the benefits to australian households of trade with...

1The benefiTs To AusTrAliAn households of TrAde wiTh ChinA 2013

The benefiTs To AusTrAliAn households of TrAde wiTh ChinA

2 3The benefiTs To AusTrAliAn households of TrAde wiTh ChinA 2013 The benefiTs To AusTrAliAn households of TrAde wiTh ChinA 2013

A messAge from ChAirmAn of The boArd And nATionAl PresidenT

It is with great pleasure that I present to you this 2013 update of our report, the Benefits to Australian Households of Trade with China.

The Australia China Business Council first commissioned this research in 2009. Since then, the Australian China relationship has continued to develop and strengthen. The relationship benefits Australian households in a variety of unassuming ways — be it through higher incomes and employment opportunities, access to a greater variety of lower cost goods and services, investment opportunities, business collaborations or improved community services.

China remains Australia’s largest trading partner. In 2012, Australians imported some $46 billion worth of goods and services from China. As a nation we exported nearly $80 billion to China — directly generating income and jobs for Australian households. Per household, this equates to around $14,480 of two-way trade. In just five years, this figure has increased by more than 50 per cent.

The Chinese economy is the ideal complement to Australia’s. China is a capital rich, net importer of resources. Australia is well placed to meet increased energy and commodity demand from China due to our deep comparative advantage in mining and resources, geographic proximity and our long history of reliable supply.

That said, the nature of the Chinese economy, and Australia’s relationship with it is changing. The Chinese economy is rapidly transitioning into a nation of consumers. This is a point recognised by the Commonwealth Government in its Australia in the Asian Century White Paper.

Steps must now be taken to future proof and expand the relationship. It is of vital importance that we maintain our established foothold in the services sector. China is currently the nation’s number one source of tourism dollars, as well as its number one source of overseas students. Nearly $6 billion of our service export earnings come from China — more than from any other country.

It is also of vital importance that Australia becomes an easy place to do business. In a world less reliant on resource exports, Australians will need to compete with established markets for China’s services demand. To this end, excessive red tape and regulation will disadvantage Australia’s competitiveness.

The Australia China Business Council will continue to work to promote two-way trade and investment, and economic cooperation and understanding between the business communities of Australia and China. The findings of this report are illustrative of the tremendous opportunities that result from this relationship. I thank all those that contributed to its production.

Frank Tudor Chairman of the Board and National President

澳中商会全国主席兼董事会主席序言

我很荣幸地向您介绍2013年《和中国贸易有利于澳大利亚家庭》更新报告。

2009年，澳大利亚中国工商业委员会（Australia China Business Council，以下简称：澳中商会）首次推出该报告。自此，澳中两国贸易关系不断巩固发展。无论是更高的收入和就业机会、更为物美价廉的产品和服务、投资机会、商业合作，还是完善的社区服务 — — 和中国的贸易关系在各方面都让澳大利亚家庭受益匪浅。

中国一直是澳大利亚最大的双边贸易伙伴。2012年，澳大利亚从中国引进产品、服务总价值约$460亿澳元（46,000,000,000.00）。澳大利亚向中国出口总值近$800亿澳元（80,000,000,000.00）—— 直接为澳大利亚家庭创收并创造就业机会。相当于平均每户双边贸易额$14,480澳元，在5年内，此贸易额增长超过50%。

澳中经济具有高度互补性。中国是一个资本雄厚的能源净进口国。澳大利亚凭借自身矿产、资源得天独厚的比较优势，邻近中国的优越地理位置，以及长期以来可靠的供给，已能很好地满足中国对能源和商品日益增长的需求。

即便如此，由于中国经济实质的变化，澳大利亚与其经济关系也在发生转变。现在的中国经济正迅猛转型成为一个消费者国。联邦政府推出的《亚洲世纪中的澳大利亚》白皮书（Australia in the Asian Century White Paper）对这一点尤为重视。

我们需要现在就行动起来，面向未来扩展双边关系。与此同时，维持服务业建立的稳固基础也是至关重要的。中国已成为澳大利亚旅游业收入的首要来源国，也是头号海外学生生源国。我们通过劳务输出所得创收中有$60亿澳元（6,000,000,000.00）来自中国 —— 远远超过其他国家。

确保来澳经商的简便程度/利于经商运作也是一个十分重要的因素。在一个对资源性产品出口的依赖程度江河日下的世界里，澳大利亚需要与诸多成熟的市场竞争，以夺得中国服务需求的芳心。因此，过度繁琐的繁文缛节和复杂的规章制度会让澳大利亚的竞争力处于劣势。

澳中商会将继续努力，促进澳中两国工商业界的双边贸易与投资合作、拉紧经济合作关系和相互理解。此报告的研究结果，解读了双边贸易关系所蕴藏的巨大商机。为此，我感谢所有参与编写本报告的各界人士。

Frank Tudor澳中商会全国主席兼董事会主席


Message from Chairman.................................................. ...11.1 Benefits to Australian Households..................................51.2 The Importance of the Trading Relaitonship...................61.3 How do Households benefit............................................91.4 Benefits to the cosumer household ..............................111.5 Benefits to the worker household..................................131.6 Chinese investment creates jobs..................................161.7 Service exports to China generate incomes and build up workforce capabilities ....................................171.8 Benefits to the investor household................................221.9 Benefits to the community household...........................242.0 The future of the Australia- China trade relationship.....27

1.1 The benefits to Australian households of trade with China — 2013 update

This 2013 update provides an account of the direct benefits enjoyed by Australian households from Australia’s trading relationship with China. These benefits are often overlooked, simplified and misunderstood. In many cases, benefits are intangible and invisible. The purpose of this update is to unpick this relationship and document the ways in which the Australian community profits by trading with what will soon become the world’s largest economy.

