envoy
|
July 2015
Department of Foreign Affairs and Trade
business
Connecting DFAT’s diplomatic network to Australian business
in this issue
China’s ‘One Belt,
One Road’: Economic
implications for Australia
Australian Ambassador
to China: Frances Adamson
The China-Australia Free Trade Agreement presents business with significant market access opportunities
with Australia’s top trading partner. These opportunities will be influenced by China’s economic growth
rates, which have slowed in recent times, as well as its economic engagement with the region. China’s
ambitious ‘One Belt, One Road’ initiative to invest in infrastructure over the next decade has the potential
to address connectivity issues and boost economic activity both in China and the region. This edition of
Business Envoy examines China’s emerging role in regional infrastructure and considers its economic
and political consequences. For more information, contact us at [email protected]
Global perspectives
from Australia’s diplomatic network
From Tokyo: Who’s benefitting
from JAEPA?
Australian industries have taken early advantage
of opportunities in the Japan-Australia Economic
Partnership Agreement (JAEPA) since its entry
into force on 15 January. The beef industry had
the biggest uptake, accounting for 73.6 per
cent of the total value of JAEPA trade in the first
quarter of 2015. Bottled and bulk wine exports
from Australia increased noticeably. The value of
Australian wine exports to Japan has increased
more than the volume, suggesting Australia is
supplying more premium wines to Japan. The
first ever Australian shipment of high polarity
sugar was sent to Japan in April as a result
of concessions under JAEPA. Other sectors
that have benefited include dairy, horticultural
products, fisheries products and industrial
goods. For many products, initial or further tariff
reductions are still to take place. To find out
more about how your business could utilise the
agreement, visit www.fta.gov.au
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From Wellington: Reigning in
Auckland house prices
The New Zealand government has been under
pressure to address housing affordability in
Auckland where property prices have risen 14 per
cent since October 2014. Prime Minister Key
introduced an ‘intentions tax’ to strengthen rules
on short-term property investment. Under current
rules, a capital gain from property is only subject
to taxation where there was ‘firm intention’
of selling the property for capital gain when
purchased. Beginning 1 October 2015, gains on
residential properties sold within two years of
purchase will be taxed at the vendor’s marginal
tax rate. Investors will be required to have a New
Zealand bank account and tax identification
number. Auckland investors will now also require
a 30 per cent deposit. These reforms come
despite Prime Minister Key stating the housing
situation in Auckland was mostly a supply side
issue. As such, the government is seeking to
accelerate the development of new affordable
housing and has allocated 430 hectares of
vacant Crown land for housing development.
However, these policies are unlikely to have a
significant or immediate impact and prices are
expected to continue to rise.
From Cairo: Challenges for
investors remain
Improving Egypt’s economy is one of President
Sisi’s top priorities. Since assuming office in
June 2014, the Sisi government has raised taxes
on the wealthy, loosened currency controls
and reduced fuel subsidies by 30 per cent.
Investment from Gulf economies—notably Saudi
Arabia and the United Arab Emirates—has
provided critical support for Egypt’s economy.
Several large European firms have made
inroads, including British Petroleum’s $12 billion
investment to develop gas resources in the Nile
Delta. But despite Egypt’s efforts to roll out the
welcome mat, it remains a challenging place for
investors to navigate quickly or successfully. The
military plays an oversized role in the economy.
Businesses also struggle with a cumbersome and
opaque bureaucracy and strict foreign exchange
controls. Instead, businesses and investors
are increasingly pursuing partnerships with
the Egyptian Armed Forces or military-owned
companies to overcome regulatory hurdles.
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From Shanghai: Some success
in the Shanghai free trade zone
despite slow reform
The initial enthusiasm surrounding the launch
of the Shanghai free trade zone in 2013 has
dissipated as many consider reforms to be slow
and piecemeal. This reflects competing interests
as Chinese authorities seek to balance financial
liberalisation with capital control. The free trade
zone has had success, in particular in efforts
to facilitate capital account convertibility for
investments, renminbi currency settlements and
the repatriation of funds to China. Over 21 banks—
including ANZ and Westpac—have established
approximately 15,000 accounts in the zone. There
are plans to launch the next phase of liberalisation
which authorises domestic investors registered
in the Shanghai free trade zone to invest funds
offshore. Nevertheless, officials in Shanghai remain
cautious. Against the backdrop of a volatile stock
market, they will need to secure the sustained
support of the central government for financial
sector reforms. Otherwise, the Shanghai free
trade zone will struggle to reach its full potential in
promoting nation-wide fiscal reform.
From Tel Aviv: Learning from
the start-up nation
Despite its size, Israel has one of the
highest concentrations of innovation and
entrepreneurship in the world. Over 660 Israeli
start-ups attracted $2.3 billion of investment in
2013—more than the amount going to Europe’s
entire tech sector. Research and development
expenditure in Israel is at an OECD high of five
per cent of GDP, seven eighths of which is from
the private sector. Israel’s innovation reflects
strong education and research institutions, an
entrepreneurial culture, well-funded armed forces
investing in research and development, a lack
of natural resources to depend on and access
to high-risk venture capital. The government’s
Office of the Chief Scientist also provides critical
support in the early stages of development
before ‘proof of concept’ is established. Australian
firms and industries—from agriculture to banking
and communications—are increasingly building
partnerships with Israel’s high-tech industry
to identify innovative solutions and gain a
competitive edge.
