Moving business beyond Beijing

Articles and op-ed

Published in: The Australian

23 May 2011

On Saturday, driving into Guangzhou and past the beautiful new Opera House, I was reminded of how much China has changed since I first visited. At that time, just as China's economic reform and open door policies of 1978 were taking effect, it was unthinkable that a foreign company could play a part in designing such an important building in China.

The Opera House, whose acoustics were designed by Australian firm Marshall Day, is a symbol of how far the country has come in 30 years, from the inward looking China of the Cultural Revolution, to the outward looking China of the 21st century.

China has proven the sceptics wrong with the scale of its reform. We should not just reflect on the past 30 years of its economic growth but also on the next 30.

Because if we think the changes of the past 30 years have been dramatic,they are only a foretaste of what is to come. I want to reflect on what this means for the Australia-China economic relationship. It's what I call Australia-China 2.0.

And the test is whether we share the economic vision to translate these ideas into reality.

The figures tell the story. Since 1980, China's real gross domestic product has grown at an average annual rate of 10 per cent. This has seen China's per capita GDP grow from $US205 in 1980 to $US4382 ($4110) in nominal terms today.

The share of China's population living below the World Bank's poverty line of $1.25 a day has fallen from 84 per cent in 1981 to 20 per cent today. About 500 million people have been lifted out of poverty. By world standards, this is a truly remarkable achievement.

Within 30 years China has transformed itself from an impoverished, isolated and mostly agrarian economy to the increasingly wealthy, internationalised and urban economy we see today.

Year after year, we see more and more rural migrants from China's countryside moving to its manufacturing hubs.

These radical economic transformations of the past three decades have also resulted in the transformation of China's economic significance.

China now is the second-largest economy in the world. When China will overtake the US economy in terms of absolute size is hotly debated. But what isn't in debate is that on present projections, China's economy is likely to be the largest in the world before the end of the third decade of this century.

On many measures, China already stands well above the rest.

Eight Chinese cities have a population of more than 10 million, and 93 have more than five million. China's emergence, of course, has been resource-intensive.

It is now the world's largest consumer of aluminium, copper, nickel, zinc, lead, tin, iron ore and coal. China's appetite for steel and coal is particularly striking.

China's capital intensive and export-led growth model has served it well. But it has also led to a number of imbalances, which the Chinese government rightly recognises need attention.

The first is social inequality. China's efforts to raise hundreds of millions of its citizens out of poverty, rapidly increasing per capita GDP, is impressive. However, the benefits of China's growth have not been shared by all.

Australia warmly welcomes the Chinese government's announcement of a range of targets to tackle this inequality. Among them are: pension schemes to cover all rural residents and 357 million urban residents; an increase in the minimum wage by 13 per cent a year; and the construction and renovation of 36 million apartments for low-income families.

Another challenge China faces as a consequence of its phenomenal economic growth has been the environmental cost. China's emergence as the "world factory" has seen it become a net exporter of energy intensive goods such as steel and aluminium.

But importantly, China is willing to accept a lower rate of growth to rebalance its economy, alleviate inequalities and improve sustainability. In other words, China is looking to prioritise quality of growth over quantity of growth.

The government is also trying to move China further up the value chain. As part of the 12th five-year plan, the Chinese government is seeking to boost expenditure on research and development to 2.2 per cent of GDP. It is also targeting the registration of 3.3 patents a year for each 10,000 head of population.

While China's R & D expenditure per capita remains low, its total spending on R & D is eclipsing many countries. China's gross domestic expenditure on R & D is already far ahead of advanced economies such as Germany, the Republic of Korea andBritain.

I have witnessed the extraordinary growth in eastern seaboard cities such as Guangzhou and am now seeing the incredible pace of development in second-tier cities in China's inland provinces.

China is entering a period where economic growth in inland regions is overtaking that of coastal regions.

All of these economic drivers are also changing the pattern of China's economic engagement with the rest of the world.

Australia is the fourth-largest economy in Asia and the 13th largest in the world. We have as many world-class universities as China, a robust financial services sector and the world's fourth-largest funds management sector.

Australia, therefore, is well positioned to meet China's traditional economy needs as well as those generated by the great economic transformation now under way.

Australian education enjoys a good reputation among Chinese students and it is not surprising that China is Australia's largest source of overseas students.

Decades of rapid economic growth have had the unfortunate consequence of environmental degradation in China, which is the most rapidly urbanising country in the most rapidly urbanising region in the world, Asia. Australia is a leader in green building technologies and systems. China is a world leader in developing eco-cities. The synergies are clear.

It is estimated environmental damage costs up to 8 per cent of China's GDP each year. China's environmental protection industry has developed strongly in response. However, in some areas, the technology levels are low.

Australian companies are helping China to deal with its environmental challenges.

China is becoming an increasingly important tourism market for the world. It is Australia's fourth largest inbound tourism market, with 453,800 arrivals last year and has overtaken Britain to be our top market for total spend, worth $3.1 billion in last year.

Australia is a significant, strong, and stable global economy and with China is a member of the G-20. Australia, like China, is deeply engaged with all the great institutes of our region, including the East Asia Summit and Asia-Pacific Economic Co-operation forum. Australia has a strong bilateral relationship with China which has deepened and broadened in the past 40 years.

Australia is one of China's top 10 trading partners. We welcome and encourage foreign investment because of the benefits it provides our economy and we work hard to ensure we remain a globally competitive location to do business, which offers a wealth of opportunities for businesses to succeed.

This, therefore, is the potential strength of Australia-China 2.0, a new phase of mutual economic engagement: one that recognises, anticipates and prepares for the effect of China's changing economic growth model; one that recognises Australia's record of being a significant and reliable economic partner through the decades past, based on mutual economic advantage.

At the government level, we can play our part: getting the policy setting right, ensuring the success of the conclusion of the Australia-China free trade agreement. But, ultimately, it depends on business. For Australia, it means our corporate community fully geared up for the effect of the new Chinese economic development model. It means employing bilingual Australians who understand business to further enhance the interests of your business.

Above all, it means not just being in Beijing. But being across the country, including in the emerging second-tier cities, where much of the future growth will occur.

Back in Australia, the Trade Minister and I will be going on the road to state capitals to argue what Australia-China 2.0 is all about.

And later in the year, we intend to be back, leading a trade and investment mission to some of the provinces and rising urban centres that will drive this country's future.

I have always been an optimist about China's future. And I have always been an optimist about the future of the Australia-China economic relationship.

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