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QUESTION: Minister, thank you very much for your time here today. My name is Michael Vainer, I'm managing director of VR Tek. We're a new technology for recycling tyres, a disruptive technology which creates valuable outputs as a substitute for natural rubber at the end.

You mentioned taking corporates over to China. Are the provincial governments interested in talking with new, emerging companies with new technologies that we've developed together with the CSIRO and Deakin University?

KEVIN RUDD: Yes. This is not just an exercise for the Australian top 100. This is an exercise for people in the corporate community in Australia who are serious about the quality and the price of their product or service and they're looking for market opportunities.

We're not particularly interested in folks who are kind of fly by night. We are interested in people who are serious in developing the products or services that they - that represent the core of their business and who have a genuine interest to grow that business over the next five, 10, 15 years.

So in terms of the tyre recycling business, not that I am an expert - I fact, I know nothing about the tyre recycling business - there's a whole lot of cars in China, there's a whole lot of tyres to recycle, so how they're doing it, buggered if I know.

QUESTION: Thank you, Minister. Carl Jetter, City of Melbourne and Australia-China Connections.

Jetstar announced yesterday daily flights from Melbourne to Beijing and we are certainly extremely pleased to hear the announcement. It's a great benefit to our city.

The question, Minister, is will your government assist in adding hopefully additional staff to the consulates and embassy in China and equally maybe shorten the application forms for potential tourists so that we can benefit with the increased tourism that we deserve?

KEVIN RUDD: Sure.

QUESTION: Thank you, Minister, for a very insightful presentation. I'm Sarah Yue, managing director for Red China Business Limited. Economically we all know the importance of China, with Australia, but just geographically, politically, is China still viewed as a threat to Australia and why? Thank you.

KEVIN RUDD: I like the loaded question. It has - it has within it the word 'still' that assumes that it has been in the past but I'll address that when we get to it.

QUESTION: Thank you very much for a very informative presentation, Minister. My name's Mark Roberts from Davies Collison Cave, patent attorneys.

As China transitions to an innovation-based economy it strikes me that having a very robust intellectual property system is going to be very important. I was wondering whether you have any thoughts about how Australia might assist China to continue to develop its IP system.

KEVIN RUDD: Okay. Well, in summary, I've got tourism, IP, and threats. Okay?

Let me deal with it in that order.

I'm glad you raised tourism because I think where we are now in terms of Chinese visitor arrivals is about where we were with Japan circa 1978. That is, it's all about to happen.

The visitor numbers from China now are about 400,000 a year I think, but the trajectory for growth is phenomenal. Why? Tourism services, as you know, was listed in that great list of opportunities but it's going to require a whole lot of effort at multiple levels and that is making sure that the tourism product we have for sale here is well-developed and caters to Chinese tastes.

We should not be lazy about our tourism product. We need to invest in appropriate hotel services.

I'm often stunned by the under-development of Australian hotel infrastructure around the country, given what is likely to emerge from the Chinese tourism market and it will be across the spectrum from high income earners to lower-middle income earners who'll be heading out of the country for their first holiday.

Think about Japanese honeymooners circa 1981. That's what we're about to look at.

But it's going to require a lot of planning. Don't just assume that Chinese folk are going to come here because we're a nice bunch of people. Okay?

The second point that you specifically raised was about consular staff in China to service the volumes. We have a phenomenally large establishment in China now and every time I look around it needs to become larger. So all I can say is, yes, I appreciate the need and, yes - here we go - subject to budgetary circumstances we will see what we can do.

On the final point which is visa requirements for getting here, Chris Bowen, the Immigration Minister's not with us but I know Chris is very keen to do what he can to make this, frankly, an easier journey for people.

Chinese overstays, frankly, are pretty limited. Often one of the constraints that we have with visa relaxation regimes around the world is that certain countries and folk come here on tourism visas or student visas or short term working visas that they overstay. It creates a problem for the overall integrity of the system. That's not been our experience so far of China, so far as I'm advised, and I know the Minister will be looking at how he can assist into the future.

