Chinese, but isn't it true that they have suspended some investment decisions?

STEPHEN SMITH: I've seen that assertion made, but I haven't seen any evidence of it. It hasn't been raised with me in Shanghai. But I wouldn't expect that, I'm here for the expo.

More generally, I think there is a substantial underappreciation of the value that the Government's proposed changes can bring to small or medium-sized producers or explorers.

In addition of course to a lowering of the general company tax rate, there's also a commitment for substantial infrastructure and when that infrastructure investment occurs in my own state of Western Australia, that will make minerals resources production more efficient, and as a consequence potentially cheaper for the country who is buying it as well.

DAVID SPEERS: Still, one of the reasons Australia is an attractive destination for Chinese investment, not just in buying the resources but buying the resource companies is because of the stability of supply, that there are no surprises, that they know what they're getting. Hasn't this tax been a surprise?

STEPHEN SMITH: Well, it is effectively modeled on the petroleum resources rent tax which we've had in operation for over 20 years.

DAVID SPEERS: Except it would kick in at a much lower profit level by the sounds of it.

STEPHEN SMITH: But the essential model is the same. It's a tax on profit. That is the best way of ensuring you don't inhibit or prevent investment. And a tax on resource profits has not seen any dwindling or inhibition in our resources industry. On the contrary…

DAVID SPEERS: But the point is there that taxes…

STEPHEN SMITH: No, the point is precisely this - we've got a petroleum resources rent tax, and we've seen in the face of that the Australian petroleum resources industry go from strength to strength. The Gorgon Project, which is subject to the petroleum resources tax, is the largest ever petroleum project we've seen. But we've also made it clear in terms of some of the fine detail that the Treasurer has set up his consultation panel. Simon Crean indicated to Chinese officials yesterday that Chinese companies are very welcome to take part in that process. That will enable some of the arguments about long-term bond rate and the rest to be carefully considered as part of the implementation…

DAVID SPEERS: Well this is the point isn't it, because the petroleum resources tax kicks in at about 11 per cent profit. What you're proposing with this resources super profit tax is to kick in at about six per cent profit. So there is quite a difference there.

STEPHEN SMITH: It's a six per cent guarantee. That's the key point. That it is a guarantee of that amount of profit before it starts to kick in. But the other under-appreciated factor is the considerable effective credit that a producer gets so far as state-based royalties are concerned.

That of course doesn't apply in the petroleum resources area because we're dealing in that case with essentially offshore developments. But what will help producers, particularly the medium-sized producers where we have seen an interest from Chinese investors, is the credits and the benefits that you get under the super profits tax so far as state-based royalties are concerned.

DAVID SPEERS: Yeah, because some of the State Labor Governments are also worried about where this tax kicks in. Queensland, Western Australia, your state. Are you saying that you'd be comfortable with a six per cent rate? Or would you like to see it kick in higher than that?

STEPHEN SMITH: What I'm saying is I'm comfortable for those State Governments, for the resources industry - both minerals and petroleum, for any interested investor to sit down with the consultative panel and go through…

DAVID SPEERS: But from a Government perspective, are you comfortable to move on that?

STEPHEN SMITH: Well the Prime Minister's made it clear, the Treasurer's made it clear, I'm making it clear, that the process for implementation or consideration of implementation details is with the consultative panel. That's where people should take their arguments or their views, and they will be properly considered.

DAVID SPEERS: Let's turn to the Expo here in Shanghai. As we look out the door there, there's huge crowds queuing to get in to this Australian pavilion. What does that say do you think about the state of the relationship which has had a rocky 12 or 18 months?

STEPHEN SMITH: I think the relationship is in a very good state. Yes, we've had our tensions, but I think we've also learned, over the last six or nine month,s to understand that there will be differences. We are different countries, we have different systems, we have different values, so from time to time there will be differences, and we need to learn to manage those within the context of the relationship.

What I think the success of our pavilion also shows is great interest on the part of Chinese people and international visitors in Australia. We've had over a half a million visitors since the Expo started on 1 May, so that's successful by any measure.

DAVID SPEERS: What do you think China wants to and hopes to achieve with this Expo?

STEPHEN SMITH: Well the Expo, from China's perspective, takes China to the world - but it also brings the world to China.

We're seeing China emerge as a great power. And in our region we see this century being the rise of the Asia Pacific century - the rise of China, the rise of India, the rise of the ASEAN economies combined, the ongoing power and influence of the United States, the ongoing economic importance of Japan, Korea becoming more significant. So economic, political, diplomatic influence is moving to our part of the world and China is a key factor in that.

DAVID SPEERS: Is this also though about the Chinese Communist Party saying to the Chinese people, look what we can deliver? Look at the improvements we've made in Shanghai? We've spent billions and billions of dollars gearing up this city for the Expo and showing not only to the world but to the Chinese people what the system can still deliver.

STEPHEN SMITH: It's quite clear that the Chinese authority's highest priority is ongoing economic development, and that's one of the reasons why Australia's minerals resources and petroleum resources industries will continue to go from strength to strength. China wants Australia amongst others to continue to supply it with the materials that it needs to continue to grow its economy. Shanghai is in very many respects the best and the most significant example of that.

It's also deeply significant from Australia's point of view that the Expo is in Shanghai, which continues to be far and away the most important city, so far as economic, trade, and investment relations with Australia are concerned.

And so our pavilion here not only showcases the modern tolerant Australia, the modern tolerant multicultural Australia, it's also a very good opportunity for business investment decisions to be made. And for business to attract Chinese investors and Chinese partners into the future.

DAVID SPEERS: All right, Stephen Smith, thank you.

STEPHEN SMITH: Thanks David.

[ENDS]

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