Dr Geoff Raby, Australian Ambassador to China
Speech to ACBC New Year Dinner
Wednesday 10 February 2010, Perth
Salutations
Thank you for that kind introduction (Duncan Calder or Paul Glasson).
Minister Grylls, Minister Moore, Consul-General Li, Mr Li Ying, Mr Frank Tudor, distinguished guests, ladies and gentlemen.
Introduction
It is a great pleasure to be here this evening in Perth, and Western Australia, to speak about China and Australia’s relations with China.
Certainly no other place in Australia – and perhaps few others in the world – is so closely involved with the unprecedented historic transformation currently underway in China.
In terms of both sheer scale and speed the world has not witnessed anything like it before.
Other economies have grown rapidly in the past – Japan, South Korea, Singapore, Hong Kong, Taiwan – though not as fast for so long.
But in terms of population, none comes anywhere near the absolute size of China.
So the accompanying disturbances – or disequilibria – will also be very big, both within China itself and, from our point of view, most importantly, between China and other countries.
In my view, China’s recent industrialisation is of a scale and speed that it challenges our conceptual understanding.
Our conventional analytical tool box is inadequate to the task of fully making sense of what we’re witnessing in China.
Of course, this wouldn’t matter much if we were only dealing with a run-of-the-mill small to average sized country. Clearly with China we are not.
So the adequacy of our understanding of China matters enormously.
Tonight, while I do not pretend to have a definitive answer to the myriad questions swirling around about China, I hope that by drawing on some observations and anecdotes of my time and travels in China, I might make a small contribution to a better contemporary understanding of the great transformation in China that is now well advanced, and its implications for the rest of us.
I will focus my remarks on two particular areas of growing importance – first, infrastructure growth, and second, a view from the provinces.
And I want to ask you to think about a question which I will come back to later tonight – which province in China recorded the fastest rate of growth last year (and has for the last seven years), and which city boasted the highest per capita GDP? The answers might surprise you.
Bilateral relations
But first, the most common question I am asked as Ambassador (after ‘can you drink baijiu’) is about the state of the bilateral relationship.
First, I think it is important to put the bilateral relationship in the context of China’s rapid development, which has now turned it into a major world power.
The pace of development, when combined with the effects of the Global Financial Crisis, has meant that China’s international influence is now, in a much shorter time, greater than anyone could have predicted.
In many respects this has caught us all, including China, by surprise.
China is struggling to come to terms with the extent of its new international influence, and how it can best be used.
Policy makers are being forced to re-examine the assumptions which have guided China’s foreign policy to date.
Understandably, China seeks the status of a major power. But on many issues, particularly relating to security concerns, it is reluctant to play a leadership role.
This, of course, all has a direct impact on Australia.
Our relationship with China is one of our most important, not just from a commercial / economic perspective but from a strategic/ political perspective as well.
As Foreign Minister Smith mentioned in his speech at the ANU last October, there is not one issue of importance to us at the international level where China does not have influence, be it regional architecture, global economic coordination, climate change, Afghanistan / Pakistan, Iran, DPRK or Burma.
As a permanent member of the UN Security Council, with ever increasing international clout, we also need Chinese support for all significant foreign policy initiatives, including our bid for a position on the UNSC.
And with this level of engagement and intensity, it is natural that from time to time we will have differences. We need to manage these.
The last time I attended a major gathering of the ACBC’s Western Australian chapter was in Beijing six months ago – during the highly successful visit to China by Premier Barnett.
At that time, we were experiencing a difficult period in the bilateral relationship which saw a confluence of a number of sensitive issues at the same time.
But in the latter part of the year, the work done by both governments has put the relationship firmly back on track.
We saw several very successful senior-level visits in both directions towards the end of last year, including by Executive Vice Premier Li Keqiang, and timely meetings between our leaders on the margins of several major international meetings.
And we expect more senior-level visits this year, particularly given Shanghai will be hosting World Expo and we will be holding a major “Year of Australia” cultural promotion in China.
Both Australia and China seek a broadly-based relationship. It is very much in our interests that we do so.
That is why we work very hard to develop people-to-people ties and cultural links.
And it is of the utmost significance that some 150,000 Chinese students were enrolled in Australia last year – a world away from the 9,000 Chinese that were studying in Australia just ten years earlier.
Increasingly during my travels in China I come across ‘Australian alumni’ who are engaged in a multitude of sectors across the country.
The alumni web stretches across senior management positions in major SOEs (such as in Chinalco), to innovative self-starters such as those behind Chinesepod – a web-based service helping hundreds of people study Mandarin.
We also saw some 360 000 Chinese tourists visit Australia last year, and our list of sister city/state relationships grow to 78 partnerships (including the new Perth-Chengdu relationship).
These people-to-people links are something we encourage strongly, and look to as building blocks for even closer ties.
But we must be very clear that today China’s interest in Australia is overwhelmingly in our resources and energy.
Whatever China’s interests in Australia may have been in years past, today and into the future it is about the inputs China needs to sustain its economic development.
This is obviously to our great advantage, as our trade and economic performance over the past year show.
But is also presents considerable challenges and risks.
Above all, the biggest challenge for us will be not to take this relationship for granted.
Bilateral trade
Of course, on the economic front, our relationship has gone from strength to strength.
Last year China became our largest export market, based on goods exports over the calendar year.
Trade data indicates that our merchandise exports to China rose 31 percent in 2009, while all other major markets, expect for India, declined.
Our two-way trade may reach $100 billion this year, almost doubling what it was when I first started as Ambassador in 2007.
And as you know better than anyone, energy and mineral resources account for the bulk of our trade, and WA is the biggest supplier of these.
Iron ore alone accounts for over 50 percent of our merchandise exports to China.
On the back of China’s incredible surge in infrastructure investment – which I will talk more about in a moment - China’s huge demand for steel has resulted in it relying on imports of iron ore for nearly 70 percent of its iron ore needs, compared with about 44 percent 8 years ago.
And we remind China at every opportunity that Australia remains the most competitive supplier of iron ore, being consistently lower than our other main competitors on a landed basis.
A noteworthy development in the commercial relationship in 2009 was the huge spike in our coal exports to China – which jumped 1240 percent last year to become our second largest export item – on the back of rising Chinese domestic coal prices, transport bottlenecks and to a lesser degree the restructuring of the coal sector in Shanxi.
Indeed, Australia supplied nearly 40 percent of China’s coal imports, including two-thirds of China’s coking coal imports.
Looking forward, we also expect China to become an increasingly important customer for Australia’s LNG, and a major market for Australian uranium.
Investment
But trade is of course only part of the story of the Australia-China economic relationship.
Increasingly, two-way investment is becoming an important element in our bilateral engagement, reflecting the growing integration between our economies.
China’s outbound investment has grown exponentially in recent years; in 2009, for example, it invested US$43 billion overseas, compared with US$2.5 billion in 2002.
China’s need for energy and mineral resources has obviously been a key driver behind this, but other factors have also been at play, such as China’s desire to capture more of the manufacturing value chain and gain access to international brands and technology.
It also needs to find alternative sources of investment for its massive foreign exchange reserves.
And as everybody knows, Australia has been a growing focus for Chinese investment.
Our world-class resources, open and well-developed regulatory frameworks, and technological and managerial know-how make us a highly attractive investment destination.
There has been much commentary about Chinese investment proposals in Australia’s resources sector and our openness towards Chinese investment.
I have spent a lot of time in Beijing emphasising the facts, which clearly affirm Australia’s welcoming attitude towards foreign investment, including from China.
Providing, of course, that the investment is not judged to be contrary to Australia's national interest.
Since November 2007, the Australian Government has approved nearly 140 Chinese investment proposals worth over $44 billion.
Of these, only five have been subject to undertakings, amendments or conditions designed to protect the national interest.
These messages are being heard and understood in China.
I am confident that Chinese firms will continue to be attracted to Australia as a destination for investment. We will also see a broadening of Chinese investment into new areas beyond the resources sector.
Of course, we would also like to see an expansion of Australian investment in China, an issue that we are consistently raising with the Chinese Government.
FTA
One of the best ways our two countries can achieve a long-term, mutually beneficial investment relationship is to conclude our current FTA negotiations.
You will all be aware that the bilateral FTA negotiations between Australia and China have now been going on for nearly five years.
These talks have proven difficult at times.
However, new momentum was injected into the talks by Chinese Vice Premier Li Keqiang’s visit to Australia late last year.
Vice Premier Li clearly articulated the Chinese leadership’s desire to conclude a deal as soon as possible.
As a result we agreed that our officials would meet again later this month to continue talks.
On the Australian side, the political will has always existed for an agreement to be concluded.
The benefits to both our countries of concluding an FTA are clear.
Australia is a world-class provider of financial, education, telecommunication and other services, and access to such services will become increasingly important for China to make the transition to a consumption-driven, tertiary-sector led economy.
