Ladies and Gentlemen, it's a real honour to be addressing you.
Let me begin this morning with a personal disclosure, which is this. It may sound a bit strange to some of you, but I have wanted to be a politician my whole adult life. It's true there was a brief period in my youth when I wanted to be a world surfboard champion, or a professional rugby league player, but I quickly realised it wasn't intended for me. Being Treasurer in the Rudd Labor Government is for me interesting, exciting and fulfilling.
I think we are achieving some big things, which I will tell you about in a moment. But I have to say this – if I wasn't Treasurer in the Rudd Government, one of the best lives I can imagine would be as one of your number here today, participating as you do in the greatest economic transformation the world has seen in well over a century.
In just a couple of decades China has become the second biggest economy in the world, when its output is sensibly valued. So big has China's economy become and so rapid has been the expansion that in the past five years China's growth has accounted for nearly one quarter of the total growth in global output. It doesn't take much boldness to predict that within a few decades, when many of you will still be pursuing your business careers in China, it will have become the biggest economy in the world.
The speed of the transformation has been quite astonishing. Even a decade ago Australia exported considerably more goods to the UK than to China. We exported twice as much to the United States, and three times as much to the European Union as we did to China. In the years since, our goods exports to China have increased six-fold. We now export three times as much to China as the UK, twice as much to China as the US, and more to China than the entire European Union.
The chance to participate in this great economic revolution, to witness what is happening here, is a wonderful privilege.
I can tell you that the work of all of you here, of all of you engaged in one way or another with advancing the economic relationship between China and Australia, is very highly valued by the Australian Government. You are doing great things.
China has changed a lot in the last two decades, and so have we. We are now in the 17th year of an uninterrupted economic expansion, which has spanned three different governments, and which had its genesis in the far-sighted reforms of the 1980s and early 1990s.
Since 1991 Australia's output has increased by four-fifths and real incomes per head have increased half as much again.
We put on an additional three million jobs – an increase of nearly 40 per cent.
We have become a much more open economy. Our trade share, for example, has increased to over 40 per cent of GDP.
As our export share has increased, it has become more diverse.
We have iron ore and coal of course, but all our iron ore exports and all our coal exports, both selling at record prices, account for less than 20 per cent of our total exports. In fact all of our mining output, important as it is, accounts for just seven per cent of our GDP – much the same share it accounted for 20 years ago.
These days, as important as exports of wheat and meat and wool and so forth remain to Australia, our exports of elaborately transformed manufactures and of services are each bigger than our rural exports.
Our openness is evident also in the globalisation of Australian business. Australia has always welcomed foreign direct investment. But the more interesting statistic is that the value of Australian direct investment abroad has increased eight-fold over those years. Today the stock of Australian direct investment abroad is roughly equal to the stock of foreign direct investment in Australia.
Some of the changes in Australia are reflected in our relationship with China.
Our biggest exports here are of course iron ore, other minerals, metals, natural gas, wool and other commodities, but as you well know Australia's economic engagement with China is not only about commodities, important as they are.
The hamburgers sold in McDonalds in China are often cooked on grillers made in and exported from my home city of Brisbane.
The plans for some of China's biggest stadiums and other sports facilities are drawn up by architects in Brisbane.
We have more than a hundred thousand students from China in our schools and colleges in Australia, and they have helped us make education one of our biggest export industries.
These are just a few examples of the increasing range and depth of our economic engagement with China.
But big as that engagement has become, I think we are still in the early stages of its development. That is why the Rudd Government is committed to pursuing a free trade agreement with China that help us take our mutual economic engagement to new levels.
I will say more about trade and investment in a moment.
First I want to say a few words about the economic direction of the Rudd Government.
As I say, there have been big changes in Australia, and by and large we have done well in the last 16 years. But in recent years we have become more and more aware that our economic expansion was getting tired and that we needed to rethink our future.
In the last five years, for example, our labour productivity has on average grown around half the rate we managed to achieve through most of the previous decade.
The rate of growth of our export volumes slipped over the last eight years to less than half of the average rate of growth of the previous two decades.
There is no doubt our export performance has been constrained by shortcomings on our roads, and our railways and ports.
There's no doubt we need more skills and more workers. That is evident enough in the fact that we now have far and away the biggest immigration intake in our history, and yet employers still tell me they have more jobs than they can find workers to fill.
Tightening capacity constraints are also apparent in the trend increase in inflation over the last three years.
The conclusion we have come to in Australia is that if we are to continue to expand in the way we have in the past, we need to invest a lot more in our future.
That was the argument we put to the Australian people in the federal election late last year, it was the platform on which the Rudd Government was elected, and it's the policy program that we have been implementing at a cracking pace over the last six months. It is the strategy behind the first Rudd Government Budget, which I introduced into Parliament last month.
One of our goals is to help bring inflation back under control as soon as possible. The Government has been highly disciplined in spending, with new spending on election commitments and other priorities more than offset by savings.
The Government's Budget also introduced programs that, while helping to ease short term inflationary pressures, also position the Australian economy to sustain prosperity over the longer term by lifting productivity, expanding participation and investing in infrastructure.
For the first time in Australian history we have created a very large fund we can use specifically to modernise our infrastructure of ports, roads, rail and communications. Through this investment we will be better placed to meet the rising demands for our commodity exports from China. We created another big fund to enhance our education system and our skills training. We created a fund to improve our health system.