This update has been commissioned by the Australia China Business Council (ACBC) The ACBC is the premier organisation for the promotion of trade and investment between China and Australia. ACBC is a national organisation with branches in New South Wales, Northern Territory, Queensland, South Australia, Victoria and Western Australia. The membership of ACBC comprises a broad cross section of over 1000 large, medium and small companies from a diverse range of industries – all united by a commercial interest in China. ACBC is widely regarded as a thought leader on matters affecting Australia’s commercial relationship with China and maintains excellent relationships with both Chinese and Australian governments at the highest levels. ACBC has been a respected host for visiting Chinese leaders including Xi Jinping, Li Keqiang, Hu Jintao, Wen Jiabao and Wu Bangguo.

ACBC organises flagship conferences and events combining first class networking opportunities with major Chinese companies and forums for discussion of significant policy issues. ACBC has been the official organiser of the flagship Australia China Economic and Trade Forums for the past three years.

These events have been collectively attended by two Australian Prime Ministers, seven federal ministers, the Chinese Vice-President and Vice-Premier, and by more than 1500 company executives on both sides of the bilateral relationship.

The Council has a rapidly growing program in China and organises trade missions to key Chinese jurisdictions, high-level policy dialogues and opportunities for its key stakeholders to engage directly with senior Chinese business people and officials. Perhaps the key indicator of the scale of the trading relationship is the amount of two-way trade that occurs per household. This metric provides a measure of the average quantity of Chinese exports and imports encountered by a typical Australian household. In 2012, the average Australian household engaged in $14,480 of two-way trade with China. While this is a modest increase on the previous year (2 per cent), it continues a strong positive trend over the past five years —a 51 per cent increase over this period 1.

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1Some caution should be taken when comparing this report to previous updates produced for the ACBC. The primary data used to inform this analysis is the Department of Foreign Affairs and Trade’s Composition of Trade Australia. This report is produced biannually in January and June. The latter reports on the preceding financial year, and the latter on the preceding calendar year. Because of the timing of when these updates have been produced, it has been necessary to change series for this 2013 update.

Figure 1.1Two-wAy TrAde Per household

Source: The Allen Consulting Group analysis of data from the Australian Bureau of Statistics (ABS) (2010) and Department of Foreign Affairs and Trade (DFAT) (2013)

In 2012, the average Australian household engaged in $14,480 of two-way trade with

China.

This is up some 51 per cent over the past five years.Australia China Business Council National

SecretariatLevel 13 Gateway, 1 Macquarie Place

Sydney NSW 2000 Telephone: 61 2 9252 4277 Facsimile: 61 2 9252 4277

Email: [email protected] www.acbc.com.au

ConTenTs

ASKAP telescope images courtesy of the Australian SKA Office, CSIRO and the WA

Department of Commerce


1.2 The importance of the trading relationshipChina is Australia’s largest two-way trading partner and by some margin. In 2012, Australia imported $46 billion from China and sold exports worth $79 billion. Australia’s exports to China outpaced Japan in 2009 and have been increasing ever since (see Figure 1.2). Australia exports $30 billion more to China than the next largest export destination (Japan) and almost three times greater than exports to the United States and India combined.

Similarly, Figure 1.3 illustrates the value of imports from Australia’s top import sources. Chinese imports out-pace Japanese imports by a factor of more than two to one. Only the United States comes close but is still around $5 billion less than China.

More important than the quantum of goods exchanged is the difference in what is exchanged. Australia’s major exports comprised copper, iron, petroleum, coal and gold. By contrast, imports from China were mostly computers, telecommunications equipment, furniture, clothing and other consumer goods.

These trade flows are the result of differences in the composition of the Chinese and Australian economies. Australia is uniquely placed to trade with China. Australia has vast amounts of resources, but limited numbers of workers and capital — particularly in relative terms. China is the stark opposite. Through trade, Australia and China are able to specialise in the production of goods and services where they have a “comparative advantage”. This is further explained in Box 1.1.

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Figure 1.3AuSTrAliA’S Top imporT SourCeS, $ BillioNS

Source: Department of Foreign Affairs and Trade (DFAT) (2013).

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Figure 1.2AuSTrAliA’S Top exporT deSTiNATioNS, $ BillioNS

Source: Department of Foreign Affairs and Trade (DFAT) (2013).


The concept of comparative advantage describes countries specialising in the production of what each does best and trading with each other. As a result, total production will increase and both countries will become more prosperous. The largest economic gains from trade occur on the consumer side driven by the terms of trade – essentially the quantity of imports that a country can purchase from the proceeds of the sale of its exports increases. Australia’s deep comparative advantage in mineral and energy resources has enabled it to profit from exporting to China. The increase in prices for commodities such as iron ore have elevated the incomes from exports. This means that Australia makes a greater profit on ALL of our resources exports, not just those to China. Iron that we sold to Japan for US$30/t a decade ago now sells for $130/t. The benefit of this significant uplift is additional to the direct benefits of trade and investment that have been quantified in this report. This increased purchasing power has enabled Australian residents to purchase lower priced imported manufactures from China.

Increased export prices and reduced import prices have led to an increase in Australia’s terms of trade, the ratio of export to import prices. The terms of trade is the most cited summary measure of the benefits Australia enjoys as a result of the resources boom. The recent moderation in commodity prices has lowered Australia’s terms of trade, as illustrated in the figure below. Nevertheless, they remain around 90 per cent higher than their average in the 1990s, prior to the resources boom.

