China-Australia Free Trade Agreement

2 December 2014:

Australia’s free trade agreement recently struck with China has been naturally lauded as a step change in the relationship between the two countries. There is a no doubt increased trade flows lead directly to a greater understanding between the countries involved, a wellspring from which an even deeper relationship can develop as investment dollars flow. That’s the long-term play when it comes to free trade agreements – witness what is now dubbed the $US1 trillion relationship with the United States.

China will catch up, but it will take some time. Of course, playing the long game is something that we know the Chinese are good at. It’s only been the last two centuries of the past 20 that the Chinese have not been a dominant economic super power.

China’s economic diplomacy has been both sophisticated and buttressed by big dollars. Energy contracts in 2007, agribusiness deals now – China’s trade relationship is converting into investment dollars too.

To some, this indicates a binary choice in our relationships – the US or China – but of course it’s the opposite.

Little remarked in the last week is the halo effect the free trade deals with China – and Japan and Korea earlier this year – have on foreign investment from other countries looking to tap the trade and investment flows into Asia.

US multinationals – already with a firm presence in Australia – are more likely to commit investment dollars into Australia as our trade ties deepen in the region. (To say nothing of portfolio investment as fund managers look to the proxy play).

US corporates eyeing the Asian market and growth opportunities can in fact establish a beachhead in Australia, find a country with similar cultural touchpoints, rule of law and a great climate.

And of course, the free trade agreements this year need to be seen in the context of a broader trade pact agenda – the Trans-Pacific Partnership Agreement could be concluded early next year. The dozen countries negotiating that, including Australia and the US but not China, are signalling success. And China is watching – with its proposal for an even broader trade pact agreement, Xi Jinping could be opening the door for the TPP to be wrapped into a more ambitious program of trade and investment. It’s an Asian Century indeed.