Demonstrations took place across Australia in mid-May, with the foreign minister heckled and jostled during a visit to universities, and Abbott himself cancelling visits because of the fear of safety. Abbott will have a great battle in his lower and upper house of parliament in getting the budget approved, with plenty of signs of opposition. His popularity has also collapsed, although he himself has stated he expected this. It is, he has said, a matter of principle to get the finances of the country right rather than continue marching into deeper deficits.
This might seem remote from China, but for all its domestic dynamics, the simple fact is that the Australian Government is wrestling with a very similar problem to Premier Li Keqiang—how to find growth when the overall GDP figure becomes more modest each year. China's 7.5 percent is now accepted as the macroeconomic benchmark for the coming few years. But it is, of course, lower than the figures which were achieved through the late 2000s into 2010 and 2011. The challenge is the same—how to distribute less overall wealth among a greater percentage of the populace and how to make the government and industry more efficient.
Three pillars
For Australia, there is the added link that so much of the growth has been on the back of supplying industry in China with raw materials like copper, iron, and other resources. Now the growth here is more modest in China, it has an instantaneous impact on Australia. The vast mines of Western Australia are significantly quieter than they were a year ago, with the problem that stockpiles of goods in China mean that it is no longer possible to ship vast new quantities of goods there.
Whereas the United States has been addressing its deficit by exporting more goods and services to China, meaning that in 2013 the deficit increased in China's favor by only $1 billion, despite rising in overall volumes by almost $80 billion, for Australia once the commodity boom ends there is a big question mark about what replaces it. Even worse, Australia has no easy second market to look at. China was so vast a customer that no other country, not even India, comes close to it. But just as China figures in some of the causes of this new more challenging economic context, so too does it figure in the solutions. There are three pillars here, and they all come to the fore in the discussions over the free trade agreement.
The first is that services have to replace some of the commodity flows between Australia and China. Here oddly enough the huge numbers of Chinese students that have gained degrees in Australia over the last decade or so become significant. There is a vast new group of young people in China rising up the career ladder now who have a very tangible and strong link with Australia, and having these as a basis on which to build better finance and service links is important. As a service provider, Australia is creative and important, but often parochial. Making a concerted effort, through the many linkages that Chinese graduates from Australia supply, to be a better and creative services provider is now critical.
The second is a much more imaginative approach to Chinese investment into Australia, with a more strategic vision about the ways in which those investing in Australia in turn supply partners for investments from Australia back into the vast emerging middle-class domestic market across China. Liberalization of investment protocols is in the cards for Chinese coming into Australia, and there have been healthy increases of foreign direct investment year on year over the last decade. But overall, Chinese investment is still relatively small, and there needs to be a more concerted and structured effort to work with Chinese companies in diverse sectors, from infrastructure and services to manufacturing, to come into Australia. It is now not just about mining. There is a new narrative emerging in this area—one that the free trade agreement, when it is signed, needs to support.
Finally, Australia as a food and agribusiness partner for China is a natural fit. This links with investment. Attitudes toward Chinese investment—or any non-local investment for that matter—in the agricultural sector are wary, verging on hostile. Chinese investment in this area, however, for all the public controversy, makes up only 1 percent of total investment. This figure will certainly increase. Politicians like Abbott need to lead the public debate in this area. Chinese investors in this sector are important, and the needs in China for good quality and more diverse food, from livestock to grain, is going to rise as diets change. The opportunities here are big, but so is the potential public unease, because of the almost mythical status of rural land and its ownership in the Australian psyche.
Australian politicians often talk fatalistically about the rising importance of China for their economy, as though it were a negative thing they can do little about. That mindset needs to change. It is clear what Chinese investors and businesses might want in Australia, and certainly less complicated than for Europe or America, where the political and economic drivers of the relationship are more varied. Australia should be happy with this simplicity and work hard to create a pragmatic framework to let it prosper.
The author is an op-ed contributor to Beijing Review and executive director of the China Studies Center at the University of Sydney
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