Australia and China, though
they are two vastly different nations, already have a huge and joint political,
economic and social investment in the success of their bilateral relationship.
Their unique
partnership stems from a deep alignment of interests that, short of highly
negative policy choices, cannot easily be undone. China is big, it is
highly integrated into the world economy, and it is not about to go away.
Australia is a secure source of raw materials for all of East Asia including
China, it has an alliance relationship with the
United States and it is enmeshed with Asia.
The
Australia–China relationship will undergo a huge change over the coming decade.
The scale and complexity of the relationship is growing because of the
increased role of services and investment, as well as its political and security
dimensions.
China has
for some years been Australia’s largest trading partner and one of its most
important bilateral relationships. Australia’s economic growth and continued
rising living standards are strongly linked to China’s economic success.
In the
Chinese policy community, there is wide understanding and clear acknowledgement
of the economic and political advantages of open, secure and competitive access
to Australian raw materials.
As China’s
economy matures and its middle class expands, China is also enjoying the added
dividend of access to Australian agriculture, institutions and services —
everything from infant formula to vitamins, butter to beef, education to
tourism, as well as advanced science, technology and research capabilities.
Australia’s open society provides Chinese investments
with security in a stable and well-functioning market economy that guarantees
transparent recourse to political, legal and regulatory institutions.
These new
avenues of commercial exchange are a two-way street. Both Australia and China
gain from growing and diversifying their economic relationship through new
flows of tourists, students, investors and migrants. Despite recent slowdowns,
China will remain a key driver of global growth. If China’s reform agenda
succeeds, it can achieve annual GDP growth of around 6 per cent a year over the
next 10 years.
The impact
of China’s growth on Australia over the next 10 years will be very different
from in the past. Australia will no longer only be a remote supplier of raw
materials. It should be a palpable and distinctive presence in Chinese daily
life, particularly for the urban middle classes.
Australia is
economically enmeshed with East Asia, giving it a high stake in China’s
success. It also has strong economic, cultural and strategic links to the
United States, and therefore a compelling interest in a positive relationship
between the United States and China.
Australia’s
geopolitical and geo-economic position and its multicultural society
are thus unique assets in shaping China’s links with the West.
Chinese and
Australian prosperity has depended on the liberal, rules-based global economic
system. Both countries have a compelling interest in the successful adaptation
of the institutions of global governance to the economic and security
challenges of the 21st century. A deeper partnership between China and
Australia can be a powerful force for the strengthening and developing of these
institutions. Australia’s longstanding commitment to global institutions, its deep engagement with Asia
and its historical ties with Europe and North America are complementary to
China’s status as a major economic power and its declared willingness to help
reform and strengthen the regional and global frameworks
of cooperation and governance.
China is
shifting its growth drivers from investment, exports and heavy industry to
consumption, innovation and services. China’s growth slowdown does not threaten
this transformation; it is a symptom of it.
This transformation
will lead to fast growth in trade between Australia and China in real terms,
much of it in services. Even in a pessimistic scenario, in which average
Chinese growth is below 5 per cent over the next 10 years, estimates suggest
that Australian exports to China would still grow by 28 per cent and Chinese
exports to Australia by 20 per cent. The biggest gains, however, would be
realised if Australia and China work to implement supply-side reforms. If this
reform agenda is executed successfully, Australian exports to China will grow
by 120 per cent in real terms, and Chinese exports to Australia by 44 per cent.
The
structural changes in the Chinese economy presage a change in the structure of
trade. The profound complementarity stemming from Australia’s energy and
resource abundance and China’s industrialisation will remain a key pillar of
the relationship, but will be increasingly augmented by services such as
education and tourism, with inbound tourism from China set to treble by 2025.
There is
every reason to believe that the Australia–China relationship will become more,
not less, important to both countries as the Chinese economy continues to
change and upgrade.
The need for
an upgraded policy framework is broadly accepted in both countries.
That will be
a complex task: it will require building a new set of national capabilities in
both countries.
In the
1980s, Australia and China established what they called a ‘model relationship’
between two economies with different political and social systems and at
different stages of development. Now both countries need to commit to a
partnership for change.
Today we
shall present a major independent report on how a partnership for change might
be fashioned by the governments and people of our two countries. It draws on
the expertise, wisdom and common sentiments across governments,
business leaderships, research communities and public leaders. It is an
unprecedented endeavour at working together in thinking about the choices we
make for the future.
The Australia–China relationship
represents an impressive achievement but with wisdom it can be taken to a
wholly new level. While fully respectful of each other’s existing
relationships, the new partnership can be a powerful force for the stability
and prosperity of the region, and for the global system. It can serve as a
principal vector of Australian and Chinese engagement within a rapidly changing
world. Nurtured carefully and imaginatively, this deeper partnership could
become one of the most strategically vital and productive bilateral
relationships that either country has in the world.
Peter
Drysdale is Head of the East Asia Bureau of Economic Research in the Crawford
School of Public Policy at the Australian National University. Zhang Xiaoqiang
is Executive Vice Chairman and CEO of the China Center for International
Economic Exchanges and former Vice Chairman of China’s National Development
Reform Commission. They are lead authors of a major Australia-China Joint Economic
Report: Partnership for Change that was presented to the Prime Minister of
Australia and the Premier of China and released publicly this morning.
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