AUSTRALIAN CHINA BUSINESS COUNCIL / CHAMBER OF COMMERCE AND INDUSTRY

GS05/2008
07 May 2008

Address to the Australian China Business Council / Chamber of Commerce and Industry
7 May 2008

Australia and China: Cooperation in Infrastructure for Resources Development

Thank you so much for the invitation to be here today. It is very timely that we meet to discuss Australia-China trading relations and particularly in the context of infrastructure and resource development.

Some of you might know that I am no stranger to the resources sector. My very first job after leaving school was with BHP in its Whyalla steelworks. My very last job before entering Parliament was with Woodside Energy.

In many ways I am no stranger to the Australian China relationship. While National Secretary of the Australian Labor Party, I worked with the Liberal Party's Andrew Robb to secure an annual New Political Leaders exchange with China. We called it APEC - Australian Political Exchange Council.

In the 1990s Kevin Rudd and Julia Gillard were participants in this program. I was reminded the other day that a young Hu Jintau was a guest of our government. Such programs help build political and personal relationships and understanding. Today, more than 50 young leaders have participated.

The Rudd Government is committed to a strong relationship with the People's Republic of China. This is not only due to our Prime Minister's knowledge of China and his great skill at Mandarin, but;

• it is because we acknowledge our peoples share a history of trading over 300 years old;

• it is because we have an interdependent trading relationship; and

• it is because we recognise that we need to act now to overcome potential blocks to the growth of this relationship.

There is an argument for tracing our economic ties back to the trade of the sea cucumber or trepang. In China it is known as hai shen. As early as the 1670s and perhaps even centuries earlier, Chinese-owned fishing boats headed south looking for the delicacy found in Australia's tropical waters.

The arrival of European settlers led to further trade with China and this trade was a key motivating factor in the decision to establish the colony. As the colony expanded, so too did our trade with seal skins and sandalwood becoming lucrative exports.

Gold was a significant discovery that boosted the Chinese presence in Australia. Between 1852 and the end of 1856, there were 25,000 Chinese in Victoria - around 4.6 per cent of the population. Many came to Australia for a few years to make their fortune but returned home with little to show after years of back-breaking work. Australia in return benefited greatly from their presence and they provided a valuable contribution to building cities such as Sydney, Melbourne, Darwin as well as many regional centres.

Our trading relationship has waxed and waned over the past 120 years. The company that was to become The Big Australian' - BHP - first began exports to China in 1891. At the turn of the 20th century, Australia's biggest exports to China were silver bullion, sandalwood and lead. In return, we were importing tea, rice, textiles and opium.

In 1901 Australia had just become a self-governing but not yet independent Dominion, tied to the British Empire and insulated from its regional environment. The White Australia Policy, high protection and a generally fearful approach to Asia dominated our foreign policy for much of the first two thirds of the 20th Century.

One of the most significant events in our relationship occurred in 1972. As one of his first acts as the newly elected Labor Prime Minister, Gough Whitlam recognised the Peoples Republic of China. Whitlam was one of the first western leaders to open our door with China in an era when relationships between east and west were, to say the least, tenuous.

At the time of this momentous step, Australian trade with China accounted for 0.07 per cent of exports and 1.2 percent of imports.

The 1980s saw China-Australia relations develop under the Hawke reform agenda. The internationalisation of the Australian economy and its reorientation towards East Asia was of historic importance to our country. The market reform and internationalisation of the Chinese economy in turn was of historic importance to the global economy.

It wasn't all about economics though. In 1984, Prime Minister Bob Hawke and Premier Zhao Ziyang agreed that Australia and China needed to develop a relationship model that allowed for different social systems and at different levels of development. An important factor in this would be the close personal relations established between Australian and Chinese leaders and officials.

This relationship framework was in place as China chose Australia for its first direct foreign investment abroad, including the joint venture with Hammersley Iron to build the Mt Channar iron ore mine in the Pilbara.

In 2007 two-way merchandise trade between China and Australia reached $56.2 billion, an increase of nearly 15 per cent over the 2006 figure. China's rise to this position has been rapid and impressive - as has its economic growth over recent years.

Not only has there been a significant increase in trade but a substantial change in the goods traded. China's main exports to Australia include advanced electronics, textiles and clothing, toys and games and furniture. Australia in return exports technology, software, iron ore, wool, copper and other ores, coal, nickel and LNG.

Iron ore at nearly $9 billion was by far the largest export commodity. It was more than five times larger in value than wool, our second largest item at $1.7 billion. We now supply nearly 40 per cent of all China's iron ore imports.

As the Federal Member for Brand, I must acknowledge the strong growth in trade between China and Western Australia. In 2006, 40 per cent of China's iron ore imports were from WA. China has become WA's largest export market and in 2006-07 bilateral trade reached $15.3 billion.

WA's natural gas reserves will only add to the already strong trading relationship. The LNG pilot project in Shenzen which first received WA LNG in 2006 has laid the foundations for future LNG partnerships, Gorgon and Browse to list but two.

WA-China trade has been assisted by many factors including extensive support from the Australian Government - which began in the 1920s with Prime Minister Billy Hughes appointing Australia's first trade commissioner to Shanghai - and the WA trade office in China headed by BJ Zhuang.

Six successive Australian Ambassadors to Beijing came from Perth, our current Ambassador Dr Geoff Raby broke our record run.

Two-way services trade between China and Australia is also increasing rapidly and reached $3.6 billion in 2006-07. We have witnessed growth in services trade of more than 22 per cent per annum over the past five years.

Australia's services exports to China are dominated by education and tourism. China is now our largest source of overseas students and I am sure it will not be long before Chinese visitors to Australia outnumber other Asian nations.

