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Post-cultural revolution, China was one of the world’s least developed countries. However, this changed rapidly as the opening of China to foreign investment and encouraging private competition by Deng Xiaoping closed the gap in per capita GDP with other fast-growing economies, outperforming the more established and advanced economies.
After nearly 10 years of negotiations, the China Australia Free Trade Agreement (ChAFTA) came into force on 20 December 2015, laying an important milestone for the next phase of economic relationship between the two countries. China is Australia’s largest export market for both goods and services and a growing source of foreign investment. Some of the benefits of the agreement include tariff reductions or eliminations for a variety of manufactured products and commodities and improved access to partnerships with legal and financial services in China.
I had the opportunity to attend the launch of the ‘Australia China Joint Economic Report’ forum on 17 August 2016, where distinguished Australia and Chinese experts discussed the future of the economic relationship between the two countries following the free trade agreement.
Professor Peter Drysdale AO, head of the East Asian Bureau of Economic Research, Australian National University, opened the session with a concise overview of the importance of China as an economic partner. In particular, Peter mentioned Australia’s unique position in the global economy allows it to potentially benefit greatly from having a close partnership with China. He also highlighted that regardless of China’s economic performance, the country will still be a major player in the global market.
Other speakers explored the importance of deepening the partnership between the two countries. The Hon Chris Bowen MP mentioned that getting the relationship right is the most important thing, whilst Professor the Hon Bob Carr believed that the upward shift in living standards in China and the attendant rise in a strong middle class has an enormous potential that Australia can tap into.
Dr He Fan, a notable economist in China, emphasised that despite China’s economy growing rapidly, the Chinese found it difficult to understand the global economy. He believes and hopes that Australia and China will continue to work together and build new and stronger business ventures between the two countries. Lastly, Ms Jingmin Qian stressed that building trust between the two countries will be a long process and there will always be hiccups along the way. She also noted she remains optimistic about the future and believes there is still plenty to offer from both countries.
Retailing and a range of other industries such as fresh food and consumer appliances are set to benefit most from ChAFTA. The reduction or elimination of tariffs for a variety of commodities and manufactured products will allow retailers the option to pass on the savings to consumers. In an increasingly competitive retailing environment, consumers will be able to benefit from the cheaper prices offered. However, access to Chinese imports will lead to increased price pressure on local producers, which may lead to reduced profits on domestic producers and manufacturers. In 2011, imported Chinese apples met with criticism from the Australian community. The two supermarket giants, Coles and Woolworths, refused to stock them in a bid to continue to support domestic producers. The ChAFTA is likely to see a wide range of commodities and manufactured goods enter the Australian market and offered at very competitive prices. In this sense, it is yet to be seen if there will be a similar lack of support for the Chinese goods after the FTA.
On the other hand, Australia is recognised as a clean and green environment that produces high quality and well-regulated products and established, well-known brands. This gives a unique edge for many Australian exporters to benefit greatly from ChAFTA by reacting and establishing a strong position as suppliers of a range of products that the Chinese community shown interests in. Products such as milk powder and vitamins benefitted greatly as families in China only want the best for their children or themselves and were willing to fork out a premium for these Australian products. The reduction and elimination of tariffs on a wide range of products will allow Australian manufacturers and exporters to better compete against domestic manufacturers and cater to the ever expanding low- and middle-class in China.
The establishment of ChAFTA and maintaining a close relationship with China will significantly improve Australia’s competitive advantage across various industries globally. The reduction of barriers that impede the flow of goods and services between the two countries and elimination of tariffs for a wide range of goods and materials will allow both nations to react and accelerate the trading process in a rapidly evolving global economy, making the most of the opportunities for growth. Looking into the future, it is important for Australia to continue and maintain its independence and make a balanced and constructive stance in the international stage. This will help to pave the way for a brighter future for the Australian economy.