The Antipodean Silk Road

The case for deeper/broader engagement

Frank Tudor

National Chairman, ACBC

OUTLINE

Outline

ACBC

Political

Trade

Investment

Opportunity

Takeaways

THE AUSTRALIA CHINA BUSINESS COUNCIL

• The premier organisation dedicated to promoting trade and

investment between China and Australia

• A peak national body representing the collective interests of 1,000

companies

• An independent, membership-based, non-profit organisation

• An organisation with relationships at the highest levels of the

Chinese and Australian governments

• Branches in all mainland Australian states, a National Secretariat and a

growing strategic presence in China

The Australia China Business Council

POLITICAL

The Top 10 Leaders of Global Growth

Source: Financial Times

POLITICAL

Source: Maddison (2010), Total Economy Database, IMF and Treasury.

0

5

10

15

20

25

30

35

0

5

10

15

20

25

30

35

1500 1550 1600 1650 1700 1750 1800 1850 1900 1950 2000 2050

China

Western Europe

India

USA

Share of world output Share of world output

Re-emergence of China

POLITICAL

Leadership in China

1949 1976 1992 2003 2012

1st Generation 2nd Generation 3rd Generation 4th Generation

Middle

income

GDP

$

5th Generation

• Chjnese Dream

• Xi Jinping and Li Keqiang

• A resurgent nation mindful of historical victimhood

• Doubling China‟s GDP 2010 by 2020

• China – status quo player or........

POLITICAL

The four „uns‟ of Wen Jiabao:-

Unstable

Uncoordinated

Unbalanced

Unsustainable

The Paradox of the Four ‘Uns’

POLITICAL

Billions $$

Unbridled Debt Financed Consumption

Overall Global Current Account Balances in 2011

-473

122

200 201

133

91

-11

-74

149

-55

-600

-500

-400

-300

-200

-100

0

100

200

300

USA Japan DevelopingAsia

China Middle East Russia EU Italy Germany Spain

over-extended

Over-heated

Chinese economy

Source: Professor Dick Vietor, Harvard Business School

POLITICAL

-4

0

4

8

12

16

-4

0

4

8

12

16

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Percentage pointsPercentage points

Final consumption expenditure

Gross capital formation

Net exports

GDP

Forecasts

Source: CEIC China Database and Treasury.

Contribution to economic growth

POLITICAL

Source: IMF, Conference Board, UN and Treasury.

-3

0

3

6

9

12

15

-3

0

3

6

9

12

15

1980 1989 1998 2007 2016 2025

Productivity Working age population

Per cent contribution to growth Per cent contribution to growth

China

Growth outlook

POLITICAL

Gini Coefficients from the UN Human

Development Report

POLITICAL

Concentrations of particulate matter

and sulfur dioxide

Source: Iworld Growth Report, Michael Spence, et al

POLITICAL

Development Strategy

Implicit or explicit

white paper on

“Australia in the Asian

Century”

Essential Role of

State

International

context

Public goods

Rule of law

Organisational

structure

Mediate strategy

Australia’s Five Year Plan

for the Economy…

TRADE

A simple open economy –

trading with china

Source: ACBC Household Report

TRADE

Australia's top export destinations

Source: ACBC Household Report

TRADE

Australia’s top ten

merchandise exports to China

Source: ACBC Household Report

TRADE

Australia's top import sources

Source: ACBC Household Report

TRADE

China in the Australia Household

Source: ACBC Household Report

TRADE

Chinese students in

Australian Universities 130,000 students

in 2012/13

Source: ACBC Household Report

TRADE

Chinese Visitors to Australia 2000-2010 (‘000)

Source: ACBC Household Report

TRADE

International Visitors to Australia July 1, 2011 – June 30, 2012 (‘000)

Source: ACBC Household Report

INVESTMENT

China FDI to Australia

INVESTMENT

International Economic Indicators

Source: Lowy Institute

INVESTMENT

Composition of foreign Assets

Source: Lowy Institute

INVESTMENT

Top destinations of Chinese OFDI

Source: Lowy Institute

INVESTMENT

Top OFDI countries in Australia

Source: Lowy Institute

INVESTMENT

Regulatory Restrictiveness Index 2012

Source: Lowy Institute

INVESTMENT

Australia and other countries by sector

INVESTMENT

Accumulated Chinese ODI by industry

Source: KPMG

INVESTMENT

Chinese ODI by industry 2012

Source: KPMG

INVESTMENT

Australian OFDI destination

Source: Lowy Institute

OPPORTUNITY

Case Study – Investing in the Pilbara

Australia-China resource partnership no longer relying on trade – now

focusing on direct investment in projects

Investment moving up stream into projects, and infrastructure

Opportunity for the Pilbara –openly encouraging international

investment

Investing in economic and social infrastructure builds communities,

drives down costs and nurtures grassroots goodwill

OPPORTUNITY

OPPORTUNITY

Energy (From gas to resources, renewables and uranium)

China has a low per capita endowment

Energy intensity increased post - WTO

Reliant on coal and imports

Negative externalities focus effort on renewables

Australia well placed with presence of 'big three' in various projects

OPPORTUNITY

Food Security (From mining boom to dining boom)

Global population 9bn by 2050 plus requirement for more protein

Australia's understated reputation for 'quality'

Need $500 bn to capture $1.7trn opportunity for additional agricultural

export

Industry structure needs to change - fragmented ownership reliant on

high levels of debt to corporatised/aggregated structure.

TOP 25% 55% of capital 85% of profit

BOTTOM 25% 10% of capital loss making

OPPORTUNITY

Regional Initiative

Shanghai Zhongfu president Pui Ngai Wu embraces

Miriuwung Gajerrong Corporation Chairwoman Edna

O'Malley after the announcement. Picture: Courtesy of the ‘West Australian’

Regional Outreach and Relationships (ROAR)

ACBC working with regional stakeholders to

forge:

cooperation in regional development, food

security, infrastructure (economic and

social)

investment and community engagement.

ACBC‟s reach across Australia and China,

and the breadth/depth of members‟

expertise will assist regional organisations to

make connections, identify opportunities,

clarify objectives and support activities with

China.

OPPORTUNITY

Collaboration is key

Investment proposals which demonstrate long-term commitment to

local, often remote communities and which provide access to new

markets breathe life back into rural communities and must surely be

welcomed for their immediate benefits and for the positive image

created for foreign direct investment.

The Australia China Business Council is working with many regional

stakeholders as they reach out to Chinese investors.

TAKEAWAYS

1. Globalisation = macro-convergence and micro dislocation

2. High stakes + uncertain future = countries will „hedge‟

3. Australia a status quo middle power that does need not choose between

friends

4. China is transitioning to lower sustainable growth rate(s)

5. Three waves of trade/investment – minerals, agriculture and services

6. Australian has opportunities in energy and agriculture (pull)

7. Australia has opportunities in services and technology (push)

7. „Political, professional and personal‟ all attest to a strong bilateral

relationship

“May we live in interesting times”

8 Chinese Takeaways

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