One way to evaluate the benefits of trading with China is to consider how the economy would change should this relationship not exist. What products would no longer be available? How would this affect prices? In what sectors would we be employed? In the absence of this relationship, specialisation cannot occur and Australia cannot capitalise on its comparative advantage. The net result is that we are poorer as a nation, producing less, consuming less and with a lower standard of living. The example is quite extreme and somewhat difficult to fathom. China is such an integral part of the economy and has been for a long time. Conceptually, it may be easier to demonstrate the benefits by “building” the economy from the ground up and then “adding” China.

Consider a simplified, stylised economy in which there exists just households, industry and the government. The flows throughout this economy are simple.

• Households provide labour and investment (capital) to industry.

• Industry manufactures goods and services, which are sold back to the household sector. The sales of these goods and services are used to compensate labour and capital.

• From the outputs produced, government takes a share through tax collection and provides households with additional services.

These flows are depicted in the figure below.

Box 1.1

Figure 1.4 AuSTrAliA’S TermS oF TrAde

Source: The Allen Consulting Group, the Treasury (2012) and the Australian Bureau of Statistics (ABS) (2013b).

ComPArATive AdvAnTAge And The Terms of TrAde

Figure 1.5 A simPle non-TrAding eConomy

Source: The Allen Consulting Group

1.3 How do Australian households benefit from trade with China?


Now consider what happens to this economy when it engages in trade with China.

• Households are able to buy cheaper and a wider variety of products by importing directly from China.

• Households can earn incomes by directly investing in China.

• Households may enjoy greater employment opportunities as a result of Chinese investment in Australia.

• Households will earn greater incomes as a result of Australian firms being able to export to China.

• Households will benefit from lower tax burdens and improved government services as a consequence of greater economic activity.

The expanded economy is depicted in the following figure.

Figure 1.6 A Simple opeN eCoNomy — TrAdiNg wiTH CHiNA

Source: The Allen Consulting Group.

1.4 Benefits to the consumer householdWhat this demonstrates is that the answer to the question of how Australian households benefit from trading with China is very much dependent on which household is being referred to. Households are consumers. They are workers. They are investors. And they are taxpayers. Each of these household types is discussed in the sections that follow. Figure 1.7 summarises the benefits of trading with China.

The benefits to households of trading with China are perhaps no more evident than for the consumer. The “consumer household” is increasingly consuming products that are made in China — and has benefitted from a greater variety of goods as well as lower prices.

Imports from China increase consumer choice and product variety

Notably, the key imports from China in recent years have been high tech imports such as computers and telecommunications equipment, as well as televisions. Consumers in Australia are able to enjoy the conveniences and services offered by these high tech imports, at lower prices. Additionally, consumers are enjoying goods such as sporting equipment, clothing and footwear that are sourced from China. These imports are not only lower priced alternatives. They provide greater choice and variety to the consumer

In 2012, the top three imports from China were telecommunication equipment and parts ($4.6 billion), computers ($4.4 billion) and furniture mattresses and cushions ($1.8 billion). Figure 1.8 illustrates the growth, over time, in major consumer goods that are being imported from China.

Imports from China provide lower cost alternatives

Figure 1.7 The benefiTs of TrAding wiTh ChinA differ for differenT households

Source: The Allen Consulting Group.Key imports from China in recent

years have been high tech imports such as computers and

telecommunications equipment, as well as televisions.


Due to China’s comparative advantage in manufacturing, it is able to produce a range of consumer goods and export these at lower prices. Australia is a major consumer of ‘made in China’ products. The same consumer goods, if produced in Australia, would cost a lot more.

Lower cost alternatives also help dampen the impacts of inflation. Goods that cannot be imported tend to experience greater inflationary effects than goods that can be imported at lower prices.

Figure 1.9 illustrates the growth in prices, through the consumer price index, for various goods and consumables. The price indices for products that are imported — such as computing equipment, toys, furniture and garments — have actually seen their overall prices reduce (price deflation). All of their price indices are below the overall consumer price index.

Conversely, non -traded goods — such as electricity, education and housing — have experienced heightened inflation (see Figure 1.9). Lower prices from imported goods increase consumer welfare, and offset the price increases for non-traded goods. The consumer is better off when lower priced alternatives are sourced from overseas.

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Miscellaneous

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Figure 1.8 priNCipAl merCHANdiSe imporTS, SeleCTed CATegorieS, $ billions

Source: The Allen Consulting Group analysis of data from the Department of Foreign Affairs and Trade (DFAT) (2012a). Note: Miscellaneous includes Prams, toys, games and sporting goods and furniture and mattresses. Footwear and clothing includes Other textile clothing, Footwearand Women’s clothing (excluding knitted).

Australia is a major consumer of ‘made in China’ products. The

same consumer goods, if produced in Australia, would cost a lot more.

1.5 Benefits to the worker household Benefits to the “worker household” may be larger in impact, but are more discreet. They include increased employment opportunities, greater incomes and greater prospects to collaborate and diversify abroad.

China is a major consumer of Australia produced goods and services

Exporting to China has increased the incomes of Australian workers, as well as created jobs for the economy. The sustained boom in Australia’s resource sector — largely driven by China’s demand for resources and commodities — has resulted in an upsurge in Australia’s terms of trade.

As previously noted, the terms of trade are often used as a summary measure of the benefits that Australia has enjoyed due to the resource boom (Treasury 2012). Table 1.1 illustrates Australia’s main exports to China, the top three of which are iron ores ($38.6 billion), coal ($6.8 billion) and gold ($5.5 billion). These exports have experienced rapid growth rates in the previous six years as well. For instance gold grew at an annualised 842 per cent. Crude petroleum and coal exports grew at annualised rates of 42 per cent and 91 per cent, respectively.