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From Bangkok: Labour
migration and regional supply
chains
technology. In agriculture, Australian companies
stand to gain in seed genetics, fisheries, livestock
and harvest management and irrigation and water
management.
Buyers and retailers are demonstrating a growing
interest in suppliers’ compliance with responsible
labour principles. In ASEAN, labour migration is a
significant driver in the region’s economic growth,
absorbing millions of workers. However, without
effective labour migration governance, businesses
with supply chains in this region are vulnerable to
commercial and reputational risks. A 2014 Verité
report found nearly one third of migrant workers
surveyed in Malaysia’s electronic industry were
working under forced labour conditions. Barriers
to migrant workers’ access to regular migration
and protection include the cost of legal migration,
limited access to justice, ambiguous or poorly
defined employment conditions and the capacity
of bureaucracies to manage labour migration. The
exploitation of migrants allows industries in the
region to compete unfairly, discourages Australian
foreign direct investment in efficient enterprises
and artificially depresses the income of potential
consumers. The Global Reporting Initiative
is a widely used, self-regulatory framework
adopted by businesses to identify and report on
labour practices in their supply chains, among
other social governance indicators. For more
information, visit www.globalreporting.org
From Astana: 100 steps to
reform Kazakhstan’s economy
From Nairobi: Opening up
Tanzania’s mining, energy and
agriculture sectors
Tanzania acknowledges that growth will require
foreign investment, particularly in mining, energy
and agriculture, and the development of small and
medium sized enterprises. Although the private
sector in Tanzania is optimistic about improvements
to the business climate, challenges remain.
Businesses and investors face red tape, corruption
and constraining labour laws as well as gaps in
infrastructure and skilled labour. However, the
government is committed to improving investment
conditions for domestic and foreign investors.
Recent gas discoveries make the resources
sector attractive, though a lack of bureaucratic
and administrative capacity is holding back
development. Opportunities exist for Australian
companies in training and capacity building as well
as exploration, extraction, equipment, services and
Department of Foreign Affairs and Trade
Kazakhstan’s President Nursultan Nazarbayev
launched a new national plan containing ‘100
steps’ to develop and diversify Kazakhstan’s
economy. Reforms include simplifying the
visa regime to attract foreign investors and
professionals, floating the currency within the
next five years and developing a ‘Eurasian
transcontinental transport corridor’ to capitalise on
Kazakhstan’s position at the cross-roads of China,
Europe, Central Asia and the Middle East. Perhaps
the most ambitious step is the Astana International
Financial Centre. The centre, based on English
law, is intended to be a financial hub for Central
Asia and will include an arbitration court and a
preferential tax system. The national plan’s focus
on mining and resources, agriculture, transport,
logistics and international finance should provide
opportunities for Australian business. The national
plan mentions Australia as a model for best
practice and West Australian mining legislation has
been a model for Kazakh mining laws.
From Athens: The political
consequences of Grexit
An overwhelming ‘No’ vote in Greece’s
referendum to reject the EU’s bailout package
does not necessarily mean a Grexit—that is
Greece leaving the Eurozone. A Grexit would
destroy what’s left of business confidence,
exacerbate unresolved left-right divisions in
Greece and cause living standards to fall. Some
question whether the Greek civil service even
has the economic policy skills to manage a
currency transition and derive benefits from
a devalued currency over time. Many Greeks
hoped a ‘No’ vote would strengthen Greece’s
negotiating position to avoid further austerity
measures but this has yet to be seen. Beyond
Greece, the European project would also take a
hit but it’s unclear whether exiting the monetary
union means Greece would have to leave the
EU—the treaties are silent on things that were
never meant to happen. In or out, the EU will find
an unstable, struggling Greece a headache and
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a drain on finances. Firewalls notwithstanding,
other highly indebted Eurozone economies could
come under pressure. While a Grexit would likely
inhibit the growth of other anti-austerity parties
elsewhere in Europe, it may drive broader divisive
forces in the EU.
From Mexico City: Pacific
pumas prepared to pounce
Trade and Investment Minister Andrew Robb’s
participation at the inaugural Australia-Chile
Economic Leadership Forum in late 2014 and
Foreign Minister Julie Bishop’s participation
in the July 2015 Pacific Alliance Summit in
Peru underscore the potential of commercial
partnerships between Australia and the Pacific
Alliance economies—Chile, Colombia, Mexico and
Peru. These economies are increasingly focused
on our region. There are good prospects to boost
trade in services. To date mining related services
have accounted for a significant portion of the
economic relationship. Australian businesses
have invested some $5 billion in Peru’s mining
sector, making Australia the fourth largest investor
in the sector. The Pacific Alliance seeks to attract
more foreign capital and expertise, particularly
in education and training services, water and
environmental management, hydrocarbons,
tourism and energy infrastructure. Australian
businesses can promote their experience and
geographic proximity to Asia to develop value
chains from Alliance economies into Asia. This,
and business links generally, have been facilitated
by improving air services, including a recent
doubling of capacity on the Sydney-Santiago
route to 4000 seats per week.
in Asia, second only to Japan. Singapore is an
important seafood market for Australia. Australian
imports rank eighth across all seafood products.
