What's happening at the
Sunday 20 Aug 2017 | 02:56 | SYDNEY
Sunday 20 Aug 2017 | 02:56 | SYDNEY

Economic diplomacy brief: China’s world, infrastructure games and export success

Modern Beijing (Photo: Flickr/Tom Davidson)

By

COMMENTS

23 March 2017 14:21

To market or not

Former ambassador Stephen Fitzgerald provided the essential framework for thinking about this week’s visit by Chinese Premier Li Keqiang’s with his conception of Australia already being in a Chinese world, whether we like it or not. The idea had particular resonance with this writer having paid two visits to the University of NSW library this month to find myself literally surroundeded by students who appeared to be ethnic Chinese within visual range of my seat.   

But while Fitzgerald is generally downbeat about Australia’s capacity to manage a relationship with the Sinosphere that is quite different to that of the US, events in Geneva this week show how Australia has staked out alternative ground that should not be forgotten in diplomatic argy bargy with China.

With little fanfare, the Trump administration has done the most unlikely thing and leapt to the defence of the European Union in a trade dispute.

China has sought a dispute panel in a challenge to Brussels' refusal to treat it as a market-driven economy whenever the EU calculates anti-dumping duties on Chinese imports. The US has chimed in to argue the idea of China as a market economy is 'divorced from reality' because 'China's government continues to intervene heavily in its economy, resulting in serious distortions to the international trading system'.

Australia, however, is well inside the Sinosphere on this issue. Having given socialism with market characteristics the tick of approval in 2005 as part of the long march towards the 2015 China-Australia Free Trade Agreement.  

Unbelted

After the last election Australian politicians got a surprisingly tough warning about the risks of being lulled into embracing China’s amorphous One Belt One Road (OBOR) initiative too fast.

Amongst the often anodyne briefing material for new Members of Parliament, the China analyst Geoff Wade rang alarm bells about China using its massive financial assets to dominate smaller economies via the Eurasian infrastructure initiative. Wade had notably raised some of the first questions over the Port of Darwin partial sale.

His OBOR warning seems to have percolated deep into the system with indications the federal government is resisting any formal linkage between its Northern Australia Infrastructure Facility and the Chinese development program, despite previously supporting Australian business in seeking work from the OBOR plans.

The Australian's Primrose Riordan reports that the government had found it hard to pin down how the scheme actually worked. This has undermined prospects for a more formal cooperation between the two infrastructure initiatives during Li's visit this week.

But this is hardly a showdown like the initial Australian refusal to sign up to the Chinese Asian Infrastructure Investment Bank (AIIB) (in line with US and Japanese concerns) because there is plenty of uncertainty about how the OBOR will really work in other parts of the region.

Peter Cai has previously reported here on India’s nervousness about how China is planning to build infrastructure in Pakistan. (See his new Lowy Institute OBOR paper here). And we noted how Thai officials have struggled to bed down infrastructure deals with China.

Despite the increasingly big numbers for OBOR projects flying round, China has a long way to go in actually delivering on them given its own rising debt issues. Lending activity by the Asian Development Bank and the new AIIB is one very crude (and​narrow) proxy for judging how much China is changing the facts on the ground and the answer so far is not so fast. According to this China Economic Review estimate the AIIB approved eight projects last year while the ADB approved 126 as it stepped up activity with the help of a new Japanese funding facility.

But this is still early days given the amount of promised Chinese capital behind the OBOR at a time when the US is loudly promising to slash its development spending.  And while there are questions marks about the quality of the selection process for OBOR lending projects, Australians are also yet to the see the cost benefit analysis for the first projects to emerge from the potentially politicised northern Australia fund.

Learning by export

Free trade deal hyperbole might have left many voters sceptical about links between exports and prosperity, albeit to a lesser extent in Australia than in the US. But it is still curious that a Department of Industry, Innovation and Science study using new data on the value of exports hasn’t filtered into the broader political debate.

The study draws on detailed new microdata about business activity which combines Australian tax office data with Australian Bureau of Statistics to provide a better measure of how much Australian business is involved in trade.

It finds that over the eight years to 2014, businesses involved in exporting were on average 40% larger in value added and 24% larger in employment than non-exporters. Full time workers in export businesses were paid 11.5% more in full time wages. This is all consistent with the conventional wisdom about export businesses being stronger and more competitive (at home) due to being exposed to both new ideas and competition abroad. Although there is an alternative theory that exporters simply have a superior product in the first place.

Nevertheless, this survey provides a new sense of how many businesses are involved in exporting with 65,000 or 18.5% of the 350,000 surveyed businesses doing so. This is notably higher than the latest Australian Bureau of Statistics data that identify about 51,000 exporters, with an annual growth rate of 9%.

However, as the DIIS study notes, Australian private sector employment dependence on trade is only around 20%. This is significantly lower than comparable resources exporting countries such as Norway, New Zealand and Canada and leaves room for general economic gains based on the superior performance of exporters.

The DISS study is also useful for the way it goes beyond dividing the world into exporters and non-exporters to reflect the practical reality that there are also on-again, off-again exporters. The bottom line is that intermittent exporters don’t have the longer term superior performance in valued added and employment that the overall export class has. So just being an exporter now is no guarantee of longer term success.

You may also be interested in...