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Australia-China trade: Beijing means business

Australia-China trade: Beijing means business
Published 13 Mar 2014 

History shows that social unrest and political upheaval have one of two elemental causes: either empty stomachs or full stomachs. Hungry people are angry people, while a well-fed middle class looks beyond basic needs to metaphysical desires, like having a say in government.

The central security challenge of Communist China has always focused on pulling the right levers to balance central authority with economic freedom and to control the rumblings of a billion stomachs. Under Mao, the preoccupation was coping with economic retardation, whether from natural calamities or man-made catastrophes such as the disastrous Great Leap Forward.

When Deng Xiaoping opened China's doors in 1978 to market reform, Beijing had to confront a new set of problems. Economic devolution, particularly into so-called Special Economic Zones, was impossible without a degree of political autonomy and administrative decentralisation. But how much was too much, before a consumerist middle class began looking beyond cars and refrigerators to satisfy its needs?

In one of those delicious ironies of history, China's economic boom is forcing its political leadership to consider once again the vexing problems posed by empty stomachs or, to use the more academic label, Food Security.

The path to wealth, prosperity and urbanisation has largely ignored the destructive impact on China's two most precious commodities: land and water. The extent of environmental degradation in China today is, literally, breathtaking. Its air is more lethal to the human respiratory system than Benson & Hedges. Immense expanses of its arable land have been covered in concrete and steel. The mineral content of its soil is so meagre that only millions of tonnes of phosphates can sustain its agriculture. Chemical and industrial effluent has been allowed to leech into every one of its waterways. [fold]

As of today, China simply cannot feed itself without a comprehensive transformation of its economy. But the reforms required might not sit well with its aspirational middle class, whose steady rise to affluence would probably be halted were China forced to shift down its economic gears.

Over the last 30 years, China's developmental needs have been sought in the world's forests, quarries and mines. Beijing is now looking for answers among mother earth's farms, fields and ranches. Scandals like the 2008 melamine baby milk outrage have intensified the Chinese middle class appetite for clean and green food.

So China has a huge problem, and last week, it unmistakably signaled its belief that Australia offers a significant part of the answer.

The public reference on 5 March to the Australia-China Free Trade Agreement in the opening session of the National People's Congress must be interpreted in the macro context of China's food security crisis. This bodes well for the success of Prime Minister Abbott's trade and business mission to China next month, during the landmark Australia in China Week. Ready or not, a Free Trade Agreement with China is coming soon. Under the right circumstances, it could even be signed the next time President Xi Jinping visits Australia.

But what of Australia's national interests, which revolve less around food security and more around perpetuating an expected standard of living and ensuring an accustomed quality of life?

Are we positioning ourselves now to take maximum advantage of the benefits, while hedging against the costs, of tariff-free trade with China? For there will be a downside. Just ask our neighbours across the Tasman what New Zealand's 2008 trade agreement with China has meant for them, especially in areas such as access to cheap Chinese labour and competition with certain Chinese manufactured goods.

By interesting coincidence, on the same day Australia-China trade relations received such a public airing in the Great Hall of the People, the Victorian Government released its Food to Asia Action Plan. In the words Cambridge scholars used to describe the Oxford Dictionary, it is a useful if tendentious work. Looking beyond the election year hyperbole, it's the product of some imaginative collective thinking by elected officials, bureaucrats and primary-industry stakeholders across Victoria.

But it is more armchair guide than action plan. It is a cost-benefit analysis without the cost, presenting only one side of the story. There is little mention of how free trade agreements across Asia might impact Australian exporters and no mention of China's expectations and how these might be received by Australian producers or the Australian people.

Leaving aside the political imperatives and subtle demands by Beijing to rethink our relations with the US, there will be potentially unpalatable economic offshoots in the post-China FTA world.

For Australia, it won't be all about exports alone, with little changing on the home front. A new climate will be created for both countries. We should anticipate joint ventures, outright takeovers of SMEs, imports of Chinese agricultural machinery, huge China-funded infrastructure projects, listings on the Shanghai-Hong Kong stock exchange, trade training courses for Chinese students and an influx of Chinese workers. All of which will be great news for our economy but a hard sell to some Australians.

Dynamics are changing every day. A 2011 KPMG study of Australia-China trade relations noted that 'Chinese investors see the benefit in securing land assets, notably the source of food production.' In June 2013, a McKinsey report on the Chinese upper middle class said business strategies needed to reflect China's new constellation of rising incomes, shifting urban landscapes and generational change, since 'millions of Chinese are trading up and becoming more picky in their tastes.'

An Australia-China Free Trade Agreement has been on the cards for some years. An impressive body of work has already been completed to scope its implications and how Australian exporters should prepare themselves.

Until now, however, this has all been conjecture. In the words of the Chinese proverb, 'ten thousand things change, in the end nothing changes.' But an agreement will become reality in the life of our current federal government, because signing it is now more in China's national interest than our own.

There is yeoman's work ahead of us to rebuild our ports and infrastructure, to reform our regulations, to rethink our customs and quarantine procedures, to reinvigorate our declining cooperative model for penetrating China markets and to differentiate our brands and products in line with rapidly evolving Chinese middle class tastes. In what will be a race to the swift, some states have already burst through the barrier, while others are still under starter's orders.

Very soon, ten thousand things will change. In the end, little will stay the same. Freeing up bilateral trade with 1.3 billion people will do that. For its own reasons, Beijing means business. We should understand and prepare for that now as best we can.

Photo by Flickr user ConzNL.

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