A modern constructive framework for considering two-way investment would reflect the new interdependency of our two economies.
An FTA would not only lead to greater integration between our economies, but also build confidence in the region and send a signal that our countries are open to trade and investment.
Political Setting
For those who deal with China, whether it be the government negotiating an FTA, or companies engaged in business, or individuals pursuing their personal interests, understanding China’s political system is essential.
China’s political system is complicated and opaque.
It is difficult for those of us from open, accountable, contestable, political systems, to understand China’s political structures and decision-making processes.
I’m sure many of you have encountered the idiosyncrasies of Chinese politics in your business dealings.
It would seem that leadership succession in the CCP has been institutionalised.
Future leadership is groomed by spending time out in the provinces as Party leaders, and future leaders are rigorously judged on performance.
It is therefore important for countries such as Australia to engage at the regional level for today as well as tomorrow.
In recent times, the CCP has also been making an effort to be more transparent in how it operates, and we are seeing the beginnings of the recognition and protection of individual rights. But these are still early days.
It is clear that, as a society, China is much freer now than at any time in the past sixty years.
Chinese people are pretty much free to choose where they live, work and how they lead their lives.
Economic development has dramatically increased incomes.
The urban, affluent, middle classes can be found now in all major cities of China, busily consuming and travelling, including abroad.
A significant development during my time in China has been the energetic embrace of new means of communication - SMS, blogging, twitter.
As cynicism and mainly boredom with state-controlled media grows, the young and educated are turning in increasing numbers to the internet.
And while the recent Google flare-up has highlighted some of the limits of this freedom, Chinese people have greater access to information than ever before.
We therefore need to put human rights problems in the context of these overall generally positive trends.
That said, we still have concerns about China’s human rights record. These include recent problems relating to renewal of licences of human rights lawyers, religious freedom, the lack of opportunities for ethnic minority groups, unpredictable restrictions on NGOs, arrest and gaoling of dissidents, and clumsy moves to control the internet.
Tibet, Xinjiang, and Taiwan are highly sensitive issues – China regards anything to do with these regions as a “core issue” relating to national sovereignty and territorial integrity.
The Chinese government is aware of the problems it is facing in Xinjiang and Tibet. We hope we can see more flexibility in future in how these issues are managed.
Australia believes dialogue remains the most constructive way to pursue our concerns about human rights with the Chinese Government.
We engage frankly with China about through the longstanding annual Australia-China Human Rights Dialogue, the 13th Round of which will be held this year in China.
We also raise human rights concerns during senior level meetings and through diplomatic channels.
Our Human Rights Technical Cooperation Program has focused on bringing about practical outcomes in legal education, police ethics, and women’s and children’s rights.
International Dimensions
Just as China’s economic transformation is creating internal disequilibrium, it is also doing so externally.
There is not the time and this is not perhaps the place to go into the vast array of complex issues involved.
But I wish to note just a few of the issues the Chinese Government will need to manage.
For China and the international community we are entering largely unchartered waters.
There has not been a time in recent world history when a major global economic power has had a political system which stood so far apart from the mainstream of political systems.
With China’s greater economic weight, China and its neighbours are having constantly to re-calibrate their relations.
No more important and challenging example of this is the relationship between China and United States.
With China now the world’s largest exporter, soon to be the world’s second biggest economy, and now the world’s largest emitter of greenhouse gases, the world will increasingly demand a greater contribution from China to global governance.
But China is not only unaccustomed to this role, its entire development strategy over the past three decades has been to keep a low profile internationally, while working on its economic development.
This is no longer sustainable or acceptable to much of the international community.
China is likely to come under increasing international pressure in at least three key areas:
- global macroeconomic coordination, including exchange rate management;
- climate change; and
- trade liberalisation.
It remains to be seen how efficiently and quickly China will adjust to the new international conditions that it has itself created.
China’s economy
The second most frequent question I am asked as Ambassador is ‘will it continue’? The question refers of course to China’s remarkable economic story of the past three decades.
The scale and pace of China’s growth is remarkable.
Even in the three years that I have been Ambassador, China has changed substantially.
Over those three years:
- China’s per capita GDP grew by an estimated 40 percent
- China added about 20,000 kilometres of new railway lines and expressways; and
- annual auto production rose 56 percent to reach nearly 14 million units last year, surpassing the US.