IP - here's an interesting point - guess who's exporting a whole bunch of IP to the rest of the world these days. China. Guess who has a whole lot of interest now in intellectual property protection. China. Therefore, as they say in the Melbourne Cup, always back self-interest because you know it's going to be trying hard.

So therefore whereas there have been legitimate reservations being raised around the world about IP theft in China, something the Chinese government readily accepts is a problem as well, there is a new change which has unfolded in the last several years as China is concerned about the protection of its own IP.

Now, what can we do to assist?

There is an Australian who is now the head of WIPO, the World Intellectual Property Organisation in, I think it's Geneva, and therefore I know this is one of the things that he is particularly seized of given the prominence of China in terms of the global economy, China in terms of prominence in terms of, let's call it high technology sectors, whether it's information, whether it's ICT or whether it's biotechnology or in other sectors and therefore there is a whole lot of work currently underway.

Can I specifically brief you on where it's up to? No, but go to the WIPO website, see what they're now doing on this question, but I know it's near and dear to the hearts of a whole bunch of people here because, to be blunt, there has been theft in the past. Let's just call a spade a spade.

But China now I think is rowing - has a national interest in rowing in the reverse direction.

On the threat question, over to the lady over here, I don't think that has ever been the view of the Australian government. Like the Chinese government, we will always assert our national interests and in the debate that I've seen engaged by a range of Chinese officials in recent weeks about Australia being a less than open investment market for our friends in China, my response to that, to use a chengyu, a four character phrase in Chinese, which basically means nonsense, politely.

And it's simply this; if you look at the WTO ratings of all economies in the world in terms of their degrees of openness to trade and investment, guess who comes out number three globally? Us.

Look at the Wall Street Journal's ratings of economic openness. Guess who comes out within the top five worldwide? Us.

Go to the facts and figures on China investment application into Australia, the [indistinct] and recent three or four years I think has reviewed about 186 applications from the PRC of considerable orders of magnitude. One-hundred and eighty have been approved without reservation. Six have been approved with conditions.

And the reverse question I would put in terms of national interest concerns is, have you tried recently investing in Chinese agriculture? Have you tried recently investing in the Chinese mining sector? Have you tried recently investing in the Chinese financial services sector without restrictions?

The truth is in China, there are massive restrictions on foreign investment into the Chinese market, so, as we say in Australia, and I don't have the Chinese equivalent for this, fair shake of the sauce bottle.

QUESTION: Honourable Minister, Nicholas Grzegorczyn, CEO of Gasco. The high Australian dollar, process engineering companies and manufacturing exports like Gasco are suffering a bit since April.

Now with custom duties in VAT when Chinese companies actually export into Australia, it's around five per cent coming in. The other way, we recently lost quite a large order where it was effectively 17 per cent VAT plus eight per cent custom duties being 25 per cent which they could not get an input tax credit which made it not competitive. So I'm just wondering with the free trade agreement in the future, could this help this situation?

KEVIN RUDD: Well plainly, Australian exporters, whether it's in the services exports or in manufacturing, frankly are suffering from the high Australian dollar; let's just be blunt about it. It's just a fact. Sectors such as tourism, education, health services, services sector, and manufacturers are finding it difficult; that's just the truth of it.

I think a sober way through this, and I'm interested in your figures, basically what you're saying is that combination of customs and VAT equals a 25 per cent import - impost on imports from this country in the sector that you are dealing with as against five per cent in the reverse direction.

Again this is a fact which is useful in the overall national debate about which economy is most open to investment and trade, and without impediment. And we need some balance in this debate rather than some of the nonsense I've seen written in recent times.

One of the reasons why we've got a bilateral free trade negotiation underway is to frankly establish a level playing for both of us, both in the traded sector of the economy, but also the investment sector; the investment trade - the investment flows as well.