Figure 1.9 Cpi For TrAde-expoSed ANd domeSTiCAlly produCed goodS, juN 2007 To mAr 2013 (juNe 2007 = 100)

Source: The Allen Consulting Group Group analysis of data from the Australian Bureau of Statistics (ABS) (2013a). Note: Domestically produced goods include housing, education and electricity. China-oriented imports include Audio, visual and computing equipment, Games, toys and hobbies, Furniture and Garments for women.

Exporting to China has increased the incomes

of Australian workers, as well as created jobs for

the economy.

Produced


exporT Annual growth

Medicaments 154 216 322 432 748 49%Copper 464 890 1,066 1,211 938 199%Copper ores & concentrates

1,218 1,050 1,314 1,500 1,378 3%

Cotton 144 180 426 1,470 1,789 88%Wool & other animal hair

1,438 1,382 1,621 2,022 1,877 7%

Crude petroleum 599 796 1,668 2,902 2,448 42%Gold 1 1 220 1,284 5,528 842%Coal 508 5,651 5,191 4,543 6,783 91%Iron ores & concentrates

17,932 21,790 34,685 43,960 38,611 21%

Due to the surge in exports, employers and workers directly in the mining, commodities and resources sectors have enjoyed boosts to their incomes. Companies also benefit

from increased share prices, profits and growth. Businesses that service these sectors — such as mining services, engineering and infrastructure companies — have also reaped the benefits of the resource boom. Additionally the resource boom has created additional jobs for the economy, as companies increase their labour demand to meet their increased operational needs. This has kept unemployment low in Australia. Australia is well placed to supply China with its energy needs due to its comparative advantage. Australia is naturally endowed with many natural resources and commodities. Importantly, Australia also has the requisite capabilities, skills and infrastructure to export these resources profitably and reliably. As noted by the Australia in the Asian Century White Paper (2012): Australia is a resource-rich nation with a deep comparative advantage in mineral and energy resource exports. Australia has the world’s largest economically demonstrated reserves of lead, rutile, zircon, nickel, gold, silver and zinc. Australia ranks second in world reserves for iron ore, bauxite, tantalum, tungsten and ilmenite, and is in the top 10 for a number of other mineral reserves, including black coal (Geoscience Australia 2012).

Chinese investment in Australia generates business, employment and incomes Chinese investment in Australia takes many forms. Chinese companies have invested directly in Australian agricultural, land and commercial assets; others have invested in financial assets such as shares and bonds. Chinese companies have shown interest in investing in Australia due to the country’s sound financial, regulatory and commercial infrastructure. Australia also has a skilled, able workforce that is able to meet the needs of Chinese investing organisations. In 2011/12, the Foreign Investment Review Board approved close to 4,800 Chinese investments, valued at a total of approximately $16 billion. The majority of these investments are in mineral exploration and development (and adjoining properties), as well as real estate, as illustrated in Figure 1.10. The $16 billion worth of investments represents the pipeline of proposed investments from China. However, the actual stock of Chinese investment in Australia is still very low, compared to traditional investors like the US, the UK and Japan. As at end 2012, China’s total investments in Australia totalled approximately $23 billion, which represent only 1.1% of the total stock of foreign investments in Australia. The comparative percentage figures are 28% for the US, 23% for the UK and 6% for Japan.

Table 1.22008

Table 1.32009

Table 1.42010

Table 1.52011

Table 1.62012

The resource boom has kept unemployment low in Australia, in addition to generating income

and job opportunities for workers.

Source: The Allen Consulting Group of data from the Department of Foreign Affairs and Trade (DFAT) (2012a).

Chinese investment has benefited Austra-lian households in many ways. It has in-creased jobs and income, and provided em-ployment to different regions and industries. • In 2012, the Western Australian Government an-nounced a Chinese company, Shanghai Zhongfu, as the preferred proponent to lease and develop 13,400 hectares under the Ord-East Kimberley Expansion Project, a large-scale irrigation development (De-partment of Foreign Affairs and Trade 2012b). This project is anticipated to provide benefits to the region such as business for local growers, jobs and the es-tablishment of a sugar industry in the region. Impor-tantly, Chinese investment was warmly welcomed by the State Government, the local business community, the local council and the local indigenous community. • Chinese companies have also established offices in Australia, and this generates jobs and em-ployment. A case in point is Huawei, a global Chinese information and communications technology solu-tions provider, which has offices in Sydney and Mel-bourne. Huawei employs over 800 staff in Australia.

Huawei is also a strong contributor to Australian com-munity initiatives, a positive trend that can only bring the peoples of Australia and China closer together. • Another example is Qenos, which is a subsidiary of China National Bluestar Group. Qenos has estab-lished its manufacturing operations in Melbourne, which has created invaluable jobs and employ-ment for the Victorian economy. Box 1.2 provides further detail on how Qenos’s investment has cre-ated employment and economic activity to Victoria.

Figure 1.10 ApprovAlS For CHiNeSe iNveSTmeNT iN AuSTrAliA, 2011-12,$ millioNS

Source: The Allen Consulting Group analysis of data from the Foreign Investment Review Board (2012).