Our economies complement each other. China is yearning for greater skills and education and Australia has some of the best educational facilities. China is resource hungry and Australia is rich in resources.

For some years now, transformation of our two economies has brought prosperity to our city, our state and to our nation. In the years when large sections of our agricultural sector have been hurt by drought, resources have largely underpinned our national prosperity.

According to IMF calculations, China contributed over one-quarter of global growth last year alone. This now makes China easily the largest contributor to global growth in the world.

It is fair to assume that China's status as one of Australia's largest trading partners will remain for the foreseeable future.

The challenge for Western Australia and the entire nation is to maintain the momentum and be a reliable, high quality supplier that can deliver on time, in full, year after year.

One significant area of concern will be our ability to expand and upgrade our key infrastructure, particularly in the resources sector.

This is what I want to focus on today - our pressing need to invest in Australia's national infrastructure. This investment will lead to further growth in our already strong relationship.

In order to get the most out of our infrastructure, we need to ask ourselves some fundamental questions.

How do we plan for extensive, long-term development of our infrastructure?

How do we get all levels of government and the private sector working together to ensure that we can deliver on infrastructure development?

How do we continue to deliver against the growing demand from China for our resources and other products?

Already we are faced with capacity constraints. Demand for Western Australian resources has been growing faster than expected at a time when there has been insufficient investment in our infrastructure.

Without careful planning and investment, these constraints will restrain our future prosperity.

We are currently witnessing bottlenecks caused by inadequate, outdated and poorly planned infrastructure. These bottlenecks are becoming a serious impediment to our valuable trading relationship.

Costly delays affect our reputation as a supplier and disadvantage us against our competitors. We have no exclusive rights to supply China or any other market.

Clearly the importance of well-planned infrastructure investment and development for Western Australia's continued economic success and wellbeing cannot be overstated.

Too much is at stake and the loss of opportunity too great, for this matter to be treated lightly, or for poor planning and ad hoc decision making.

That is why we need to ensure Australia has:

• Efficient transport networks to deliver commodities from the source to port;

• Modern information and communication technology;

• A long term plan for a sustainable water supply;

• A long term plan for ensuring energy supplies; and

• Planned social infrastructure such as schools and hospitals to support a growing population

All of these services are critical for maintaining Western Australia's growing living standards and must be tackled head-on for the future of the State.

Many of you may be familiar with the Chinese proverb One generation plants the trees, and another gets the shade.'

Decisions made today, both good and bad, will affect generations to come.

Good policy and good planning today will help secure the prosperity of our children, grandchildren and future generations.

According to a 2004 estimate by the Australian Council for Infrastructure Development, a lack of investment in public infrastructure over many years is now costing the Australian economy some $6.4 billion a year in lost production.

The Rudd Government has identified its priorities for securing Australia's future prosperity. Increasing our nation's productivity is one of these. Our productivity improvement has lagged in recent years and it must be addressed quickly.

To create a more productive Australia we must create world-class infrastructure that allows us to get our goods to market quickly and efficiently. The supply chains and physical support structures must have the capacity and every part of the supply chain must connect smoothly and effectively with every other part.

To achieve this, a completely new approach is required. A plan that harnesses all our resources and puts an end to the blame game is central to this approach.

Most of you will be aware of the Rudd Government's newly created advisory body, Infrastructure Australia.

Infrastructure Australia will take stock of our existing infrastructure and find ways to overcome infrastructure shortcomings.

This new advisory body comprises private sector and government interests, and you will be interested to note, chaired by Sir Rod Eddington who grew up and was educated in WA.

This appointment also signifies the importance we place on the role of public private partnerships, to meet the investment needs of the nation.

Sir Rod will have a twelve-member board and the government will shortly announce his eleven colleagues. All will be highly experienced and knowledgeable in infrastructure development.

Infrastructure Australia's agenda is to advise governments, investors, as well as the owners and users of infrastructure on matters including:

• national infrastructure priorities;
• the policy and regulatory reforms needed to improve the efficient utilisation of national infrastructure networks;
• options to address impediments to the development and provision of efficient national infrastructure; and
• possible financing mechanisms.

This strategic body's first job will be to conduct an audit to determine the capacity and condition of nationally significant infrastructure.

After this, it will draw up a national priority list for action which it will deliver to the Council of Australian Governments in March 2009.

This list will provide government and industry with a pipeline of projects, which facilitates better long term planning and construction of key national infrastructure projects.

It will also identify how industry and governments can be smarter in using existing infrastructure, and provide advice on overdue regulation changes to remove barriers.

The trading relationship between Australia and China which began around 120 years ago needs such an approach to ensure that it continues to grow into the future.

As I mentioned earlier, in many ways our economies complement each other but the Rudd Government does not take this fact for granted. We are committed to investing now to make certain the future prosperity of both our nations.

Ladies and gentlemen, before I conclude, I'd like to make a few remarks about the Prime Minister's recent visit to China.

One of the main objectives of the PM's visit was to diversify our economic and trading relationship beyond resources and energy.

One of the outcomes was to unfreeze negotiations on the Free Trade Agreement between our countries.

Both nations have committed to ensuring the FTA will be comprehensive, balanced and mutually beneficial.

I'm pleased to note that there has been further progress as a result of meetings between our Trade Minister and the Chinese Commerce Minister.

Negotiations are ongoing and continue to be challenging, but given the possible gains for both sides, it is important we bring the negotiations to a successful conclusion as soon as possible.

The extraordinary growth of China has presented us with great opportunity, but to take full advantage of that opportunity we need to plan.

The Rudd Government recognises the valuable role that the ACBC plays in fostering good relations between our two countries.

The benefit of this series of seminars is that it presents itself as the perfect opportunity to continue growing our already strong relationship.

On a personal level, I value your advice, and look forward to continuing working with you into the future.