We've now just concluded, would you believe, our sixteenth round of negotiations that's been going on for four years. We could almost establish our own five year plan in terms of these trade negotiations. It's tough; it's hard because our Chinese friends are very concerned and sensitive about the relative competitiveness of various sectors of the Australian economy. And I'm sure our negotiators are raising some reservations as well.

But I think it's in all of our interest to conclude this thing as rapidly as possible to remove some of these barriers to trade; unnecessary barriers to investment so that frankly, the level of economic integration between the two economies can reach frankly, new levels that haven't even dreamed of so far to everybody's advantage.

QUESTION: John Wallace Asia Pacific Journalism Centre. It's a very exciting and challenging picture you portray and it's wonderful.

I wonder whether you think you might be jeopardising our potential to go on this journey by the way we treat Asian students studying here. I'm thinking of the rather draconian, I'd suggest, standard we require of many students to pass this Iles test at a level of eight, which from what I hear, means that about three per cent of Chinese students studying here are able to actually pass that test. It seems to me to be an unnecessary burden and reminiscent of a bit of the White Australia Policy and not quite right for what we want to do.

KEVIN RUDD: Well I don't think I'd get into characterising it as that, mate. I mean last time I looked, we had about 150,000 Chinese students studying in this country. Altogether, you put together the foreign student populations from parts of the world where English is not the first language, there's something in the vicinity of each year of 400,000 plus. This is a large number of students. I stand to be corrected on the numbers because I don't have it, sort of readily to hand, but there are two nods in the audience, so I'm feeling better already.

Now, on the detailed application of English language requirements to study in Australian educational institutions, so that's something which frankly, is put there by the institutions themselves. It's for them to judge what they can cope with in terms of greater numbers of students with lesser levels of English language ability.

I can't, frankly, myself at a political level, proscribe what that should be. But I take your point because other concerns have been raised about visa restrictions concerning the education services sector. But one of the problems which has arisen has been the abuse of that sector, not by the Chinese, frankly, but by others, and by quite unscrupulous migration agents particularly when it comes to vocational education and training which has lead to a tightening in overall visa requirements. And I think what we need is a system of integrity.

Can I also add one further point for those engaged in the educations services sector? University, VOCED or school level, the number one thing which we will survive on in this business is of course price - and there's the Australian dollar at work again - but the equal number one is quality. If we are very, very conservative and cautious in husbanding the quality of the Australian education reputation internationally, that speaks volumes, particularly when you've got increasingly high levels of disposable income in China, where people were making product choices based on quality and less on price when it comes to sending their kids overseas to university.

Australia has huge number of advantages. One is proximity and the time zone. One is reasonable proximity in terms of travel, and it's good to see that Jetstar's doing what it's doing. And I think a lot of airlines should be getting into this across Australia's cities, but also making judgements about the quality of the education experience here.

So if I was in the education sector, and I've spoken to many vice chancellors about this around the country, the first thing I'd be guaranteeing is the quality and the reputation of the degree that I offer. And those engaged in the regulation of these, shall I say, service offerings within education have to be very, very cautious about making sure that what we have on offer is not fly by night, because anything that' fly by night and a bit rusty around the edges, let me tell you, reputational damage flows to the entire Australian education brand.

I can take another - I've got time for four or five if that's okay. I see my staff are looking horrified. Someone fainted up the back; they probably are.

QUESTION: Scott Williams, I'm export manager for Carman's Fine Foods.

Just a question, having recently been touring through China and around the world of late, just, I notice that you're pumping up Austrade there a little bit at the end, I'm just a little concerned about what seems to be the winding back of Austrade and having - whether their resources will be available out there to help up and coming exporters?

KEVIN RUDD: Okay.

QUESTION: And as well, established exporters also?

CONVENOR: We might take another couple, if that's all right? Next to you.

QUESTION: Thank you. Andrew Nichols, DLA Piper Lawyers. You mentioned before, the importance of bilingual staff. Australian business will need bilingual staff to engage with all these opportunities offered by Australia-China 2.0. What is being done and what can be done to improve language education within Australia?

CONVENOR: One more question.

