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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

15 July 2012

Treasurer's economic note

Four decades ago, China was a very different place. There were no skyscrapers on the city skylines, only a handful of cars on the country's roads and the nation's middle class was virtually non-existent. China's economy and society were still largely closed to the outside world. Despite its isolation, Prime Minister Gough Whitlam knew Australia couldn't ignore a country of such size and potential. He reached out to China, establishing diplomatic ties in 1972. It was a decision of remarkable foresight. Back then, even someone like Gough would have struggled to envisage the extraordinary relationship that was to flourish over the next 40 years. The value of trade between Australia and China has skyrocketed 1000-fold from around $110 million in 1972 to more than $110 billion today. Similarly, a growing middle class has seen the number of Chinese tourists visiting Australia each year go from less than 500 in 1972 to more than 500,000 today. And Australian resources now help make many of the skyscrapers and cars that abound in today's China.

A changing China

Visiting China during the week - my seventh trip as Treasurer - I was struck not just by the progress over the past few decades but the progress that's set to continue over the decades ahead. China's remarkable growth has meant the size of its economy has been doubling every seven to eight years. And in this decade - by 2016 - China is likely to surpass the United States as the world's largest economy. And it's not just China that's changing. This story is being played out to varying degrees across Asia - in India, in Indonesia, in Vietnam. The proportion of global GDP within 10,000 kilometres of Australia's shores has doubled in the last 50 years to around one third. And that share is forecast to double again to almost two-thirds by 2050. What this means is that the changes we've seen so far are by no means complete. While there will be bumps along the road, Asia's development still has a long way to run.

For Australia, the implications of all this are truly enormous. Many will view this transformation exclusively through the prism of the mining boom . That's understandable when you consider the gathering pace of investment in the resources sector, with a half a trillion dollars' worth of projects underway or in the pipeline. But the demand for resources is just the first taste of the economic transformation that's underway. Rising incomes mean Asia's middle class is growing by around 110 million people every year. In less than eight years from now, there'll be more consumers on our doorstep in Asia than in the rest of the world combined, with China as the single biggest consumer market in dollar terms. That means hot on the heels of the mining boom, a consumer boom is gathering momentum.

A consumer boom

You get a sense of this by looking at the rapid increase in the ownership of consumer goods in China. Between 2000 and 2011, the number of cars per 100 urban households is estimated to have risen from less than one to 18; computers from eight to 80; and the number of mobile phones from 16 to over 200. As the Prime Minister said last year  when announcing the White Paper on Australia in the Asian Century, when a person first gets a car, a computer and a mobile phone, it changes their life. When hundreds of millions of people first get these things, it changes the world.

Australia's tourism operators, education industry and other service providers, as well as manufacturers of high-end goods and makers of fine wine and food all stand to gain from the growing ranks of Asia's middle class. In fact, many businesses are already seeing the benefits. Everyone knows sales of iron ore and coal have surged over the past decade. What's less appreciated is the fact that the exports of services to China are increasing quickly as well - at an annual rate of 17 per cent over the past decade. In fact, Australia earned more from providing tourism, education and other services  to China last year than it did from selling coal. And while the conventional wisdom is that Australian manufacturing can't compete with China, you may be surprised to learn that our exports of manufactured goods to China have increased at an average rate of more than 10 per cent each year over the past decade thanks to Australian innovation and design.

Meeting new opportunities

Despite our success so far, we don't have a free pass into Chinese or Asian markets. The opportunities of the Asian Century won't just fall into our laps. When Prime Minister Whitlam established diplomatic ties with China 40 years ago, he was part of the proud history of reform that has helped make Australia what it is today. This tradition continued during the 80s and 90s, when Bob Hawke and Paul Keating floated the dollar, opened up our economy and put in place reforms such as national superannuation. If it weren't for visionaries like Whitlam, Hawke and Keating, we would have missed the start of the Asian Century. And if we don't keep up the hard work of economic reform now, we will miss the next chapter.

That's why we're making huge investments in education and training to ensure our economy has the skilled workers it needs. That's why we're building new and better infrastructure, including the National Broadband Network , to take our goods and services faster and more efficiently to markets across the region. That's why we've introduced tax reforms that encourage firms to re-invest, re-tool, and adapt to the changing economy and seize new opportunities. That's why we've put a price on carbon pollution to ensure we take advantage of the clean energy industries of tomorrow. And anybody who's been to China knows how obvious it is that clean energy and sustainable development will be utterly imperative in the decades ahead.

Australia's success so far has not been an accident of geography or geology. It's been a result of hard work and tough decisions - decisions by the Whitlam Government to engage with China, decisions by the Hawke and Keating Governments to open our economy and reorient it towards our region, and decisions by the Rudd and Gillard Governments to prepare for the Asian Century. Of course there is no one policy, no one business strategy or no one government that can guarantee success. We need to focus now on what will be a long period of transition for our entire region. It's with this in mind that we approach the task of the White Paper . It will not only serve as a long-term guide for government policy, but also for the business and community sectors - because we all have a role to play in making the most of this remarkable journey in the Asian Century.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia