China’s growing economic
There is mounting concern at Australia’s growing reliance on commodity exports to China to contain the deteriorating balance of trade figures. “China’s hunger for resources may indeed be a boon for some parts of the Australian economy. However, the successful economies of the future will not be sustained on the exportation of resources. Australia can and must do more to encourage the growth of (strategic) high value added manufacturing. ”
Even so, the Parliamentary Committee has pointed out: “As it moves away from its traditional rural base to becoming an industrialised country, China’s demand for resource commodities and energy will increase significantly. With i...
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...ts abundant resource commodity and energy stores, Australia is well placed to gain from China’s growing industrialisation. ” In the opinion of Alan Oxley,: “In the longer term, the economic relationship will broaden… including some that do not traditionally headline bilateral economic relationships- namely tourism, education and migration- that will generate a case for deeper economic integration through an FTA.
” China too foresees a broader trading relationship. The Chinese Ambassador to Australia, Madame Fu, has stated: Australia has rich reserves of energy and mineral resources while China has growing demand …Australia has a mature agriculture, especially a strong dairy sector and China has an expanding market for dairy products as the living standard of the people is raised… Australia has excellent scientists, China has a huge manufacturing sector eager to adopt science and new technology…Australia’s strong services sectors such as education, tourism, finance and legal consulting can easily find demand in China. ”
Strong demand from China has driven up resource prices- and together with falling prices of imported goods like manufactures, including ICT- has enabled Australia’s terms of trade to be at its highest level in 30 years. On current forecasts, according to UBS chief economist, Scott Haslem, “China is on track to be our largest one export market in five to six years”. Tim Harcourt says “Australia’s high value manufactures (particularly in design and engineering) are being utilised and in-market professional ‘knowledge-based’ services (particularly in architecture, construction, project management) are in demand in China”.
Indeed, if the views of these observers are taken into account, the complementarities between the two economies are poised to broaden. Even so, the Committee found that there were grounds to consider China a ‘risky place to do business’. Evidence pointed to a legal and regulatory environment that is complex, time-consuming, expensive, uncertain and at times discriminatory. Ian Heath, Director of IP Australia, in evidence to the Committee stated that ‘counterfeiting is rife’ across most industrial sectors in China.
More generally the committee noted the conclusions drawn in a recent OECD Policy Brief on China’s governance: “Corruption is one of the most important problems in China today…” Australia needs to manage five key risks as it heads toward a free trade agreement with China, says These risks are: i. the related economic risks to China continuing to perform well economically; ii. the risk that Australians’ commitment to the relationship could swing too widely through the inevitable ebb and flow; iii.
geo-strategic tensions, and, in particular, conflict with the United States, could upset China’s relationship with Australia and perhaps its approach to economic development; iv. the inevitable domestic political stress associated with sustained rapid economic growth would upset the story of continuity; and v. the deterioration of the multilateral trading system that has served China, Australia and the China-Australian relationship well over the past two decades could weaken Australian opportunity to compete on even terms with competitors in the Chinese market.
In its conclusion, the Committee recommended that that Australia needs to monitor developments in China and the region and have specialists available who are able to analyse events and accurately predict future trends. Australia’s world is an uncertain one. The complex challenges flow from opposition to democracy and open society in the turbulent Asia-Pacific region and marked resentment towards, and perceived inequities from, the process of globalisation. Traditional security concerns continue to befuddle mindsets.
The region alarmingly has eight of the world’s ten largest armies and, after the Middle East, the world’s three most volatile flashpoints- the Taiwan Strait, the Korean peninsula and Kashmir. While freer trade is shaping Australia’s world, globalisation has increased vulnerability to transnational threats for the region. Islamic extremism is not limited by geography and not amenable to negotiation. “The ultimate fear is the possibility of international terrorists acquiring weapons of mass destruction and, through them, the capacity to kill tens or hundreds of thousands of innocent people”.
Consequently, global FDI flows could be adversely affected. Governments might decide that initiatives such as trade and investment liberalisation should be deferred. A more remote possibility is the proliferation of protectionist regimes prompted by rising domestic economic difficulties. In this scenario, Australian thinking on its relationship with the United States and the role the two are destined to play is very clear-headed.
Australia believes that in the foreseeable future, no other country or group of countries will be able to challenge the United States’ overall capacity to shape the global environment. A paper titled, “The Economic Impact of an Australian US Free Trade Agreement,” of the Centre for International Economics, has lucidly expounded on the emerging scenario: “Australia has a vital interest in supporting long-term US strategic engagement in Asia and prevent destabilising competition among the major regional powers… manage rivalries. ”
China’s growing economic, political and strategic weight is the single most important trend in the region. Taiwan will continue to be a potential source of serious tension between the United States and China. The possibility of miscalculation leading to conflict is real, although small. Australia could play a role in easing tensions. Japan is grappling with the challenges of far-reaching economic and political change. But it remains the world’s second-largest economy and source of technological innovation, and a large net creditor of the rest of the world.
Japan is Australia’s most important export market [Table 1]. Its alliance with the United States is strong. Japanese views are increasingly influenced by perceptions of China as a competitor, although economic interdependence is becoming deeper. This is spurring diplomatic rivalry for influence in Asia, particularly in South-East Asia. South-East Asian countries have not recovered fully from the East Asian financial crisis, particularly in terms of lost confidence, and growth rates have not been strong enough to create significant employment opportunities.
In the South Pacific, small states face daunting political, economic and social problems and rising levels of discontent and crime. Clearly, the environment harbours risks. AHOY, FREE TRADE! Australia has been a liberal western country in the placid sea of inward-looking Orientals. Bred on liberalism, Australians naturally took the lead to usher in the gospel of free trade in a region, where the prevalent socio-cultural-religious milieu militated against new ideas, and change.
Nonetheless, as pointed out by Jiro Okamoto there have been three major state-society coalitions in Australian foreign economic policy: ‘protectionists’, ‘trade liberalisers’ and ‘optional bilateralists’. “The rise and fall of these coalitions resulted in distinctive shifts of Australia’s foreign economic policy in the 1980s towards unilateral and multilateral liberalisation and, in the late 1990s, towards bilateral trade and investment arrangements. ”