An important market trend is Singaporeans’
growing consumption of frozen, instead of chilled,
seafood. Australia is already a recognised ‘brand’
in Singapore. Australia’s quarantine framework
presents higher costs but also higher quality
seafood and aligns with Singapore’s stringent
regulations. The Singaporean sovereign wealth
fund, Temasek, recognises this and continues
to scout investment opportunities in Australian
aquaculture. The challenge will be continuing to
differentiate our product against other high quality
suppliers.
From Singapore: Opportunities
to export high quality frozen fish
Australia and Singapore have elevated their
relationship to a comprehensive strategic
partnership to build closer economic ties, expand
free trade and increase two-way investment.
While in Singapore, Prime Minister Tony Abbott
and Trade and Investment Minister Andrew
Robb hosted a northern Australia roundtable
with Singapore’s top investors to learn more
about trade and investment opportunities with
Australia. One of these opportunities is in high
quality frozen fish. Singapore has one of the
highest rates of fish consumption per capita
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Department of Foreign Affairs and Trade
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Tradecraft
The Trans-Pacific Partnership and trade in services
Australia is on the cusp of concluding the landmark
Trans‑Pacific Partnership Agreement (TPP)
negotiations with 11 other Asia-Pacific countries.
The TPP will deliver significant benefits for
Australia:
ћћ Australian consumers and importers will benefit
from lower cost and greater variety goods and
services
ћћ Australian exporters and investors will benefit
from a lowering and elimination of tariff and
non‑tariff barriers (such as high agricultural
product tariffs and competition from state-owned
enterprises supported by other governments)
in important overseas markets, including where
Australia has an existing free trade agreement
ћћ A number of 21st century trade and investment
challenges, such as competition and electronic
commerce will be addressed.
Trade in services
The TPP will provide a platform for growth in
Australian services exports. Services are vital to
Australia’s economy, generating 73 per cent of
GDP in 2013-14.
The TPP will unlock longstanding regulatory
restrictions in key export markets in Southeast
Asia and generate significant new opportunities
for Australian exporters and investors in TPP
countries including in:
ћћ mining equipment, technologies and services
and oilfield services
ћћ architecture, engineering, legal services and
other professional services
ћћ education services
ћћ finance, insurance and securities services
ћћ access to preferential visa and temporary work
arrangements for Australian professionals.
The TPP will deliver strong digital trade outcomes:
establishing new rules that guarantee the
movement and storage of data, and preventing
discrimination against products traded online.
Ground-breaking new rules will also assist
Australian suppliers to compete on equal terms
with state-owned enterprises and help ensure
they are not discriminated against when bidding
for contracts.
For more information visit www.dfat.gov.au/tpp
In 2013-14, other TPP countries accounted for
over a third of Australia’s total services exports,
around $20 billion.
The TPP countries Represent
25.5% of world trade
valued at US$12.0 trillion
$
36.3% of the world economy
valued at US$28.0 trillion
11.2% of world population
a market of 805 million people
Department of Foreign Affairs and Trade
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Growing Australian
market access to China
Ambassador’s corner
//
Frances Adamson
Australian Ambassador to China
Last month’s signing of the landmark
China‑Australia Free Trade Agreement (ChAFTA)
provides a boost for Australian companies
seeking to enter, or expand their operations in, the
Chinese market. It adds another dimension to our
comprehensive strategic partnership with China.
China has announced the establishment of an
official renminbi clearing bank in Sydney and
Australia’s Renminbi Qualified Foreign Institutional
Investor (RQFII) quota. The quota allows
Australian investors to invest up to 50 billion Yuan
in China’s capital market.
Both sides are now working to ensure ChAFTA
enters into force by the end of the year. This will
allow back-to-back tariff cuts upon entry into force
in late 2015, and then again on 1 January 2016.
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ChAFTA is a high-quality, balanced agreement.
It will allow Australian exporters to recover
competitiveness lost to China’s existing free trade
agreement (FTA) partners, such as Chile and New
Zealand, in sectors such as dairy and wine.
As China liberalises further, and offers better
services and investment access to other
economic partners, Australian companies will be
granted the same benefits. This will open doors,
not just now, but over the long-term.
We have well established relationships,
particularly in resources, tourism and education.
China buys more of our agricultural produce
than any other country. But we shouldn’t be
complacent. Continued growth in bilateral trade
and investment is not guaranteed.
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ChAFTA will help Australian companies compete,
but it won’t be a silver bullet. China remains a
challenging place to do business. China is an
intensely competitive market. We are just one of
a number of international providers that Chinese
consumers can choose from. There are also legal,
business and cultural differences and behind the
border barriers.
Australian companies are well positioned to both
support and take advantage of this restructuring.
Under President Xi’s leadership, China has
embarked on an ambitious, challenging and
complex reform agenda. These reforms are
designed to help create the space for the market
to play a larger, more decisive role in China’s
economy.