Table 1.1

priNCipAl merCHANdiSe exporTS, $ millioNS

1.6 Chinese investment Creates jobs


Qenos is a subsidiary of China National Bluestar (Group) Co. Ltd, a joint venture between China National Chemical Corporation, a global Fortune 500 and The Blackstone Group. Qenos has manufacturing operations in Altona and Botany that employ approximately 730 people and focus on supplying Australia’s growing polymer market. Qenos supplies locally produced polyethylene to hundreds of Australian manufacturers - material that would otherwise be sourced from overseas on costly supply chains and long lead times. In 2013, Qenos launched its $195 million expansion project at the Qenos Altona site in Melbourne. The project expands Qenos’s operations at Altona, and is an example of mutually beneficial Australia-China collaboration. Qenos is the cornerstone of Australia’s plastics industry and this project increases Altona’s manufacturing capacity by 20 per cent ensuring it remains competitive in the global market.

The project, which initially commenced in 2010, has created 250 jobs during the design and construction phase. More than 400,000 hours have been worked on the project which was enabled with the support of construction company Transfield Services and engineering and design company Uhde Shedden. The investment is also anticipated to deliver significant environmental benefits from improved production efficiency, reducing both water and greenhouse gas intensities. The investment was also supported through the assistance of the Victorian State Government.

Box 1.2 QeNoS — CHiNeSe iNveSTmeNT iN mANuFACTuriNg CreATeS joBS

Source: Qenos (2013).Qenos is a member of Auatralian China Business Council.

Ao-Zhong International Mineral Resources Pty Ltd (Ao-Zhong) started a business of mining exploration in Northern Territory since 2010. The company has enlisted the financial, engineering and technological expertise of Australian companies in operating its business. This contributes to the strengthening of local Australian capabilities, as well as generating business for the domestic economy — not only in Darwin, but around Australia:

Box 1.3

1.7 China based companies in Australia generate flow-on benefits to diverse sectors of the Australian economy Chinese corporations that invest and operate in Australia not only benefit the sector they directly deal with; Chinese businesses based in Australia often have to procure the business and expertise of Australian enterprises from a range of economic sectors. Ao-Zhong, a Chinese mining exploration company, is an example. Ao-Zhong has established its mining operations in the Northern Territory. In order to operate, Ao-Zhong has enlisted a variety of business services from different sectors of the Australian economy including financial, engineering and technology. The Chinese company has utilised services from large businesses, as well as small businesses that provide accommodation, food and storage services. Box 1.3 provides further information on Ao-Zhong and its collaboration with a variety of businesses in Australia.

Source: AO-ZHONG (n.d.).Ao-Zhong is a member of ACBC.

• exploration — AMDEL and Diamantina laboratories for mineral processing services in Perth for samples assay. CSA Global in Darwin for advice on all aspects of the mining industry from project generation, to exploration, evaluation and development. • drilling — Geo Drilling, Satphones from Carcom and Satcom. • exploration software — Datashed, Maxwell and Pitney Bows Software for supporting exploration field work. • Financial and accounting — PwC in Melbourne, Deloitte in Darwin.

• motor vehicle hire and accommodation Central Car Rental, Thrifty and PeterKittle, Ray Whites for seeking a Darwin-based office. • Food, accommodation and other operating services — Charbray Meats in Alice Springs; Elkira Motel; Harvey Norman; Morton Bros; National Storage; Mary River Road House; Aileron Hotel & Roadhouse; Online Business; Woolworths; Bizlink and Toll.

This example provides an insight into the diversity of business and employment

generated by Chinese investments in Australia.

These benefits help facilitate Australia’s integration into the Asian economy and

provide a better understanding of China’s markets.


1.8 Service exports to China generate incomes and build up workforce capabilities China has been Australia’s top service export destination since 2009-10, when it overtook the United States. In 2011-12, China consumed $5.7 billion worth of service exports from Australia, compared to $5.2 billion of services from the United States. China currently has an 11 per cent share of Australia’s world exports in services. Services-oriented sectors such as tourism and education provide rich export opportunities and the potential to develop the innovative capabilities and skills of the Australian workforce. Service exports to China involve a diversified range of economic sectors. Excluding travel, which takes up the majority of service exports ($5.1 billion), other notable sectors include transport ($260 million), other business services ($125 million), personal, cultural and recreational services ($68 million) and financial services ($ 54 million). Within the travel sector, education-related travel is the most significant source of service exports, which reached $4 billion in 2011/12. Figure 1. 11 illustrates the level of services exports to China, excluding travel, over time. Services (including travel) has grown at nine per cent per annum from 2006 to 2012.

Australia has a strong comparative advantage

in resources and commodities.

But Australia is also an

advanced economy with the potential to offer sophisticated services to

the Chinese market.

Figure1.11 ServiCeS exporTS To CHiNA, exCludiNg TrAvel, $ millioNS

Source: The Allen Consulting Group of data from the Australian Bureau of Statistics (ABS) (2013d). Note: Other services include Maintenance and Repair services, Construction, Charges for the use of Intellectual Property and Telecommunications, Computer and Information Services.