China has successfully navigated its way through the Global Financial Crisis, and is again likely to achieve GDP growth of between 8-9 percent in 2010, although a moderation in growth can be expected in the second half of this year as monetary policy is tightened.
And while there are a number of challenges facing China’s policy-makers as they look to shape China’s next phase of economic growth, I personally am optimistic about the prospects for the Chinese economy.
This is particularly so when I see the immense growth which is taking place in China’s booming inland provinces.
Infrastructure
As I mentioned earlier, I would like to talk about China’s infrastructure development, and what is happening in the provinces. These two topics are closely intertwined, and both are undergoing remarkable transitions.
As those of you who travel to China well know, nothing illustrates the rapid development of the country more vividly than the speed at which major infrastructure projects are being rolled out across the country.
This is even more so the case following the roll-out of government stimulus over the past year, which has had a heavy infrastructure focus.
Indeed, a visit to one of China’s second or third-tier cities these days often leaves you feeling as if you have just spent the day walking around a giant construction site.
The transport routes linking China’s first-tier coastal cities with the interior are a particular focus of investment.
Over the past few years, China has undergone an expansion of its expressway system unseen since the US’s interstate highway expansion of the 1950s.
Between 2001 and 2008, China’s expressways more than trebled in length to 60,000 km, equal to those of Canada, Germany and France combined and rapidly approaching those of the US.
China built another six major airports in 2009, bringing the national total to 166.
Under current planning, there will be 244 airports in China by 2020, with over 80 percent of China’s 1.3 billion people living within 100 km of an airport.
The most stunning example of China’s transport infrastructure at the moment is the large-scale expansion of its high-speed rail network.
China is building 42 new high-speed railway lines – totaling 13,000 additional kilometers of track - over the next three years, accessible to about 90 percent of China’s population
This highly ambitious program will need huge amounts of steel, which of course is good news for WA’s iron ore producers.
By the end of 2012, China's high-speed railway is expected to account for half of the world's total length.
There is much debate about whether such infrastructure spending is wasteful or sustainable.
And it is certainly true that policymakers may see new roads and railways as an easier route to maintaining growth and providing employment than making tougher structural changes.
However, I don’t believe China is at risk of emulating the “bridges to nowhere” phenomenon.
Despite the large size of China’s major cities, just over half of China’s 1.3 billion people still live in rural areas.
As 10 million of these rural residents enter China’s cities each year, the demand for new housing, utilities and social infrastructure, and transport to connect these cities, will remain strong.
And the potential productivity gains from transport infrastructure in particular are substantial and will continue to flow through the economy for years ahead.
Once China’s high-speed rail network is complete, China’s major cities will be increasingly integrated: travel between Beijing and Shanghai will be cut from 12 hours to four, and travel between Shanghai and Hong Kong reduced from 18 hours to six.
A good example of these improved transport links supporting economic development is the central province of Anhui – incidentally, the home of both China’s President Hu Jintao and Vice Premier Li.
Until recent years, it is no exaggeration to say Anhui’s most well known export was the rural labourers it provided to China’s booming coastal cities.
But now, assisted by improved road and rail links that have cut travel time to the major cities of Shanghai, Nanjing and Wuhan to several hours, Anhui’s economy is developing rapidly (particularly its auto sector) and becoming increasingly attractive to outside investors, including from Australia.
Just as importantly as transport infrastructure, investment in the “soft” infrastructure of telecommunications is being rolled out rapidly in China.
Mobile and wireless internet access is generally very good, with few “black spots” around the country. I have even been able to use my Blackberry in the Gobi Desert.
Of course, as the recent Google dispute has highlighted, investment and innovation in this sector will continue to be balanced against the government’s concern at the political implications of fast and free information exchange.
Importance of China’s regions
I asked at the start of my talk tonight which province has the highest growth rate and which city the highest per capita GDP.
You might have been tempted to nominate coastal regions and cities like Zhejiang, Shandong, Guangzhou, Shenzhen, Shanghai or Tianjin.
But both of these accolades belong to inland areas.
Inner Mongolia, which has recorded the fastest growth rate for the last seven years, grew by 17 percent. And Ordos, a city of 1.5 million in Inner Mongolia, recorded a per capita GDP of US$15 000.
I believe we can achieve greater economic integration with China through deeper engagement with these second and third tier cities and regions.
And the provinces in these areas have now been the major beneficiaries of the central government’s stimulus package.
The huge municipality of Chongqing in China’s west, with a population of some 33 million, for example, posted GDP growth of 14.9 percent in 2009.