President Xi’s remarks to the Australian Parliament
in November 2014—that all are now watching
the ‘big guy’ in the room—apply as much to the
business world as they do in a geopolitical context.
But don’t mistake the market’s more decisive role
for a decline in the influence of the state, or its
close involvement in setting economic policy.
The implementation of reforms and President Xi’s
anti-corruption campaign has added an element
of uncertainty to China’s business environment
with some business or regulatory decisions being
placed on hold for fear of doing something wrong.
As always, investing in China remains a long-term
proposition. More so than in some other markets,
thorough due diligence, tenacity and patience will
be rewarded.
China’s move towards more sustainable
economic growth has implications for Australia’s
economy. It creates opportunities for some
sectors and challenges for others.
Chinese companies, whether they are state‑owned
or private, are increasingly international companies.
A new generation of entrepreneurs, typified by
companies like Baidu, Alibaba, and Tencent, has
captured the world’s attention.
We can see China’s desire to play a more
prominent and influential global economic role
through the renminbi’s internationalisation, China’s
‘One Belt, One Road’ initiative and the Asian
Infrastructure Investment Bank (AIIB). Australia
continues to work closely with China in the G20
and APEC, following our respective host years
in 2014, and as we look forward to China’s 2016
G20 Presidency. One positive benefit of the
initiatives is enhanced regional connectivity.
‘One Belt, One Road’ has a broad geographic
coverage, encompassing parts of the Pacific,
Central, South and Southeast Asia, Africa,
the Middle East, and Europe. The associated
investment and infrastructure projects will aim to
promote economic development and help facilitate
trade and other exchanges, bringing countries in
our region and beyond closer together.
When I took up my post as Ambassador in
August 2011, the price per tonne of iron ore was
around US$177. It is now around US$60, having
risen from US$47 earlier this year. While this is
primarily a response to supply increases, China’s
efforts to address industrial overcapacity have
also played a role.
The AIIB (along with China’s Silk Road Fund) will
help finance these projects. Australia has been
actively involved in the negotiations establishing
the AIIB to assist China meet its stated goal of
developing a best-practice bank with appropriate
governance structures. Australia joined the AIIB
as a founding member and the sixth largest
shareholder, contributing $930 million over five
years.
China has set itself a seven per cent growth
target for 2015. This target is looking increasingly
difficult to achieve, as distant headwinds have
become present day challenges. The property
market continues to be relatively weak; corporate
debt remains high; and share indices are volatile.
In 2015, bilateral and regional developments like
ChAFTA and the AIIB have brought the prospect
of increased trade and investment between our
countries and, ultimately, a higher standard of
living for Australians. But it is up to exporters and
investors to make the most of these opportunities.
However, China’s slower growth still provides a
larger absolute increase in economic activity than
the double-digit growth of years gone by. China
is actively promoting its services sector, which
now accounts for more than half of China’s GDP.
Department of Foreign Affairs and Trade
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The China-Australia
Free Trade Agreement
On 17 June, Minister for Trade and Investment
Andrew Robb, and his Chinese counterpart
Commerce Minister Gao Hucheng, signed the
China-Australia Free Trade Agreement (ChAFTA)
in Canberra. Both governments are working
towards the agreement entering into force by the
end of the year.
China is Australia’s number one trading partner.
More than $150 billion in goods and services were
traded between us in 2014—an average growth of
12 per cent per year over the past five years—and
China is a growing source of inwards investment.
China’s middle class is projected to increase from
around 12 per cent of the population in 2009 to
around 70 per cent by 2030. Combined with the
economy’s shift towards consumption-led growth,
this will provide significant new markets for our
exports.
On ChAFTA’s first day of operation, more than
85 per cent of Australian goods exports to China
will be tariff free, rising to 95 per cent on full
implementation.
Australia’s agriculture sector will be able to
capitalise on its well-deserved reputation as a
quality, safe food producer. Chinese tariffs will be
progressively abolished for our $13 billion dairy
industry, and for our beef and sheep farmers. All
tariffs on Australian horticulture will be eliminated.
cent Australian ownership, and Australian insurance
providers more liberal access to China’s statutory
third-party liability motor vehicle insurance market.
ChAFTA also encourages new investment into
Australia by liberalising review thresholds on
non-sensitive investment proposals from private
Chinese companies.
These improvements in access and Australia’s
competitive position in relation to other suppliers
to China mean there has never been a better
time for Australian businesses to think big, seize
the opportunities, and look outward.
ћћ As part of the Parliamentary process, the
Joint Standing Committee on Treaties and
the Senate Foreign Affairs, Defence and Trade
References Committee are welcoming public
submissions on ChAFTA for their reports until,
respectively, 24 July and 28 August. More
information can be found on the China news
tab at www.fta.gov.au
ћћ For information on upcoming seminars on
Australia’s north Asia FTAs, visit
www.austrade.gov.au
Under ChAFTA, 99.9 per cent of China’s imports
of resources, energy and manufacturing products
from Australia will enter duty-free—92.9 per cent
on entry into force of the agreement. Tariffs will
also be eliminated on a wide range of Australian
manufactured goods, including pharmaceutical
products and car parts.
ChAFTA provides Australian services providers
new or significantly improved market access not
included in any of China’s previous FTAs. New
commercial opportunities for Australian banks,
insurers and securities firms include allowing
Australian financial service providers to establish
joint venture futures companies with up to 49 per
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From left: China’s Commerce Minister Gao Hucheng, Prime
Minister Tony Abbott and Trade and Investment Minister Andrew
Robb sign the China-Australia Free Trade Agreement.
Photo: Office of the Prime Minister.
Department of Foreign Affairs and Trade
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China’s ‘One Belt, One Road’:
Economic implications
for Australia
Economic assessment
//
Investment & Economics Branch
Since the launch of the ‘Go Out’
policy in 2001, China’s outbound
foreign direct investment has
increased significantly. FDI flows
have risen 38 per cent per year
from US$7 billion (0.9 per cent of
global FDI) in 2001 to US$101 billion
(7.2 per cent of global FDI) in 2013.
China’s outward investment will get a boost
from its ‘One Belt, One Road’ initiative by
increasing investment in energy, transport and
communications infrastructure. ‘One Belt, One
Road’ will go some way in meeting the extensive
infrastructure needs of the region. The Asian
Development Bank has estimated a regional
physical infrastructure gap of as much as
US$8 trillion over the next decade.
China’s approach is broadly in line with the focus
of the G20 which recognised the importance of
addressing shortfalls in global investment and
quality infrastructure to lift economic growth, job
creation and productivity.
Building ‘One Belt, One Road’
‘One Belt, One Road’ has been a centrepiece of
China’s foreign policy since President Xi Jinping
outlined the concept in his speeches in Indonesia
and Kazakhstan in 2013. The scope of ‘One Belt,
Department of Foreign Affairs and Trade
One Road’ has progressively broadened from
Central and South Asia to include projects in Latin
America, Africa, Southeast Asia and Europe.
‘One Belt, One Road’ contains two geographic
parts. The ‘Silk Road Economic Belt’ aims to
link China to Europe and the Middle East via
land routes from western China through Central
Asia. The road belt also aims to connect China
to the Arabian Sea via a southern land corridor
through Pakistan to its southern coast. The ‘21st
Century Maritime Silk Road’ seeks to connect
China’s eastern coastal cities to Europe, wrapping
westward along a network of ports in the Indian
Ocean and to Africa, then north through the Suez
Canal and the Mediterranean Sea. The maritime
road also aims to build an economic corridor from
China’s southern provinces through mainland
Southeast Asia, across the South China Sea
and into the South Pacific. Although still in its
early stages, the maritime silk road may present
opportunities to align with the regional connectivity
agendas in the Indian Ocean Rim Association and
the Australian Government’s recent White Paper
on Developing Northern Australia.
In his speech to the Australian Parliament
in November 2014, President Xi said that
China “welcomed Australia’s participation
in the Maritime Silk Road”. According to
China, ‘One Belt, One Road’ investment
will seek to build six economic corridors:
China‑Mongolia-Russia, the Eurasian land
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Russia
ћћHigh-speed railway between Kazan
and Moscow
ћћSiberian gas piplines to supply China
Belarus
ћћMining and processing infrastructure in
Starobinskoye ($1.4 billion)
ћћSino-Belarus Industrial Park in Minsk
($5 billion)
Europe
ћћPiraeus port upgrade
($260 million)
ћћHigh‑speed railway
between Hungary and
Serbia ($3 billion)
ћћ8000 mile railway for
cargo between China
and Spain
Georgia
ћћInternational Economic Zone in Tblisi
($150 million)
ћћDeepwater port in Anaklia ($5 billion)
Africa
ћћAgreement with African Union
to help build railways, roads
and airports
ћћCoastal road in Nigeria
($13 billion)
ћћRailway between Nairobi and
Mombasa ($3.8 billion)
ћћRailway between Addis Ababa
and Djibouti ($4 billion)
business envoy
pakistan
ћћChina‑Pakistan
Economic Corridor
with roads and
railway ($46 billion)
ћћHighway linking
Lahore and Karachi
ћћGwadar port
upgrades, including
airport, a powerplant
and roads
ћћThar coal mine and
powerplant in Gadani
ћћ720,000kw Karot
Hydroelectric plant
ћћSoft loans for two
nuclear powerplants
near Karachi
($6.5 billion)
Kazakhstan
ћћChina-Kazakhstan oil pipeline
Kyrgyzstan
ћћChina-Kyrgyzstan-Uzbekistan
highway
ћћRailway between China and
Uzbekistan ($2 billion)
ћћTransport and logistics
cooperation
ћћPower grid upgrades in Southern
Kyrgyzstan
ћћBishkek powerplant refurbishment
Tajikistan
ћћCentral Asia-China gas pipeline
in Tajikistan
ћћ500kv Regar power substation
reconstruction
ћћDushanbe‑Chanak Highway
upgrades ($280 million)
Turkmenistan
ћћRoad and rail network between
Kazakhstan, Turkmenistan and Iran
Uzbekistan
ћћUzbekistan-China gas pipeline
Sri Lanka
ћћDeepwater port in
Hambantota
($600 million)
India
ћћHigh-speed rail
cooperation
ћћIndustrial parks
in Gujarat and
Maharashtra
Bangladesh
ћћStudies for a
Bangladesh-ChinaIndia-Myanmar
corridor
ћћDeepwater port in
Payra
Department of Foreign Affairs and Trade
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China’s ‘ONE BELT, ONE ROAD’
INFRASTRUCTURE investment:
A snapshot
Indonesia
ћћHigh-speed railway between Jakarta
and Bandung
ћћCoal mining and transport
infrastructure in Papua and Kalimantan
($6 billion)
ћћFerronickel plant in Sulawesi
($5.1 billion)
ћћRoad and port infrastructure in
Kalimantan ($1.1 billion)
Malaysia
ћћMalaysia-China Kuantan Industrial
Park, including a deep-water container
port, steel and aluminium plants and
palm oil refinery ($3.4 billion)
Thailand
ћћKra Isthmus canal ($28 billion)
ћћRailway between Nong Kahi province,
Bangkok and the proposed ChinaLaos railway
ћћKunming-Bangkok Highway
Central & south america
ћћPledged investment to the
region ($250 billion)
ћћProposed transcontinental
railway between the Peruvian
and Brazilian coasts ($10 bilion)
ћћNatural gas development,
pipelines, power generation
facilities, highways, ports and
telecommunications
Vietnam
ћћPort upgrades in Haiphong
ћћLang Son-Hanoi Highway
Burma
ћћTransport network, including roads,
railways, waterways and airports,
connecting China, India, Burma and
Bangladesh
ћћOil and gas pipelines between
Kyaukphyu and Kunming
ћћOptical cable between Burma and
Yunnan
FIJI
ћћHydroelectric plant
($158 million)
RailwayS
power
generation
industrial
zones
roads &
highways
electricity
grids
mineral
processing
Shipping
Ports
gas pipelines
logistics
centres
fast trains
oil pipelines
Airports
Estimated values in USD where available.
Projects include completed and planned investments.
Department of Foreign Affairs and Trade
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bridge (China‑Kazakhstan‑Western Europe),
China‑Central Asia-West Asia, the
Indochina Peninsula, China-Brazil, and
Bangladesh‑China‑India-Myanmar (Burma).
Chinese labour and boost the development of less
developed regions. Over time, it could improve
security in the supply of raw material and energy
imports for China, possibly lowering their cost.
A March 2015 policy paper released by China’s
National Development and Reform Commission
and foreign affairs and commerce ministries
identified five priorities for ‘One Belt, One
Road’: regional policy coordination, facilitating
connectivity, unimpeded trade, financial
integration and people-to-people bonds.
In the region, gross domestic product could
increase as a result of the investment boost.
This, and the greater connectivity, should result in
larger trade volumes. In March, President Xi said
that China hoped its trade with ‘One Belt, One
Road’ countries would reach US$2.5 trillion in the
next decade or so.
The paper said China will work with ‘One Belt,
One Road’ countries to coordinate national
development strategies, deepen cross‑border
investment and trade, enhance customs
cooperation, expand currency swaps, support
the development of the Asian bond market and
encourage private enterprise in new projects.
What opportunities might Australia
see?
Funding ‘One Belt, One Road’
Although funding arrangements for ‘One Belt,
One Road’ are still being established, sources
could include the recently established Chinaled Asian Infrastructure Investment Bank
(AIIB) (US$100 billion authorised capital), the
BRICS New Development Bank (US$100 billion
authorised capital) and China’s Silk Road Fund
(US$40 billion capital).
China Development Bank (CDB) recently
announced it will invest more than US$890 billion
into 900 ‘One Belt, One Road’ projects.
Over coming years, ‘One Belt, One Road’ is likely
to boost investment in China and the region. ‘One
Belt, One Road’ could absorb some of China’s
overcapacity in industries such as cement, steel
and aluminium and consequently increase global
demand for raw materials.
In the short-term, a stronger demand could
again strengthen the iron ore and raw materials
components of Australia’s exports to China and
other countries participating in ‘One Belt, One
Road’. Resource exports have been central to our
exports to China. In 2014, exports of iron ore to
China alone accounted for about 77 per cent of
all iron ore exports or roughly 15 per cent of all of
Australia’s goods and services export earnings.
Funding is also likely to come directly from
China’s largest sovereign wealth fund, the China
Investment Corporation (US$525 billion of assets),
and from the Export-Import Bank of China.
The increased demand for hard commodities
such as coal and iron ore could lead to a growth
in prices (as occurred during China’s rapid
investment-led growth, when commodity prices
reached peaks). It is, however, difficult to estimate
the supply and demand balance at this stage.
What are the potential economic
impacts of ‘One Belt, One Road’?
Australian firms could also benefit from providing
inputs to ‘One Belt, One Road’ infrastructure
projects.
‘One Belt, One Road’ is an ambitious large‑scale
initiative which has the potential to boost
economic development in Asia and more widely.
If successful, it would help growth and incomes
in the long-term through an infrastructure-driven
boost in demand, greater connectivity and
stronger economic integration.
