40 Years: The Australia-China Relationship

Australia-China Forum

Parliament House, Canberra

Speech, E&OE, check against delivery

2 November 2011

As we get closer to the 40th anniversary of diplomatic relations between Australia and China, we hope this forum will allow us a frank, open discussion across the political, strategic, economic, people-to-people and cultural spheres.

Richard Rigby's involvement at the heart of our efforts through the forum to build mutual understanding is fitting.

This is a coalface he has been working at for many years.

In 1975, when Richard was a graduate in the Department of Foreign Affairs, he met the first five Chinese students to come to Australia to study in the wake of the opening of diplomatic relations.

The experience of those first five Chinese students here was very different, of course, from that of the 120,000 or so Chinese students enrolled in Australian educational institutions today.

To start with, their movements and activities were rather more circumscribed than they are today.

In 1975, those first five students were only allowed to see one film in the whole time they were here.

The Embassy went on the advice of Madame Mao as to which film might be appropriate, as it was clear that she had only sanctioned very few foreign movies.

By Richard's account, the first five quite enjoyed it, too: The Sound of Music.

While it remains a classic, I'm sure modern Chinese students have moved beyond Julie Andrews for entertainment.

Australia and China depend on each other.

At the start of the second decade of the century, China's rise is the topic at the forefront of international debate.

The great global challenges still stand in our way: climate change, international security, feeding a growing world population, reducing poverty and lawlessness, creating fair opportunities for work and education for all.

And these global challenges are also local challenges.

China is the second biggest economy in the world, Australia is the twelfth.

We have both experienced strong growth over the past two decades. 

China's growth has been phenomenal. 

But Australia, too, has had 19 years of uninterrupted growth.

Nineteen years where we have celebrated a richer Australia than the years before.      

The rise of China and Australia simultaneously is no coincidence. 

Our exports to China are growing faster than our imports with total trade now over $100 billion per year.

While China's rise is a topic that fascinates, we should also pause to reflect on the competitive advantages that have driven Australian growth.

We have an open, diversified and skilled economy with a strong education sector.

In other words, an economy that creates jobs and the opportunity that jobs provide.

We have growing financial services, information services and natural resource industries.

These are powering our trade relationships with Asia, with China at the front of the pack.

It is the growth in these trade relationships that is one of the fundamental ways we can improve living standards here in Australia.

It is what helps Australia have one of the lowest unemployment rates in the developed world, and low government debt. 

And while the world has hailed Australia's ability to manage through the worst financial crisis in 70 years, it is clear that the impact of the global financial crisis is having a profound effect on the global economy.   

The world is watching as, for the first time since the Tang dynasty, economic gravity shifts back to Asia, as China steps back into the front row of nations.

A phenomenon, either close at hand or on the other side of the world, that offers prospects for economic growth and new strategic realities.

That's true for Australia too; but for us, there's a deeper reality.

Over the past few decades, our economic entanglement has grown to a point where from a trade perspective we depend on each other more than any other bilateral relationship.

We have more at stake in China — and China has more at stake in Australia — than either country has with many other partners.

Not New Zealand, not Canada, nor any European state.

Our trade relationship with China is considerably larger than with the 27 countries of the European Union combined.

According to the Australia China Business Council, our trade with China benefits ordinary Australian households to the tune of $10,500 per annum, up from $3,400 in 2009.  

As the prospects of a sustainable solution to the current sovereign debt crises in Europe become increasingly clouded, the shift of Australia's trade relationship away from the old world, is only likely to accelerate.

Our relationship with China is a relationship of enormous strength and vitality, truly important to both of our countries: to our economies, our people, our culture and our successful engagement with the world in the 21st Century.

Because at the end of the day our goals for engaging with the countries of the world are simple:

  • we engage to keep our economy strong;
  • we engage to support the jobs that families rely upon;
  • we engage to ensure that the social support network of health and education we expect in Australia can grow, not shrink;
  • we engage to protect our national security, to avoid a world where countries use force rather than trade; and
  • we engage so that when the next big economic challenges comes we will be ready.

Therefore tonight, I'd like to talk about some of the signposts in the development of our relationship, and how our mutual needs will continue to grow this century.

Approaching 40 years of diplomatic relations

In Australian terms, our relationship stretches back a long way, at least to the goldfields.

Australians of Chinese descent have been a formidable part of our society for generations: 670,000 or so, according to the Australian Bureau of Statistics.

Among them, amazing high achievers who have meant so much to us over the years, who have made a difference: people like Victor Chang, Charlie Teo, and John Yu.

But the watershed for Australian links with China was the Whitlam Government's decision — one of its first — to extend political recognition to the People's Republic.

In December 1972 the Australian and Chinese ambassadors to France, Alan Renouf and Huang Zhen, signed a joint communiqué establishing diplomatic relations.