While travel is the sector that generates the greatest value (growing at an annualised 10 per cent) other service sector exports have expanded considerably — most notably financial and insurance service exports. Financial services exports increased from $2 million in 2006 to $54 million in 2012, equating to 73 per cent annual growth. Insurance

and pension services increased from $13 million to $25 million (18 per cent annual growth). This strong growth indicates increased export opportunities — and benefits — for Australian workers, and the economy in general. It is well known that Australia has a strong and well-established comparative advantage in resources and commodities. But Australia is also an advanced economy with the potential to offer sophisticated services to the Chinese market. Two service sectors that are already exporting to China, and are well poised to do so in the future, are the education and tourism sectors. The education sector not only boosts the incomes of education institutions, it also benefits the businesses that provide services to international students such as accommodation, food and retail. Education also provides intangible benefits such as the exchange of ideas and

fosters the cultural relationship between the two countries. These benefits help facilitate Australia’s integration into the Asian economy and provide a better understanding of China’s markets. Australia’s education exports

to China have grown strongly over the years. The education export market generates revenues and profits to Australia’s education institutions and due to their labour-intensive nature, generates employment in the education and other related sectors (accommodation, food, and tourism). As well, the education export market ‘provides opportunities for cultural engagement and the building of intangible assets, such as networks and knowledge of our

region’ (Commonwealth of Australia 2012). In the longer-term, strengthening Australia’s education exports will foster skills and knowledge of the Australian workforce, which improves productivity.

Chinese students have largely contributed to Australia’s education exports sector. As noted by the Australian Financial Review (2013):

Chinese nationals now account for 22 per cent of all foreigners studying in Australia, equal to the next four largest countries combined – India, South Korea, Vietnam and Brazil.

Over the past decade Chinese student numbers in Australia have risen 42 per cent. This is despite a 160 per cent increase in tuition and living costs over the same period, according to the Boston Consulting Group.

Boston Consulting Group (2013) and Australian Financial Review (2013)

Most notably, the number of Chinese students enrolled in Australia’s higher education sector has been rising spectacularly. In 2002, around 8,800 Chinese students were enrolled in Australia’s higher education institutions. In 2012, this reached 75,500 students, equating to an annual growth rate of 24 per cent. Figure 1.12 illustrates the upward trend of higher education enrolments for Chinese students. According to the Boston Consulting Group (2013), China will continue to drive demand for international education through 2020. International student enrolments — of which Chinese students are a majority — provide benefits for the Australian economy. These include the cross-subsidisation of domestic students, and tourism revenues from visiting friends and family.

Education exports provide intangible benefits such

as the exchange of ideas and fosters the cultural

relationship between the two countries.

These benefits help facilitate Australia’s

integration into the Asian economy and provide a better understanding of

China’s markets.

In 2002, around 8,800 Chinese students were enrolled in Australia’s

higher education institutions. In 2012,

75,500 Chinese students were enrolled.


Chinese visitors also play a key role in the Australian tourism export market. Tourism is an area that is labour intensive and has the potential to deliver jobs and incomes in various sectors of the economy such as retail, entertainment, accommodation, food and transport. In 2011/12, more than 580,000 Chinese visitors arrived in Australia (Department of Foreign Affairs and Trade 2013b). This is a 17 per cent increase from the previous financial year, and a 63 per cent increase from 2008/09. Indeed, China is currently Australia’s most valuable tourism market. As noted in the Australia in the Asian Century White paper (2012):

In 2011–12, seven of Australia’s top 10 most valuable inbound tourism markets were in Asia (TRA 2012b). In the same year, China became Australia’s most valuable tourism market, and over time it will also become the source of the highest number of visitors. Commonwealth of Australia 2012

Both the tourism and education markets are closely linked — Chinese students who study in Australia also contribute to the tourism market. As an illustration, Box 1.4 presents a case study about the flow-on benefits that Chinese students generate for Australia.

Figure 1.12 number of Chinese nATionAls enrolled in AuSTrAliA’S eduCATioN SeCTor

Source: Australian Education International (2012). Note: these enrolments are taken at the beginning of January in each calendar year. VET: Vocational Education and Training ELICOS: English Language Intensive Courses for Overseas Students

China is the University of New South Wales’s (UNSW) largest source of international students. 5,748 Mainland Chinese students contributed approximately 47% to the University’s international student population in 2012. If Hong Kong, Macao and Taiwan are included, the Greater China region provided 6,643 students to UNSW in 2012, representing 62% of the University’s total 10,600 Asian enrolments and 55% of the broader international student cohort. Guangdong Province and the Pearl River Delta account for approximately 40% of UNSW’s Chinese student enrolments, representing the largest source of UNSW students within not only Greater China, but also the entire Asian region and the second largest recruitment base for the University outside of Sydney. Chinese student recruitment contributes more than $160 million in revenue and represents approximately 10% of UNSW’s total $1.6 billion annual budget.

This is a vital source of revenue which ‘sub-sidises UNSW’s high-impact, world lead-ing research, generates significant employ-ment and keeps downward pressure on fees for Commonwealth supported students. Research by Access Economics demonstrates that the average international student enrolled in the higher education sector spends $34,339 on living expenses. Based on these figures, UN-SW’s Chinese students contributed more than $195 million to the wider economy in 2012 alone. International student recruitment contributes significantly to the viability of UNSW’s 5,300 strong payroll, which in turn generates sig-nificant tax receipts to government coffers. Chinese student enrolments bring enormous benefits to the wider economy. For example, Visiting Friends and Relatives (VFRs) account-ed for the largest arrival group of the 600,000 Chinese tourists that visited Australia in 2012. This case study is just one example of the ben-efits of higher education exports to the wider economy and the flow-on benefits to government revenues, local communities and ordinary Aus-tralian households.

Box 1.4uNiverSiTy oF New SouTH wAleS’S — CHiNeSe STudeNTS geNerATe flow-on benefiTs To The eConomy

Source: Provided by the University of New South Wales (UNSW) (2013) via ACBC. The case study cites Access Economics (2010).UNSW is a member and national sponsor of ACBC.

Chinese Vice-Premier Liu Yandong in

conversation with Chinese PhD students

at UNSW


1.8 Benefits to the investor householdTwo-way investment is currently relatively low compared to trade flows, but is becoming an increasingly important part of bilateral trade between Australia and China. Such investment provides an important ballast to the trade relationship with China.

