I was honoured to be invited to Canberra on Monday 17th November for the unique occasion of a joint sitting of parliament, the address by President Xi Jinping of China and the signing of the historic China Australia Free Trade Agreement. After the joint sitting of parliament, I attended the dinner in honour of President Xi and his wife, Peng Liyuan, which included large numbers of MPs and members of the Australia China business community. It was a warm and happy occasion and a wonderful moment for Australia in bilateral trade and diplomatic relations. The signing of the Free Trade Agreement with China is a big leap forward in the Australia China relationship, and just the start of a deepening relationship with our biggest trading partner and neighbour. So, what practical implications will the free trade agreement have across the economy?
After ten years of negotiation, Monday was a landmark date in our 40 year relationship as Australia and China finally signed a Declaration of Intent that will result in a Free Trade Agreement between our nations which is expected to see trade more than double from the current level of $150bn over the next decade (New Zealand’s two-way trade with China more than doubled since its signing in 2008).
In fact, this FTA will mean that, over the next four years, 95% of Australian exports entering the Chinese market will do so free of all local tariffs. The biggest winners on the Australian side include the dairy, horticulture, mining and services sectors. On the China side, an opening up of access to the Australian labour market and a loosening of regulation surrounding direct investment are the key takeaways. The Chinese investment threshold requiring FIRB review was raised to $1.087 billion in line with other FTA countries (such as Japan, USA and South Korea) and this is expected to generate plenty of new interest amongst Chinese entrepreneurs, business leaders, investors and new migrants looking to invest in Australia (particularly in real estate, agriculture, healthcare, tourism, education and professional services).
So how will the average Aussie notice the effect of the FTA? Firstly, Australian consumers can expect to see cheaper clothing, electronics and household goods as local tariffs are removed from Chinese imports. Not only SMEs but also the big corporates will benefit from the deal, with Australian banks and financial institutions being given unprecedented access to the China market. Insurance companies will have access to China’s third party insurance market and superfund managers will be given special access to Chinese investments.
There is no doubt that this FTA has come as a sigh of relief to many industries, in particular the dairy industry which has been lobbying the government for a ‘New Zealand Plus’ package. Now, with an agreement similar to that of New Zealand’s, the FTA could save the Dairy Industry $190million in tariffs over a ten year period which could be directed into servicing debt and reinvesting in ageing infrastructure. Australian SMEs are expected to also be big winners from the deal, with unprecedented access to the China market across hospitality, education, agriculture, law and pharmaceuticals. Australian law firms will be the first in China to be allowed to operate freely and provide services to clients from a special zone in Shanghai. The agreement also highlights areas which have currently been placed in the “too hard basket” for review in three years’ time. Until then, this is just the 'end of the beginning' and the FTA will hopefully provide a much needed boost for the Australian economy as it tries to rebalance and shift focus from mining/resources to agriculture and services.
If you're not there already, this is the time to go to China to see the amazing transformation taking place and to meet Chinese investors, business leaders and entrepreneurs with an interest in Australia, particularly in light of the new opportunities presented by this FTA. Please join our ‘Invest in Australia’ Mission to Hong Kong and Guangzhou from 18th to 23rd January 2015 and fly the flag for Australia. Click here for more details.