In addition to the programs I have mentioned, the Budget also includes programs to address our needs in water, energy, early childhood education, and other areas too long neglected.
The Australian Government has no net debt, and our investment program won't create any. Indeed, our Budget is underpinned by a strong surplus of 1.8 per cent of GDP.
By putting in place 21st century infrastructure and world class education, the Government can help build Australia's future productivity and sustain prosperity, while bearing down on inflation.
As you know, Australia and China are negotiating a bilateral free trade agreement. The next round of talks is due to be held shortly. For us, services and investment will be among our key priorities. In particular, we see great opportunities in the areas of financial, professional and education services, and investment in mining.
In financial services, the FTA negotiations present an opportunity to promote cooperation and enhance the interaction between our financial systems. The FTA's coverage of investment flows between our two countries is also critical.
Such commitments would improve the business environments that you operate in, and open up tremendous opportunities for both economies. Allowing Australian businesses – particularly from the mining sector – to invest directly into China would provide benefits to both countries. For Australia, it would allow our businesses to take advantage of growth in China's domestic market. For China, Australia represents an attractive investment partner.
Australian mining companies and financial and education service providers bring significant international expertise, new management practices and increased opportunities for networking and global integration. These spillover effects increase productivity and make domestic firms more competitive in world export markets.
A free trade agreement can set up a framework for growing two-way investment and trade between China and Australia.
Of course, there has been very intense interest recently in Australia's approach to foreign investment. I want to assure you that under the Rudd Government Australia is, and will remain, open and welcoming towards foreign investment. We welcome foreign investment not just as additional capital for Australian growth, but also as a source of additional competition, of new technologies, management and marketing techniques, and of skills development.
China has until recently been a relatively small source of foreign investment. At the end of 2006, the stock of Chinese investment in Australia was only $3.4 billion, and accounted for just 0.2 per cent of foreign investment in Australia.
But I'm glad to say this seems to be changing. In the fiscal years 2005/06 and 2006/07, Australia approved around $10 billion in proposed investment from mainland China. In 2007‑08, the value of proposed investment from mainland China could rise to more than $30 billion. Since we came to office, Chinese investment proposals have been approved at the rate of around one per fortnight.
Like China, Australia screens foreign investment. We do it through our Foreign Investment Review Board. We want to ensure that foreign investment is consistent with Australia's national interest.
Most importantly, it should be consistent with Australia's aim of maintaining a market based system in which investment and sales decisions are driven by market forces rather than external strategic or political considerations.
This approach has not changed with the new Government. I recently enhanced the transparency of Australia's foreign investment screening regime by releasing the principles that are used to screen proposed foreign government related investments. It is very important to note that these guidelines are non-discriminatory; that is, they apply equally to all investments by foreign governments and related entities. This was done to provide greater certainty for foreign government related entities on how the national interest test is applied.
I'd also like to make a couple of points about the new global trend of using sovereign wealth funds to invest national savings. Let me first say that sovereign wealth funds are not new. And like China, Australia sees benefit in using these funds as a vehicle to invest in a nation's future. Sovereign wealth funds present few direct threats to global financial system stability and can assist in macroeconomic stabilisation. As two countries with large sovereign wealth funds, it is important for Australia and China to support global efforts to develop a set of voluntary, best-practice principles to help maintain the free flow of cross border investment.
By working together in global and regional forums, Australia and China can assist the world to meet global challenges with comprehensive, effective and fair global responses.
The rise of China, and East Asia more broadly, has seen a growing sense of regional interdependence, and the forging of a regional identity. This regional identity has spawned the creation of various regional forums, including ASEAN, ASEAN+3, and the fledgling East Asia Summit (EAS).
The Prime Minister outlined last week his vision for an Asia-Pacific Union, which incorporates the APEC countries and India. This would create a comprehensive economic community and provide a forum for closer cooperation across a range of issues including energy and resource security and terrorism.
These forums are important not just to ensure the ordered emergence of East Asia, but also to help coordinate regional responses to issues of strategic regional importance.
We have no alternative but to engage on important global challenges like climate change. Recognising the seriousness of this economic challenge, Australia is working with the global community to find a global economic solution. That is why Australia is engaging in meetings of the UN Framework Convention on Climate Change, to develop a post-2012 framework where all countries can contribute to addressing climate change. China is the key emerging market driving emissions growth and a solution to the climate change challenge is impossible without it.
Australia and China have a lot in common in relation to climate change. In April this year, the Government of Australia and the Government of the People's Republic of China issued a Joint Statement on Closer Cooperation on Climate Change including elevation of our annual dialogue to Ministerial level.
Australia and China are cooperating through the Australia-China Joint Coordination Group on Clean Coal Technology to develop low emission technologies. This will assist both countries in pursuing economic development that minimises greenhouse gas emissions and promotes cleaner forms of power generation.
These are difficult and uncertain times in the global economy, what with the financial crisis which began this time last year, and the downturn in U.S. growth.
But one reason for the resilience of Australia's economy is our increasing engagement with China and other emerging economies. And you collectively are at the leading edge of this important engagement. You are working in a remarkable place, at a remarkable time. I wish you well.
And on behalf of all Australians, thank you for your commitment to the development of a relationship so important to us all.