Many are aware of Chinese interest in Australian agriculture and land assets. However Australian investment in China has been growing as well, and many are looking for profitable business and commercial opportunities in the mainland. Australian investment in China has experienced rapid growth, as Australian companies and investors hope to expand their business and customer networks.

In 2012, Australian foreign investment reached $1.3 trillion, with investment in China contributing $20 billion. This was an increase of $3 billion from the previous year. Australia’s investment in China is still relatively minor, accounting for about 1.5 per cent of total outward investment in 2012.

However it has exhibited strong growth since 2001, expanding at an annual rate of 24 per cent. Figure 1.3 illustrates the level of investment in China, which mostly consists of direct investment and portfolio investment.

Australian companies have realised financial benefits from investing in China in the form of increased revenues, profits and dividends. However investing in China not only generates financial returns to Australian investors. It also builds up the skills, knowledge and expertise of investors and investing organisations. The following sections discuss the financial benefits of outward investment in China, followed by the non-financial benefits of investment. These benefits are illustrated with case studies.

Figure 1.13AuSTrAliAN ouTwArd iNveSTmeNT iN CHiNA, $ BillioNS

Source: Australian Bureau of Statistics (2013c).

Generating financial returns to the investor Australia’s investment in China has provided growth and profit opportunities for Australian investors. It improves Australian investors’ business networks and — through enhanced access to Chinese markets — a larger pool of potential customers. Some of the benefits of enhanced market access include greater growth opportunities, as well as increased revenues and profits.Investing in China not only enables Australian investors and investing organisations to reach a wider customer base than what can be achieved in Australia. It also allows Australian companies to provide their services and technology more profitably. China has relatively lower operational costs compared to Australia. This improves the profitability of Australian companies that have invested in facilities and hired labour in China.

Building up the skills and capabilities of the investorIn addition to generating financial profits and dividends, Australian outward investment in China has further developed the skills, expertise and innovation capabilities of the investing organisations. Australian investment in China has targeted diverse sectors of the Chinese economy — including renewable energy, agriculture, manufacturing, infrastructure, health and pharmaceuticals.

Engaging in outward investment strengthens the export and trade proficiency of Australian investors and those who are employed in the investing organisation. It enables Australian investors and those involved in investment projects to further improve skills that are necessary for Australia to be productive.

25The benefiTs To AusTrAliAn households of TrAde wiTh ChinA 2013

Australia has always relied on foreign investment to help drive economic growth, activity and productivity. A beneficiary of Australia’s trade and investment relationship with China is the community household, which has benefitted in the following ways:

• Building of housing infrastructure — Chinese investments in Australia have assisted in the provision of housing and accommodation infrastructure. A case in point is Yan Jian, a construction company based in China, which built the Midtown Apartments in Brisbane, Queensland. The apartments were Yan Jian’s first Australian project. Additionally the Chinese company, back in 2011, purchased a residential property site in Mackay, Queensland. The residential site had been in receivership for several months. It was reported that Yan Jian would build apartments or a hotel on the Mackay site.

• Provision of capital for health and utilities infrastructure — Chinese banks have also provided capital for Australian projects, namely infrastructure, health services and utilities. The Industrial and Commercial Bank of China (ICBC) has provided capital for Victoria’s desalination plant, the Royal Adelaide Hospital renovation and coal terminals in NSW and Queensland.

• Investing in Australia’s industries — Investments from China have also assisted in supporting ailing businesses in Australia. The China National Cereals, Oils and Foodstuffs Corporation (COFCO) is a grain, oils and foodstuffs import and export group in China. In 2011, COFCO took control of Tully Sugar, a sugar mill in north Queensland. Tully mill’s chief, John King, says the deal will benefit cane growers and the Tully community.

COFCO have made it quite clear that they want to look to or ... expand the business, they’ve certainly got the clout, the capital, the cash to inject into the business Australian Broadcasting Corporation (ABC) July 2011

Besides generating jobs and income for the Australian economy, Chinese investment has provided capital to fund the operations and growth of Australian businesses. A case in point is the joint venture between the Taifeng Group (China) and Gemtree Vineyards in South Australia, as illustrated in Box 1.5.

A joint venture between the Taifeng Group and Gemtree Vineyards was finalised in March 2013. Gemtree Vineyards is a South Australian family wine company based in Mclaren Vale. The Head office for the Taifeng Group is Chengdu in the Sichuan Province. The partnership has resulted in an inflow of capital into the business in excess of $10 million and a further commitment for future capital investment of $30 million over the next 5 years.

Company Turnover has more than doubled since the co-operation commenced. A winery facility has been purchased as part of the JV and company stock holdings have increased significantly to accommodate future offtake into the China market. Taifeng is establishing a national branch and cellar door network in China to execute its sales strategy and a significant brand campaign is underway focussing on the Gemtree brand.

Staff numbers in the company have increased from less than 10 staff in early 2012 to over 25 staff in May 2013. Gemtree International Company Ltd in China employs around 300 staff and numbers are forecast to double by the end of 2014.

With further expansion of the company in Mclaren Vale and potentially outside South Australia, the joint venture is predicted in the next 5 years to increase staff numbers by over double with tourism related services and expansion of vineyards. Clearly this will have a positive benefit to the local community and economy with these new initiatives focussed around new projects and attracting a higher number of inbound tourists particularly from China.

Box 1.5 FuNdiNg THe operATioNS ANd expANSioN oF gemTree viNeyArdS

Source: Provided by the ACBC. Gemtree Vineyards is a member of ACBC.

