Few countries have done so well out of
China’s belated economic awakening as Australia, which has sated much of the
People’s Republic’s voracious appetite for overseas iron ore and metallurgical
coal. Supply struggled to keep pace with demand and the prices of the raw
materials for Chinese growth shot up: this translated into an eyewatering
increase in the Australian terms of trade. This has undeniably contributed
strongly to the sunny economic conditions that have prevailed in Australia for
much of the past decade.
But China’s growth is both slowing and
changing character. Australia will continue to export resources to China —
particularly energy, in the form of natural gas, with which Australia is well
endowed. In the market for services it is evident that Australia — business as
much as government — will need to think harder about its place in the Asian
economic system.
As the boom winds down, two potentially serious problems
are beginning to emerge: the consequences of the ‘Dutch disease’ effect (where
natural resource development weakens manufacturing and other sectors) and the
corrosion of institutional quality.
Australia’s macroeconomic institutions have managed the
terms of trade shock with considerably more dexterity than at other times in
the country’s economic history. During the first terms of trade boom since the
floating of the dollar, inflation has remained extraordinarily well-behaved and
growth has been stable. Its political institutions, on the other hand, have
been strained.
An economic reorientation will be required for Australia
to fashion a more mature place for itself in the Asian economy. This will mean
developing a more dynamic services sector attuned to the needs of the middle
class of Asia, a more capable and better-funded education system, and a more
disciplined approach to building infrastructure. Australia should not look to
compete with others in Asia but to position itself to complement production
and economic activity in Asian supply chains.
An abundance of mineral resources has resulted in
Australia’s relative isolation from the value chains that are dispersing
different production stages across Asia. A large share of Australian exports is
of unprocessed minerals, while the import content of Australian exports is a
relatively feeble 15 per cent. This is not necessarily a bad thing, nor will
Australia cease exporting natural resources. The mining industry will remain
one of Australia’s most redoubtable export industries. Coal and iron ore will
continue to constitute an important part of the nation’s export structure,
while natural gas (in increasing demand in Japan as well as in China) and rare
earths will complement the more traditional mineral exports.
Yet there is something of a mismatch between the
destination of Australian resource exports, which are mainly sent to countries
in the Asian region, and its service exports, which are still largely purchased
by Australia’s English-speaking partners. It seems only natural that
Australia’s service industries should attempt to secure a place for themselves
in the production chains of an increasingly integrated Asian region.
One area in which Australian services already have a
foothold is tertiary education. Institutions of higher learning in Australia
already ‘export’ strongly to Chinese and other Asian students, with export
income of about AU$15 billion in 2012–13, but both earnings and Australia’s
share of international students have been declining in recent years. Earnings
from Indian and Korean students in 2012-13 were down substantially
on the preceding year (by 14.6 per cent and 12.7 per cent respectively).
Research collaboration with Chinese, Japanese and Indian
academic researchers has been strong: indeed, much stronger than collaboration
between Australian and Asian businesses. In 2010 only 4 per cent of Australian
businesses collaborated on innovation with international partners: on this
measure, Australia ranks 25th in the OECD. A fruitful avenue for businesses to
pursue would be to draw on and learn from existing collaborations between
Australian and Asian universities.
One achievement highlighted recently by the (now unjustly
forgotten) Australia in the Asian Century White Paper is Australia’s
program of large-scale immigration from Asian nations since the end of the
discriminatory White Australia Policy. The proportion of the Australian
population with Asian heritage is 12 per cent. Not only is multiculturalism
enriching in a social and cultural sense (the basis upon which the policy is
usually defended in Australia) but its contribution to Australia’s economic
future could well be large. Migrants bring language skills and a familiarity
with the societies and economies whose needs Australian businesses will have to
meet. Relatively open borders are therefore an essential long-term
macroeconomic policy.
A high migrant intake, however, throws into relief other
public policy problems that must be dealt with. There are also unquestionable
deficiencies with Australia’s stock of physical infrastructure: roads, ports
and rail, among others. Numerous problems arise from the combination of very high
rates of urbanisation and low density in cities. The cost of borrowing for the
Australian federal government is attractively low, and need not deter it from
spending money on high-return projects.
Given the costs of construction in a high-wage economy,
governments (federal and state) have to be disciplined about project selection.
It would also be useful to introduce transparent price signals to those using
existing government-funded infrastructure.
In general, if there is a role of government in all of
the above here, it is to provide the incentives and avenues to help society and
business become more familiar with Australia’s neighbourhood in Asia.
Blessed by its resource endowments, Australia has prospered from the
beginning of Chinese — and, more broadly — Asian prosperity. But it will have
to think smarter and harder if it is to harvest the full range of economic
possibility that has opened up, and will continue to expand, to its north.
Tom Westland is an editor with East Asia Forum at the
Crawford School of Public Policy, The Australian National University.
This article appeared in the most
recent edition of the East Asia Forum Quarterly, ‘The state and economic enterprise‘.
No comments:
Post a Comment