QUESTION: Thank you. Minister, Paul Wappett from CPA Australia, and we are one of the education exporters into China at the moment, with operations already in a couple of cities, with a couple of other cities planned for shortly.

Mine's a very practical question, it's what can we do to enhance both the ability to repatriate profits, and also what can we do to make sure that the simplicity of business operation rules and licences, is enhanced so that Australian organisations are able to capture some of the economic benefits that you've so eloquently put forward for us?

KEVIN RUDD: Okay, let's try and go to those three.

Austrade, which is the responsibility of my colleague, Craig Emerson, I think you will find across China is in fact expanding its operations rather than contracting.

In a recent Austrade review, what they've taken is a strategic judgement, that in mature markets, basically North America and Western Europe, we need less people, and in expanding or emerging markets, where the Government sector is more important, we need more.

And so if you go to the recent statements by the minister I think on the Austrade website, you will see that philosophy fairly strongly identified, the precise distribution of Austrade staff across China, I don't hazard to make plain here, in case I get some of it wrong, but I know, having spoken to the minister, that his intention it's in fact to redistribute staff to emerging markets, where, let's call it the Government sector, and the dynamism of the economy warrants it, and that obviously has China numero uno.

Language skills, I think if you're in a services sector, and you're in legal services, I think language skills embedded in your China operations are just critical.

Those of you who know me well, know I've been banging on about this for 15 years, and occasionally I just want to pull my hair out. But, I reckon the smart thing is this, I often hear the criticism from Australian corporates that the problem with folk who've got really good Chinese, whether they are Australian-born Chinese, or whether they are obviously Australian Chinese citizens, or whether they are Caucasians like me, who decided to have their own misspent youth studying Chinese, is that if you're into the widget industry, like you are, in whatever you sell to China, or if you're into the recycling of tyres, you'll say, well these guys are terrific, these guys and girls are terrific at language, they can entertain most people at a dinner party, they don't have a fig of knowledge about my particular industry.

Well, my response to that is, so what? Your job is to train 'em, bring 'em in, regard it as a three-year apprenticeship, and teach them everything there is to know about the tyre recycling business, or the widget business, or the education business.

It's a bit like, you know, attracting a raw recruit to any business, just take them under your wing, remunerate them, look after them, and teach them something they don't know, because they've got services to provide to you, that you don't have.

And so I think we've got to the stage now with the explosion of a people to people business, where this now becomes much more critical before than when we focused primarily on agricultural or mining commodities. Why? Commodity trade occurs frankly within a limited number of people, your negotiators, they sort it out, they're smart, they're sharp, and there's several hundred of them that frankly you could put into this room, who basically do most of the mining deals between Australia and China, or most of the ag deals, for that matter.

The services industry, for God's sake, you're looking at tens of millions of people, and therefore the importance of having people embedded to your operations, who are comfortable in the language and cultures of China and the wider region, is really important, and it's an investment worth making.

People then say to me, but they're not popping out of the universities in sufficient numbers, and some of the universities are contracting their teaching of Asian languages.

Well, business has to provide the lead, by creating a demand factor, a pull factor, so that the universities say come and do your four years of Chinese with us and do your own year in country, you'll come out with a pretty good general education, plus, you know, a law degree, an accounting degree, or whatever, on the side, an MBA, frankly you've got a pretty potent box of skills there.

But business has to take the lead in taking that bit of an investment risk in saying that each year we're going to take on someone, or two people, who are frankly equipped with these skills, and train 'em up.

And my final point about the services sector is this. National Broadband Network, one of the reasons why I've been so ideological on this for such a long period of time is because I have sensed deeply the emergence of the services sector export market, right across East Asia, and the world, for that matter. And therefore, if you've got a bandwidth and band speed which is among the fastest and broadest in the world, which we hope to have through the NBN Co, then you've got a capacity to pump stuff up and down the tube really rapidly.