Some Australian businesses also owe their livelihoods and prosperity to doing business with China. An example is The Geraldton Fishermen’s Cooperative, a community-based seafood exporter in Western Australia. The Geraldton Fishermen’s Cooperative has relied on the Chinese market for much of its exports and profits, which sustains the local communities in the area where it operates. Box 1.6 provides further information on The Geraldton Fishermen’s Cooperative.

1.9 Benefits to the community household


From humble beginnings in Geraldton, Western Australia in 1950, The Geraldton Fishermen’s Cooperative (‘the Cooperative’.) With 150 fishermen-members spread out over 800kms of coastline, the Cooperative exports more than 3,200 tonne of western rock lobster annually, with a turnover of approximately $200 million of export dollars, all pumped into the local communities here in the west. This season, the Cooperative will export over 90 per cent of its intake to mainland China. Most of this product will be consumed in fine dining restaurants in southern and eastern coastal cities, where demand for seafood is strong and growing. In fact, demand for western rock lobster is so strong that prices attainable in China now outstrip any other market destination by 25 per cent.

The Cooperative initiated a joint venture partnership with a major seafood importer based in Beijing in 1995, but it wasn’t until around 2009 that the continuous 8 to 12 per cent growth hit the exponential part of the curve and sales and prices started to rapidly increase. Meanwhile, the global financial crisis occurred, damaging the Cooperative’s traditional markets. The combination of these two events catapulted China into the number one position, and it continues to see demand and prices improve. Fishing remains an important part of the local economie’s and regional identity, and Chinese demand is the new lifeblood for the more than 1000 skippers, deckhands, staff, support industries and government employees that rely directly or indirectly on the activities of the Geraldton Fishermen’s Cooperative.

Box 1.6SuSTAiNiNg CommuNiTieS — THe gerAldToN FiSHermeN’S CooPerATive

Source: Provided by the ACBC. The Geraldton Fisherman’s Co-operative is a member of ACBC.

2.0 The future of the Australia-China trade relationship Two-way trade with China continues to exhibit strong growth. In particular, resource and commodity exports continue to grow strongly.

Imports from China generate significant benefits for the Australian consumer household. China’s comparative advantage in manufacturing has enabled it to produce a range of consumer goods at lower cost. Australians have enjoyed these manufactured consumables, which not only provide lower prices, but greater variety as well. The lower prices from these goods have helped to offset inflationary pressures on other non-traded goods such as education and housing.

Workers in Australia, particularly those who are employed in the mining and resource sectors, have benefitted from increased incomes. Chinese investment in Australia has also helped create jobs and employment. China-based companies that have offices in Australia employ Australian residents, as well as enlisting the expertise of businesses from various sectors of the economy such as legal, finance, engineering and accommodation.

In addition to the financial benefits and revenues generated by trading with China, Australia has also benefitted from exporting services to China. Education, and in particular tourism, involve other sectors of the economy such as retail, accommodation, transport and food. By strengthening these export sectors, Australian workers are able to build up their skills and expertise in these areas.

The Australia-China trade relationship also has the potential to benefit communities in Australia. Both countries share longer-term policy goals in relation to increasing the use of sustainable energy. This shared goal has seen Australian and Chinese business collaborate to deliver sustainable energy infrastructure to both countries.


While two-way trade has been strong and is still growing, two-way investment is still in its nascent stages. Both countries are aware of the significant mutual benefits that can be gained by strengthening the financial and economic ties between the two countries, and have taken steps to improve investment ties.

In April 2013, the People’s Bank of China (PBoC) approved licenses for the Australia and New Zealand Banking Group and Westpac to act as market makers for direct trading on the Chinese foreign exchange system. The Australian dollar is only the third major currency to be directly traded with the Yuan on the Chinese mainland. This is an excellent indication of the strategic importance to China of its relationship with Australia. Moreover Australia has the skills and expertise in managing funds and navigating financial markets. This provides opportunities for Australian banks to use their expertise and knowledge in financial products and markets in China.

Additionally, the Reserve Bank of Australia (RBA) plans to invest about 5 per cent of its foreign currency reserves in China, a sign of deepening financial and economic ties. It will be the first time that the RBA will have invested directly in a sovereign bond market of an Asian country other than Japan. In a speech, an RBA official noted that it provides greater diversification of investments and will help with the understanding of the Chinese financial market:

This decision to invest in China is an important one. It reflects the broader economic relationship between China and Australia and our increasing financial ties. It provides greater diversification of our investments and will help with our understanding of the Chinese financial markets. Over the long run, and particularly as capital account liberalisation occurs in China, the RMB [renminbi] is likely to become one of the major reserve currencies of the region. I recount these facts, because a strong trading relationship provides the basis for a strong financial relationship. As history shows, finance follows trade. As trade linkages increase, firms require an increasing array of financial services. And a strong trading relationship helps businesses in both countries identify and develop investment opportunities in the other.

Philip Lowe, Reserve Bank of Australia, The Journey of Financial Reform, Address to the Australian Chamber of Commerce in Shanghai, 24 April 2013

The focus of Australia’s trade relationship with China has typically centred on commodities and resources. A more in-depth look at the relationship however, illustrates the significance played by other sectors in the economy. Households have benefitted in a number of ways from Australia’s trade relationship with China, many of which may not seem obvious at first. However a more in-depth examination of the Australia-China trade relationship reveals that consumers, investors, workers and the community in general are indeed reaping the benefits of Australia’s trade with China.

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32 The benefiTs To AusTrAliAn households of TrAde wiTh ChinA 2013

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