The following year, Gough made the first official visit by an Australian Prime Minister to China.

Never one to be bound by expectations, Gough wasted no opportunity in breaking the rules: he broke protocol by having a meeting with Chairman Mao, to which only our Ambassador, Stephen Fitzgerald, was invited.

From that point, successive governments on both sides have worked to build the relationship.

In a good bit of detective work that shows how much attention is paid to good record-keeping, and how hard Embassy officials worked to build the relationship at the time, DFAT's records for the drinks bill from Prime Minister Fraser's first visit to China in 1975 contain:

Twenty dozen each of Hardy's Nottage Hill Claret, Chateau Tahbilik and Great Western Imperial Brut, as well as 40 cartons of VB.

Of course that might have simply been an early effort in trade promotion — you've only got to look at the rise in Australian wine exports to China - $61.8 million in 2007-08 rising to $178 million in 2010-11 — to see there's a growing Chinese thirst for Australian wine.

And then in April 1985, an extraordinary moment, when Bob Hawke and then General-Secretary of the Communist Party Hu Yaobang looked out over the Pilbara at the dawn of our collaboration on mining and energy.

That marks a point in our relationship from which we've never looked back: as everyone in this room knows, iron ore, along with other key mineral and energy inputs, has become a cornerstone of our economic relationship.

My predecessor as Labor Prime Minister, Paul Keating, sought to broaden our engagement with China and add a regional dimension to our economic interaction through APEC.

That move has now been brought to its natural conclusion with the first meeting this month of an East Asia Summit with all the key players in our region, covering the full gamut of economic and security challenges.

Deeply entwined economies

The last forty years have seen an unprecedented transformation in China.

Australia has changed just as profoundly, emerging as a $1.4 trillion plus economy after decades of reform.

Australia emerged through the global financial crisis in better shape than almost any of our developed world peers, without falling into recession and without the awful jobless queues we've seen elsewhere.

Critical to that were the hard reforms that we have engaged in since the 1980s, making ourselves the 12th largest economy in the world, the 4th largest in the region.

As China and Australia have changed over those four decades, our economies have become deeply entwined.

In 1990, our $1.3 billion in imports from China were dominated by textiles.

Our $1.29 billion exports were largely agricultural: wheat, wool, fine wool, cotton and barley all featured in the top ten.

But by 2010, our trade had changed radically, picking up the change occurring in China.

Computers, phones, monitors and projectors, printing machinery, diodes and transistors were more than a quarter of our $40 billion imports from China.

And our exports to China have been transformed by China's industrialisation.

Agricultural exports are still there, but their importance has been overwhelmed by China's metals and energy demands.

7 out of our top 10 merchandise export items are mining and energy products — 79.5 per cent of our $58.4 billion total merchandise exports to China.

As we are feeding China's rise, China's exports to Australia are helping to further develop our advanced economy.

We are China's top source for mineral ores, with 35.9 per cent of the total world share of ores exported to China.

Brazil provides less than half Australia's total mineral ore exports to China, South Africa only 1/7th of that provided by Australia, and Chile even less.

In quality, price and proximity, the iron ore Australia provides to China is without peer, and is not easily replaceable elsewhere on the world market.

Our political stability, proximity and reliability of supply are also playing a key role in building our rapidly-expanding LNG sector, which positions us well to provide for China's energy needs as it continues to grow.

We're now the 6th largest supplier of fuels to China.

None of those countries who provide more fuels than us to China have our reliable legal and political framework: Saudi Arabia, Angola, Iran, Russia and Oman.

We provide more coal to China than any other country.

We are the 2nd highest provider of LNG to China, with a market share of 24.7 per cent, only slightly lower than Qatar.

And increasingly, services are playing a more significant role in Australia-China trade.

As China's wealth grows, and a huge new middle class opens up across Asia, we are conscious of the extraordinary new opportunities opening up in sectors outside of mining.

We recognised this in our recent trade mission to China, Australia-China 2.0, which sought to build new links into the Chinese market for Australian companies in other sectors, particularly into emerging megacities like Wuhan, Chongqing, Changsha and Chengdu.

Education is a huge export market for Australia — as I said earlier, some 120,000 Chinese students enrolled in Australian courses, and as an English-speaking advanced economy here in Asia, the potential is there for more growth in the future.

Only the United States takes more Chinese tertiary students than Australia, with the United Kingdom, Germany, Canada and New Zealand all ranking lower than us as a tertiary education destination.

More Chinese than ever before are becoming Australia-literate, and vice versa.

This is an end in itself, but will also deliver future opportunities in unexpected ways, as people educated in both countries go into business with ideas of their own.

Australia's financial services market is a world-leader, particularly on the back of our unique superannuation system that is both providing increasing wealth for Australians in retirement and a massive $1.4 trillion pool of funds for investment.

And in recreational tourism, we have become increasingly important to each other.

