The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Peter Costello

Peter Costello

Treasurer

11 March 1996 - 3 December 2007

Speech of 17/10/05

ADDRESS TO THE
CHINA-AUSTRALIA CHAMBER OF COMMERCE

THE EMERGING GLOBAL AND REGIONAL ARCHITECTURE– MOVING AHEAD

MONDAY, 17 OCTOBER 2005
12.00 NN (BEIJING TIME)

I am delighted to be back in Beijing speaking to the Australian Chamber of Commerce again. I first had the opportunity to address you a little over eight years ago. Much has changed.

Back then, in 1997, Asia was facing a period of economic turmoil. Many of the countries of the region experienced severe economic shock through exchange rate collapse, stock market plunges, deep recession and, in some cases, the loss of foreign reserves.

The collapse of some countries spread to others as “financial contagion” swept much of the region. Fortunately, it did not take hold in China. It did not take hold in our country. At the two ends of East Asia, North and South, our countries proved stable. We were able to cooperate with the region and with International Financial Institutions to assist some of the crisis-affected economies.

Since 1997, China’s economy has nearly doubled. It has continued to liberalise its economy, allowing more foreign investment and more open price competition. China has joined the WorldTradeOrganisation. And the emergence of China is now the chief source of global growth. This has been good for other countries that have obtained new markets in China. And as Chinese standards of living grow, these will become more significant.

In some ways, the growth of China has contributed to the creation of global imbalances. Forexample, the growth in demand for oil has moved demand faster than supply and increased global oil prices – a substantial shift that is now affecting consumers and businesses throughout the world.

Australia-China relations

  • The most striking feature of our two economies is our natural complementarity in trade. China is Australia’s second largest source of imports, largely of manufactured goods. And those manufactured goods draw heavily on imports of natural resources and energy, of which Australia is a major supplier.
  • China’s rapid growth over the past decade has boosted its energy and resource needs. China is the largest consumer of coal in the world, for example, and accounts for 70 per cent of the increase in world consumption of coal over the past five years. The Chinese Government projects that China’s energy demand will double from 2000 to 2020 but, with China’s aim to quadruple GDP over this period, such a projection seems conservative. A concern for China is how it can secure stable energy supply over time.
  • China will be able to secure long-term energy supplies from stable, reliable energy producers. Australia is well placed to meet the energy and commodity demands of China, and support China’s ongoing industrialisation and development.
  • We have the opportunity to build an energy freeway from Australia to China, from South to North, in the East Asia region.
  • Australia exported almost 6million tonnes of coal to China in 2004. We have reserves of recoverable black and brown coal of 40.4billion and 37.5billion tonnes, and could export as much as 56million tonnes a year by 2010 if China’s markets were fully open to foreign suppliers.
  • We will become the first country to supply LNG to China from April 2006, with a 25-year contract for 180 billion cubic feet (3.7million tonnes) of LNG per year to Guangdong province. Australia’s demonstrated reserves of sales gas are estimated at 87trillion cubic feet.
  • Australian uranium exports are currently not permitted to China because of the absence of a bilateral nuclear safeguards agreement with China. Negotiations are underway and if such an agreement can be reached, Australia could export up to 10,000tonnes of uranium a year. Demonstrated uranium reserves in Australia are estimated at 701,000 tonnes.
  • Australia has the resources. Australia is a particularly stable country with a proven track record of secure, reliable supply.
  • In a private sector, market-based system, resources are not designated by the State to particular consumers or indeed particular countries. Resources are traded by partners under contract and most beneficially traded under long-term contract, enforceable and reliable, with a clear legal title and certainty. Ultimately, the best way to achieve energy and resource security is to trade these commodities with reliable countries in a legal framework enforced by strong, independent legal institutions.
  • Access to resources, of course, is not just an issue for China. It is a global issue. It is an issue for Australia, which is a net importer of oil. It is timely that the G-20, with its mix of key suppliers and demanders of energy and resources, has now put the issue of energy and commodity resources on its agenda for 2006.
  • While energy and resources are currently the most striking aspect, they are not the sum total of our economic relationship. The complementarities between our two economies extend beyond energy and resources to agriculture, tourism and education, business and financial services. One of the reasons that Australia has been able to sustain a long expansion of more than a decade in the face of substantial negative shocks from overseas is because our financial services and business sectors are strong. Australian business has a lot to offer China in skills and expertise.
  • Australia and China are now negotiating a free trade agreement. We should make it as ambitious and extensive as we can. This is not easy and it requires high-level political commitment. It is as much a challenge for Australia as it is for China. But a substantial agreement provides an opportunity to continue to reform our economies and to deepen the economic, social and people-to-people connections between our two countries. China is now Australia’s second largest merchandise trading partner, accounting for A$32.8billion of two-way trade in the year to June, and we can grow this further.
  • My final observation on the bilateral relationship is that Australia and China work well together in international forums. This has been especially evident this year in the G-20, with Australia, as next year’s chair, entering the G-20 management troika with China and Germany (last year’s chair). Under China’s stewardship, we have been able to put substantial momentum behind the process for reform of the IMF and World Bank.

Global economic architecture

As you know, a meeting of the world’s Finance Ministers and Central Bankers – known as the Group of 20 (G-20) – has taken place here over the weekend.