The current list of aspirational ‘One Belt, One
Road’ projects, both in China and elsewhere in
the region, includes sectors that overlap with
Australian capabilities. However, due to the highly
competitive environment, most opportunities
would be in niche areas. For example, in design,
engineering, environmental management
and logistics. Australia also has expertise
in providing accounting, financial and legal
advice to private‑public partnerships and other
infrastructure funding mechanisms.
In China, ‘One Belt, One Road’ could revitalise
domestic industries; bring in higher returns for
Chinese capital; create long-term demand for
Chinese goods and services; absorb excess
business envoy
Department of Foreign Affairs and Trade
13
What’s behind ‘One Belt,
One Road’?
China’s ‘One Belt, One Road’ initiative is an
international infrastructure program, partnered
with financial integration, trade liberalisation
initiatives and cultural exchanges. The
policy as a whole can be expected to have
significant implications for our region.
The network of rail, road and energy
infrastructure will stretch from the ancient
capital of Xi’an in central China, through
Central Asia, to Western Europe. In parallel,
the maritime equivalent will be a network of
ports stretching through East and South Asia
to East Africa and the Mediterranean Sea.
There are five key dimensions to ‘One Belt,
One Road’:
1. It is designed to strengthen China’s
economy by lowering the costs of
importing raw materials and exporting
manufactured goods, and providing an
outlet for China’s industrial oversupply.
The ability of Australian firms to provide inputs
would depend on their ability to tender, the
location of projects and the level of investment risk
they are comfortable with. As with any market, due
diligence by investors and suppliers is essential.
Australian firms may be better positioned for
opportunities in markets where they already have
a presence and where their flexibility and ability to
find solutions has been demonstrated.
Australia’s participation in the AIIB, the intention
to adopt open procurement and the bank’s
commitment to work closely with the private sector
should help Australian businesses take advantage
of infrastructure growth. The government’s northern
Australia development agenda will also open up
opportunities to enhance connectivity between
Australia’s north and the region.
Over the longer term, where ‘One Belt, One Road’
results in regional income growth, improved
infrastructure, and greater connectivity, Australia
could see increasing demand for other exports. In
China, the implementation of the China-Australia
Department of Foreign Affairs and Trade
2. It may prove good diplomacy. A regional
infrastructure program could underline
the benefits of a growing China for its
neighbours.
3. Domestically, analysts note that the
policy may serve as a useful tool for
compensating vested interests threatened
by market-oriented reforms.
4. Some analysts see a geo-economic
dimension to the policy, with China
realigning the economic links in the region
to shore up China’s centrality in the face of
a changing trade landscape.
5. China’s energy security will be buttressed
by better access to Central Asian gas
supplies and better serviced sea lines for
its oil supplies.
One Belt, One Road is a complex mix of
initiatives, and not without risks for China. If
successful, it could lead to better economic
links across our region. The Indo-Pacific
will be central to its success and Australia
will be watching with interest to see what
opportunities and challenges emerge.
Free Trade Agreement will improve access for a
wide range of Australian exports.
At the same time, there could be some
challenges if resource-rich countries in Central
Asia, Iran and elsewhere become more
competitive against Australian resource exports
as a result of ‘One Belt, One Road’ projects.
Chinese investment in Australia, including
investment to service upstream demand in China,
grew 86 per cent between 2010 and 2013. The
increase in demand for Australian exports from Asia
as a result of ‘One Belt, One Road’ could encourage
more investment by China and other Asian
countries to meet their growing import demands.
While there will be increasing competition
for Chinese capital from ‘One Belt, One
Road’ countries, Australia’s high degree of
complementarity in trade should temper this.
Greater growth in regional incomes would also
open investment opportunities for Australian firms
across the region.
business envoy
14
Asian Infrastructure
Investment Bank
On 29 June 2015, the Australia Government
signed the treaty to become a founding
member of the Asian Infrastructure Investment
Bank (AIIB) along with 50 countries from
Asia and Europe. The AIIB is envisaged to
help address an US$8 trillion infrastructure
financing gap in the Asian region over the next
decade. Led by China, the AIIB will initially
focus on transport, energy and water sectors
and intends to work in close collaboration with
other multilateral and bilateral development
institutions and the private sector.
region while paving the way for Australian
businesses to take advantage of the growth
in infrastructure. The AIIB will have paid-in
capital of US$20 billion ($25.2 billion) with
total authorised capital of US$100 billion
($126.2 billion). Australia will contribute around
$930 million as paid-in capital to the AIIB
over five years and will be the sixth largest
shareholder.
In negotiations on the AIIB, Australia
successfully advocated for strong governance
arrangements. Some operational and financial
policies are still being finalised. The AIIB is
expected to be operational by the end of 2015.
Joining the AIIB presents Australia with
opportunities to work with our neighbours
to drive economic growth and jobs in the
Access to China’s
e-commerce
The Australian Business Guide to E-commerce
in China assists Australian business access
the e-commerce channel and puts Chinese
consumers within arm’s reach.
Online consumer spending in China is growing
at close to 50 per cent a year, particularly in
fast growing second and third tier cities like
Kunming, Wuhan and Shenyang. E-commerce
brings China’s 332 million online consumers
within the reach of even the smallest Australian
producers, with lower costs, minimal risks and
easier market access compared to traditional
exporting.