And the once old rust-belt province of Liaoning in China’s north-east grew 13.1 percent.
Whenever I travel throughout China I am always impressed by the pace of development in these areas, many of which have set up special economic zones to attract foreign investment, and are encouraging the use of innovative and green technologies.
The factories, industrial plants and mines that I see on these travels are in many respects on a par with standards seen in the world’s most advanced economies.
And the scale is usually larger than comparable industries in the west.
Ordos, which I mentioned earlier, has built its wealth on the back of coal. I visited a remarkable underground coal mine in Ordos late last year, run by Shenhua, which has recently invested in coal mines in the Hunter Valley in New South Wales.
The mine sits about 300 meters below the surface and has very little gas and accordingly is quite safe. Its yearly production is over 20 million tonnes.
The mine is highly mechanised, with half a dozen workers at the coal face.
But not a lump of coal is touched by human hands from the time it is ripped out underground and sent 1500 kilometres to near the eastern port of Qinhuangdao.
This is just one example of the astounding transformation that China’s inland regions are experiencing.
The government leaders that I meet in these regions are very cognisant of the challenges they face in continuing to provide economic growth, while paying greater attention to issues such as energy usage, the environment and the social security.
It should not be forgotten that these provinces are home to extremely large populations; the central province of Henan, for example, has 100 million residents.
The Party Secretary there told me late last year that much of Henan’s growth for the next decade would be driven by the huge scale of urbanisation underway – a million people a year moving from rural parts of the province to cities.
And China’s provinces are becoming increasingly integrated, creating major hubs of activity, for example in the upper Yangtze River region of China’s west and the Bohai Bay rim in China’s north-east.
The leaders of these provinces are keen to deepen their international connections, and often have a good understanding of Australia.
Many of them will go on to hold positions in the central government.
The benefits to Australia of engaging with these leaders, and with China’s emerging regions, are therefore manifest.
There are already some good examples of connections between China’s provinces and Australia.
For example, more than 600 carriages for Sydney’s upgraded CityRail network are currently being built in Jilin Province by Changchun Railways Company.
China’s world-famous Tsingtao beer uses barley imported from Australia in its brewing facility in Qingdao in Shandong Province, and has ambitions to become a major distributor of Australian wine in China.
The ANZ recently opened its first rural bank in China, which is in Chongqing.
In a bid to expand and diversify further our economic ties with China, a number of Australian Government ministers in recent years have travelled to major regional cities to see first-hand the rapid development taking place in China’s inland provinces.
Reflecting the importance of China as a trading partner of Australia, Trade Minister Simon Crean has been a frequent visitor to China. He invariably includes provincial visits in his itinerary as part of his second track trade diplomacy – not just focusing on policy outcomes in Beijing, but pushing for commercial outcomes in the regions.
I hope to see further Australian engagement with these regions in China, not only by Australian ministers and government officials, but Australian businesses, students, academics and tourists.
Conclusion
I welcome the opportunity tonight to discuss with you my thoughts on China.
And I look forward to continuing this discourse on China with all of you.
It is clear that China’s rise has profound implications for Australia
Our relationship with China will not always be easy or straightforward, but the rewards for both sides of deeper engagement are too great to ignore.
I believe that Australians are comfortable with the reality of China’s return to its historical status as a great power, understanding that as China grows, so we grow.
The challenge for Australia is to take advantage of China’s re-emergence, to think creatively about what we have to offer, and to position ourselves favourably for China’s future development.
Beyond our abundant resources, we offer China innovation, experience and ideas which are crucial for the next phase of China’s growth.
The great majority of Chinese people that I meet have a positive view of Australia, are aware of Australia’s strengths, and are genuinely interested in deepening the connections between our two countries.
But we need to be mindful not to take these connections for granted.
We should vigorously pursue new avenues of cooperation, not only with China’s emerging regions, but through new forms of dialogue.
Such as the informal one and a half track dialogue proposed recently by Foreign Minister Stephen Smith.
Or through new business forums, which I know the ACBC has been keen to promote.
Increasing mutual awareness and understanding will help build on the strong people-to-people links we already have, and will allow us to manage our differences when they arise, as inevitably from time to time they will.
Above all, we should be optimistic about the China-Australia relationship; we should be confident in our ability to embrace China’s rise; we should be creative and adroit in realising the diversity of opportunities, and we should stick firmly to our values and principles.
I’m confident that in these ways we can build on the existing strong relationship in ways that advance our national interests.
Thank you.