  • The Group brings together the G-7 - with the important emerging economies such as China, India, Russia - and other countries that are systemically important to the global financial system.
  • The G-20 was formed in the aftermath of the 1997 Asian financial crisis, partly because the existing International Financial Institutions (IFIs) – the International Monetary Fund and the WorldBank – had not focussed well on the nature of the vulnerability in East Asia, were not fast enough to respond to the crisis and don’t give a strong enough voice to this part of the world.
  • It is not the object of the G-20 to replicate the work of the InternationalFinancial Institutions. It is a forum that brings together the major players in the world economy – developed and developing countries. One of the things the G-20 can do is provide a forum – open and honest – to discuss reform of the IFIs and provide momentum to push it along.
  • One of the things that I raised and put on the agenda for the G-20 is the impact that demographic changes will have on different regions of the world and the global economy. There is going to be a major demographic shift with the Western world losing population while Africa grows rapidly. There is going to be a major economic re-alignment of the global economy to East and SouthAsia – China and India.
  • Many people will be surprised to know that China’s population is going to rapidly age towards the middle of this century. Eventually this will slow an economy but that is not going to occur for several decades. And in the decades to come, China is going to become a powerhouse of the world economy.
  • What will drive China’s future economic growth is what has driven it in the recent past – economic liberalisation, developing the institutional framework for trade and business, entry into the world trading system. China is lifting millions out of poverty through economic growth.
  • Africa, with its still rapidly growing population, needs to accomplish this kind of economic reform and economic growth if we are to tackle the poverty gripping large areas of that great continent.
  • There are critics of “globalisation” who argue that cross-border investment and open international trade, cause poverty. On the contrary: investment and trade are necessary tools for economic growth. And economic growth is a poverty buster. Economic growth is the best way to increase living standards. It is those countries that cut off, or are locked out of, trade and investment that suffer the most.
  • This is the importance of getting a successful outcome in the DohaRound of the WTO. This will benefit developed and developing countries – but especially developing countries.

Developments

  • Whilst we are currently focusing on breakthroughs in the global trading system, let us not overlook the importance of the BogorDeclaration, made by the APEC economies – free trade by 2010 for developed economies and free trade by 2020 for the region. Australia stands ready to deliver on these commitments. We call on the other APEC economies to continue progress towards this goal and on this timetable.
  • The region as a whole generates massive savings. A large part of those savings finds its way to the developed world. This is an anomaly. The region as a whole has a huge investment task but invests outside of the region much of its savings which could fund investment in the region.
  • This indicates the under-development of financial markets in the region. There is now a recognition that greater cooperation to development financial instruments could mediate East Asian savings into East Asian investment.
  • We support the region’s proposed mechanism for dealing with financial crises, the Chiang Mai Initiative of bilateral foreign exchange swaps, and we would be happy to make a practical and financial contribution to its further development. Australia has a long history of financial cooperation with Asia. We were a founding member of the Asian Development Bank. Along with Japan, we were the only country in the region to commit additional funds to support all three IMF crisis programmes in Asia in 1997.
  • Australia supports the evolving architecture of cooperation in Asia. The Australian Government has long stated our support for the ASEAN+3 groups. And we warmly welcome the creation of the East Asia Summit (EAS) and the invitation to Australia to be an inaugural member.
  • The EAS is a natural expansion of the ASEAN+3 grouping to include countries that are geographically proximate to its members and deeply engaged with them economically and socially. This is an important development for the region as a whole. It is a pragmatic recognition of the complexity of interests in the region – East Asia’s economic, social and strategic ties in the broader Asian region are extensive and expanding. And it embodies a shared commitment in the region to openness and inclusiveness, which is a sound basis for building up a deeper community of nations in Asia. We see the EAS as enhancing Asia’s engagement with the rest of the world, not detracting from it.
  • Australia is a major contributor to the Asian Development Bank, which is a significant instrument for regional assistance and financial cooperation. We have recently announced our largest ever single aid commitment – the Australia-Indonesia Partnership for Reconstruction and Development. Australia can play an even more important role in opening its quality educational system to students in the region and assisting with scholarships to facilitate access for post-graduate scholars.
  • The improvements in travel and communication are driving improved cooperation, trade and investment. They are deepening a sense of regionalism. But our proximity and closeness gives rise to some new threats.
  • Just as investment and trade crosses borders and frontiers, so too can disease and epidemics. Our minds are concentrated at present on the threat of Avian bird flu. Our region must cooperate if we are to jointly and separately protect our citizens from the scourge of disease and to protect them against the threat of terrorism.

Taking things forward

So where do we go from here? The global priorities for the rest of the decade are clear.

It is vital to our collective economic wellbeing that we achieve a substantive outcome in the Doha Development Round of the WTO, to increase trade and investment, and provide real development opportunities for the world’s poor.

We need to ensure that our development institutions are genuinely effective tools to reduce poverty, combat disease, and support economic and social development. Poverty does not cause terrorism. But progress in these areas will make it harder for the propagators of hate and destruction to appeal to those who do not share in the benefits of development.

We need to work together to reduce the risk of terrorism, epidemics and other critical extreme events.

We need to reform our international economic institutions and forums to ensure that countries are fairly represented – in line with their economic weight – and that the policies of our global institutions are relevant and effective.

We need to build on the progress made in regional integration in Asia, building robust interactions between all the countries in the region to improve prospects for stable and sustainable economic growth and development.

And we need also to ensure that our domestic economic policies actually support growth and stability, that they take account of the various demographic challenges countries face, and that they do not give rise to unsustainable imbalances between nations.

Final comment

I have outlined, today, an ambitious agenda for improving global and regional economic cooperation. It will involve reform to strengthen global economic institutions, especially by ensuring that they reflect countries’ current economic weight. And it requires deepening and advancing the economic integration underway in Asia. Australia and China are partners in this exercise of renewal and reform, and I look forward to further cooperation between our two countries.