It is available to download from the Austrade
website at www.austrade.gov.au/e-commerce
While buying quality overseas-made goods
is an unrealised aspiration of many Chinese
consumers, increasing numbers are already
paying premium prices for foreign products
like food, cosmetics and luxury items. In many
cases, these products are being directly
imported through ‘cross-border’ e-commerce
trading platforms in seven cities. The reduced
import taxes and simpler quarantine and
inspection procedures within these pilot
business-to-consumer (B2C) gateways are
stirring up excitement between buyers and
sellers.
business envoy
E-COMMERCE
IN CHINA
A GUIDE FOR AUSTRALIAN BUSINESS
Using ChAFTA to sell premium Australian products
E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS
JUNE 2015
1
Department of Foreign Affairs and Trade
15
Economic
highlights
ћћ The People’s Bank of China has cut interest
rates and bank reserve requirement ratios in
an effort to lift economic growth. One year
lending rates and deposit rates were cut by
25 basis points while the amount of deposits
that banks must keep on reserve was lowered
by 0.5 per cent. The cuts are designed to
stimulate economic activity by encouraging
borrowing and the capacity of banks to lend.
Increased economic activity in the world’s
second largest economy should benefit
Australian exporters and support investment
into Australia. But recent sharemarket volatility
in China has investors from both sides on
edge.
ћћ Japan’s industrial production decreased
2.2 per cent in May compared with April. The
decrease was less pronounced than analysts
had forecast. The decrease in industrial
production was attributed to weak demand
and a build-up of inventories in key export
markets, notably China. The weaker industrial
production result was in contrast to the 1.7 per
cent month on month increase in retail sales.
Despite a significant economic stimulus
program, mixed economic signals suggest that
Australia’s second largest trading partner is not
yet on a path of sustained economic growth.
ћћ The US economy continues to steadily
improve with recent positive data reports.
First quarter data for consumer spending,
government expenditure, fixed investment and
exports have all been revised upwards. The
positive data brings into focus the prospects
of an increase in official US interest rates. Such
a change is likely to result in greater capital
flows into the US, resulting in a stronger US
dollar against other currencies including the
Australian dollar. A lower Australian dollar will
be a boost for exporters but will make imports
more expensive.
Key statistics
Top export & import countries/Regions
Exports
China
Japan
Republic of Korea
United States
New Zealand
ASEAN
EU28
Imports
China
United States
Japan
Singapore
Germany
ASEAN
EU28
$ billion
2014
% Growth
(YoY)
$$
98.3
$$
50.4
$$
22.1
$$
18.5
$$
12.1
$$
40.1
$$
22.3
ªª
3.4
©©
1.7
©©
3.7
©©
16.7
©©
8.8
©©
17.8
ªª
0.7
$$
54.3
$$
41.9
$$
20.0
$$
18.1
$$
13.9
$$
61.5
$$
61.7
©©
10.1
©©
6.0
ªª
6.8
ªª
0.2
©©
3.5
©©
4.7
©©
4.7
Australia’s trade by broad sector
Exports (total)
Rural
Minerals & fuels
Manufactures
Other goods
Gold
Services
Imports (total)
Two-way trade
Balance of Trade
Top Exports & Imports
Exports
Iron ore and concentrates
Coal
Natural gas
Education services
Personal travel (ex education)
Imports
Personal travel (ex education)
Crude petroleum
Refined petroleum
Passenger motor vehicles
Telecom equipment & parts
$ billion
2014
% Growth
(YoY)
$ billion
2014
% Growth
(YoY)
$$
66.2
$$
38.0
$$
17.8
$$
16.7
$$
14.2
ªª
4.8
ªª
4.5
©©
22.0
©©
11.2
©©
8.2
$$
24.8
$$
20.3
$$
18.7
$$
17.6
$$
9.9
©©
0.3
©©
2.5
ªª
3.9
©©
8.6
$$
326.7
$$
40.5
$$
157.9
$$
42.7
$$
12.2
$$
14.2
$$
59.2
$$
336.6
$$
663.3
$$
-9.9
©©
2.4
©©
6.9
©©
0.4
©©
4.4
ªª
2.2
ªª
5.2
©©
6.8
©©
2.2
©©
2.3
ªª
4.2
0.0
Australia’s international investment
position (Direct Investment)
Foreign Direct investment
in Australia: 2014
United States
United Kingdom
Japan
World
ASEAN
EU28
Australian Direct investment
abroad: 2014
United States
New Zealand
United Kingdom
World
ASEAN
EU28
$ billion
as at 2014
% Growth
(YoY)
$$
163.4
$$
87.4
$$
66.1
$$
688.4
$$
42.3
$$
169.6
©©
12.8
ªª
0.3
©©
2.7
©©
8.7
©©
14.2
©©
13.9
$$
136.2
$$
61.6
$$
55.2
$$
540.7
$$
29.1
$$
83.5
©©
8.7
©©
30.1
©©
5.3
©©
6.5
©©
3.3
©©
6.4
Source: ABS.
For more Australian trade and investment statistics
see: www.dfat.gov.au/trade
Department of Foreign Affairs and Trade
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business
Connecting DFAT’s diplomatic network to Australian business
Acknowledgements
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