Only 1,000 Australians had visited China prior to 1972, but today, 356,200 visit annually, predicted to grow to 579,000 by 2020.

And 500,000 Chinese come here.

The latest forecasts predict that Chinese visits figure will grow to 908,000 a year by 2020.

That is significant growth for the future.

Tourism estimates suggest growth in tourism expenditure in Australia from China could be $4.6 billion or more — the greatest growth from any market in the world.

On the back of these strengths, Australia's services expertise can help China meet the goals it has set out in the 12th Five Year Plan to grow its services sector to 47 per cent of the Chinese economy.

On investment, too, our two economies are becoming more integrated all the time.

According to the Heritage Foundation's China Global Investment Tracker, Australia was the number one destination for outward Chinese direct investment during the six and a half years from January 2005 to June 2011.

Over that period Chinese investment in Australia reached USD38.4 billion, compared to USD30.5 billion invested by China in the United States and USD18.3 billion in Brazil.

These figures demonstrate an important point, and one that has so far attracted little attention here —

That is, Australia is more important to China's economy than any other country.

Unlike many developed countries, our relationship is not dominated by the debt we owe.

China is looking to Australia to secure its future growth, just as countries around the world look to China to secure theirs.

There are, of course, challenges and opportunities in terms of our further integration as complementary economies.

China has benefited greatly from foreign investment over the last thirty years.

Removing some of the remaining barriers to investment would allow more Australian firms to set up businesses in China and unlock significant growth potential for the Chinese economy. 

We see it in China's interest to provide further opportunities for the renowned spirit of entrepreneurialism of the Chinese people to prosper.

We agree entirely with China's own decision to rely less on export-led growth and more on the capacities of the Chinese consumer.

We nod approvingly when Chinese leaders themselves speak of the need for political reform to ensure China can continue to develop its economy.

For our part, we see great potential in deeper cooperation on fighting climate change, supporting agriculture and agricultural technologies, biotech and environmental science.

All areas where Australia has great strengths which can assist China.

Our overarching political and strategic links

Australia is a major player in the region.

We are a key alliance partner of the United States, whose presence in the region since WWII has provided the security and stability in which Asia's economies have developed and prospered.

I believe a continued American presence in Asia is vital for regional security.

Our values are a key part of our strength: our commitment to open markets, the rule of law, democracy and a rules-based international order.

The universal value of these fundamental norms has not been diminished by the global economic and financial crisis.

Committed to our Asia-Pacific region, we have been involved on the ground floor of most of the key regional institutions and issues of our time, like APEC, and now the EAS.

We have a long-standing commitment to free trade and greater economic integration in our region, as well as to alleviating poverty and helping developing countries establish economic pathways.

Because of this, we are an essential political and strategic partner for China in our region.

We've had a key voice in the settlement of most regional issues, including with China, for example on the Cambodian settlement.

On aid, we've shown our commitment to the region over many decades.

We have a strong, coherent military force and have made a major contribution to peace-keeping efforts all around the world.

We have in recent years continued to build our political engagement with China, and believe there are strong prospects for us to work together on the basis of mutual respect and benefit.

As Prime Minister in 2009, I invited Vice Premier Li Keqiang to make an official visit in the later part of the year.

When that visit took place, it helped to remind us of the great value, potential and prospects in our relationship, of how important it is to nurture our relationship in a way that is respectful of difference.

We are steadfastly committed to addressing challenges in our relationship.

Finding common ground between two states with a different cultural base, with different political systems.

In this sense, the inaugural Australia-China Forum is an important mechanism which we have devised to enhance dialogue and mutual understanding.

In the lead-up to the 40th anniversary of diplomatic relations, we see value in expanding our political dialogue.

First, at the broader government-to-government level, we see value in a more formalised bilateral architecture which can serve us well as we expand our engagement over the next decade.

Second, at the local level, expanded political links amongst Chinese provincial and local political leaders and Australian political leaders (especially younger ones).

As I noted recently, in economic terms, each of the provinces of China can be considered equal to one of the countries of Europe.

These polities take important decisions and their leaders are likely to progress to higher nation-wide office.

Conclusion

Australian-Chinese engagement has come a long way since 1972.

It is much deeper and more meaningful than many people realise, stretching well beyond our extraordinary economic relationship.

But it is a relationship of two partners coming from very different starting points, one that will always require close attention and regular review in hopes of building better mutual understanding.

Both of us have come to depend on the relationship, which makes it important that we keep asking ourselves hard questions about where it can be improved, and how we can work through stumbling blocks.

We are critical to each other — and have a lot to gain by working more closely together.

China is our most important economic partner.

And Australia is more important to China's economy than any other.

Australia has become an integral engine for China's growth — just as China has become a dynamo driving our prosperity.

I'm confident that the forum will provide another opportunity for us to build that mutual understanding.

END

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