If you're in the design business, for example, and you've been tasked with the job of redesigning three suburbs in Western Cheung Sha, one of the cities we're visiting, well isn't it going to be a lot easier to be able to go, whack, whack, there you go, it's all up the tube, and give it to your Chinese language expert, to make sure it's all appropriately rendered?

Having access to broadband, given China's phenomenal access to fibre optic, to the premises across most of the large cities of China, I think it will be a huge asset to Australian business as well.

And the very final question on remittances, this is a very complex question, it'll be locked into FTA negotiations as well, and broadly the future of Chinese exchange - Chinese remittance policy. But as the RMB progressively becomes a more internationally traded currency, and this is a very large macro question, then these problems will progressively be dealt with.

But in the absence of that, we've got to look at better systems within our overall FTA negotiations. It's a problem, I understand it, a lot of companies experience it, there are ways around it, I'd suggest you find the relevant one or two experts on this particular question, say through the Austrade office in Beijing.

I'm just looking for my staff, how am I going?

MODERATOR: One more.

KEVIN RUDD: Okay, two more. [Laughter].

QUESTION: Maree Jockle, Holding Redlich. I specialise in corporate immigration, and given the phenomenal importance of China to the world globally and of course to our economy, I'd like you to comment if you can on what I think is going to be a perennial challenge for us as a nation, given our demographics, given that with bilateral trade and investment come people, the very magnitude of the Chinese economy and their potential investment in Australia, growing investment, is going to inevitably demand that more and more Chinese workers come to Australia.

Our migration program is a whole of Government response, it's not just the Minister of Immigration, it certainly would be something that you'd be cognisant of, and I'm just wondering whether you would be able to make any comments as to where you see, or how we may be able to balance the very considerable competing interests with bringing in foreign workers, protecting our own workforce, dealing with Australia's challenging demographics, et cetera?

KEVIN RUDD: Well, these matters are constantly deliberated on within Government, but let me be very blunt, we're not in the business of saying, if we've got, you know, Chinese manufacturing enterprise X, or resource processing industry Y, which according to China's cost structures can only be built competitively using Chinese labour which undercuts Australian labour, we won't do it, I'm just being blunt with you. It's not the way in which you build an economy.

We have an approach here which is pretty consistent. In fact if you did that, you'd be undercutting a whole bunch of Australian businesses, who have been long-existing in the field.

It's not to say, therefore, that we have any hostility towards welcoming Chinese executives - Chinese who are absolutely core to the running of business operations - that's quite a different matter as we do with all countries around the world. But the idea of importing lock, stock and barrel, you know, huge numbers of Chinese workers to work below, frankly, award levels in this country is I don't think acceptable to the Australian community.

And this country has been developed on the basis of a fair go for all and we're a very open economy; but there's certain things that you can't go beyond, and I think that's one of them.

But on the question of the proliferation of Chinese investment interests in this country and the expansion of the trade sector of our economy with China, then, of course, it follows that using the normal business migration programs, et cetera, and the visa sub-classes which exist across that - short and long-term and permanent - that there's a whole lot of flexibility there.

And I'm not a migration voyeur so I can't answer in precise detail - I haven't looked at the Migration Act and the visa subclasses for business - but there are a whole bunch of visa subclasses which deal with these particular needs.

I think it may go back to the question raised with me earlier over here, and that is, do we have, frankly, a sufficiently rapid turnaround capacity with visa processing and visa issuing in China to make sure that we're not impeding business unnecessarily? That's a separate question to the one which is often raised - and including by Chinese entrepreneurs - which is we'd love to come and build a new port at Oakajee in Western Australia; we only need 10,000 workers for four years; we only need to pay them 10 Yuan per week and Bob's your uncle - sorry, that's not the way we do business in this country.

QUESTION: Thank you, Minister; my name is Nicole Bernard, the CEO of China Crest Professionals, a business consultancy based in Beijing. I have - well, I'd like your opinion on two sectors and the opportunity for Australian businesses in these sectors; and although they come from very different perspectives, they're both related to the better health of the Chinese people. The first is the more…

KEVIN RUDD: Ginseng?

QUESTION: [Laughs] One is the more asset-intensive and quality-sensitive areas of agriculture - dairy comes to mind, in particular; and also medical services.

You spoke a bit about access to medical insurance, but how do you feel about the opportunities for Australian businesses to actually provide better access to the quality of care within medical institutions? Thank you.

KEVIN RUDD: Sure. I will give a pass on the question of ag in general, and dairy in particular, because the beginning of wisdom is to know what you don't know; and I'd rather not just hazard an ignorant opinion - even though I'm the son of a dairy farmer - because where that stands in terms of Chinese regulatory standards, particularly after recent experiences with a New Zealand joint venture company, I would rather be very cautious on what I had to say.

Let me be more expansive about something I know even less about, which is the health services sector, and let me just make a very general observation.

This country is blessed with the most sophisticated set of medical brains and medical technologies in terms of cubic metres of intellectual property of any country of comparable size in the world. And it always stuns me that when our good colleagues in the education sector are out there frankly marketing highly effectively Australian education services to the rest of the world - and China in particular - why in the health services industry, this hasn't taken off in a similar way?

What have we got in Australia? A high quality health system. What have we got? High qualities of medical and para-medical training. What have we got? We've got a whole bunch of, frankly, systems management software within hospitals which make it easier to run, you know, case-mixed programs which make it easier to run patient care modules which can be extended and applied across various elements of the health care service both in sectors of health care as well as geographically. And that in turn depends on high-speed broadband often, given the density of medical files.

And having been through the National Health and Hospital Reform process in the period that I was Prime Minister, I have an acute sense of what this country's got going for it in this sector.

So my challenge for the sector really is - and without looking at the particular regulatory impediments which still may need to be mown down at 50 paces through the FTA negotiations with the Chinese on this area of the services sector - I think, instinctively, with rising income levels, increased urbanisation, greater expectations of quality and longevity of life, that the opportunities in this sector which people tend to be fairly serious about, namely, how long will I live and how well will I live in terms of my quality of my health, that this represents an enormous opportunity for Australia in the future.

My concluding remark overall is let me just add one piece of foreign policy gloss over the top of this presentation, which has primarily been about business opportunities, and that is, in Australia we do have a unique comparative advantage.

We shouldn't overstate it but it does exist. It's not just the time zone; it's not just the fact that we run a pretty open migration program; it's not just the fact that there are a large number of Chinese Australians now. These are all good things; but here we are as a country of western civilisation origins lying in this exploding hemisphere called the Wider East Asia, the one that within 30 or 40 years will represent half of the global economy; and if you are looking for a country which is in a capacity to interpret what is going on in China to the commercial advantage of other countries and economies around the western world - both in western Europe and in North America - there are huge opportunities for this country to actually seize this by the throat and to go for it.

There's a nice quality about Australians - not always, but I think we're there - is that we've got a bit of modesty about ourselves in this region; we know we're part of a region which is full of ancient civilisations of high cultures which have been around for thousands of years before we were even thought of, apart from Indigenous Australians.

And I think having that attitude and that posture and that - I think, by national economic circumstances - growing and broad familiarity with the texture and complexity of doing business and respecting cultures within wider East Asia, we are well positioned across the west, frankly, to be the smartest kids on the block.

And therefore, there is a big Team Australia opportunity to be seen as such around the world; and that helps in foreign policy terms, but also helps, I believe, in business terms as we are seen to be what I hope to be, and I've stated previously as my goal, for Australia to become the most China literate country in the collective west.

Thank you.

CONVENOR: Ladies and gentlemen, I am now bound to close today's proceedings. We hope that you've enjoyed hearing Minister Rudd outline the opportunities for deepening our economic partnership with China. We also hope that we might have stimulated your interest in the Mission to China in August.

On behalf of everyone here can I again thank you, Mr Rudd, for taking time out of your busy schedule today.

So again, please join me in thanking Mr Rudd for his time today.

ENDS

» Australia-China 2.0 presentation [PDF]

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