QUESTION:
[Inaudible] My question is on the AIIB – joining the AIIB – becoming a member of AIIB. My understanding is the unofficial deadline is 31 March to become a founding member. Are we looking at joining before that date so we would become a founding member or are we looking at joining after that date so we wouldn’t be a founding member?
TREASURER:
Hold your breath. We are – look, we have been engaged in very detailed dialogue with all of the key players for a number of months now. I have had numerous discussions with Lou Jiwei [inaudible]. We have always been concerned about governance arrangements. We have contributed directly and indirectly to a better framework for governance that has been proposed to us by China. In the interim, we have had numerous discussions with other countries that have intended to join, have signed the MoU; or those that actually don’t want to join. Our view is: the more countries that join, the better, the broader the membership, the better, and as I outlined a number of key governance principles, we expect that if we were to sign the MoU in the next few weeks, prior to the deadline – or a few days prior to the deadline actually, now – then we would be a very active negotiator at the table to ensure that the articles embody the very best of international organisations. So, there’s much work to be done if we are to proceed. We certainly want to make sure that we are part of a group of nations that work together with China to make sure that the governance principles are appropriate for a truly international organisation.
HOST:
Thank you very much. Further questions? There’s one at the back.
QUESTION:
Frank Tudor from the ACBC. It seems such an obvious thing to join the Infrastructure Bank; why did we have any concerns and perhaps you could tell us what the US Administration thinks about it?
TREASURER:
I’ll let the US Administration speak for itself. From our perspective, you know, we’ve been working with the Chinese Government. There is no doubt that that there is a sense of frustration in the global community that the United States Congress has been unwilling to reform the IMF. There’s no doubt about that. I have said it on numerous occasions and in fact gave a very direct speech in Washington about it as Chair of the G20. Now, the White House have indicated they share a similar frustration but the challenge is that there are emerging economies that do want to play a more active role in delivering infrastructure for countries around the world. Now, unless you’re going to have a substantial change in the voting rights and entitlements at the Asian Development Bank, and, potentially, the World Bank, although it’s got a different mandate, and there are many other similar banks, then China as the second or third largest economy in the world, depending on how you measure it, is pretty understandable in expressing its frustrations that it is unable to take a more prominent role in the delivery of infrastructure, particularly in the Asian region. Now, China already has a lot of direct investment in infrastructure. So, the AIIB is not a replacement for that direct investment. They already have that direct investment either through the private sector or in direct foreign aid if you like. And of course, just to provide clarity, the Asian Development Bank is also about poverty alleviation. The AIIB is about addressing the $8 trillion of necessary infrastructure spending over the next decade in our region. Now, if we could lift, for example, the level of investment in ports in India, we would have greater access for our iron ore exports and even Prime Minister Modi has expressed pretty bluntly, his frustration that he is unable to get the infrastructure in place in India to help to get the energy and resources necessary to their market to be able to help their growth. So, we need to invest in that infrastructure now with haste and utilise Australian expertise and that’s in civil engineering right through to architectural services. Of course, in public-private partnerships, right through to any number of contracting activities and we stand ready to export those services into the Asian region. If we are part of a world-governed AIIB that has transparency, and importantly, ensures that it is open to all participants who want to engage in providing services, then it is to the massive benefit of Australia.
HOST:
Thank you. Further questions? I’ve got a number but I’ll go to the middle here, please?
QUESTION:
[Inaudible] You’ve spoken a lot about the importance of governance and it makes a lot of sense. How much difference do you think it makes with European countries agreeing to join last week in terms of both ensuring governance and transparency, and in terms of the power that Australia could have in negotiations over investment decisions and governance?
TREASURER:
I have been speaking to the Chancellor of the Exchequer and also to a number of Finance Ministers in Europe and elsewhere around the world and obviously it is going to be a broader organisation if there are more contributing countries joining. Now, a number of the countries that have already signed up are recipient countries; they’ll contribute but they’ll obviously be significant recipients of that infrastructure investment, but to have European countries come on board such as Germany, France, and obviously the United Kingdom and Italy, actually adds a significant amount of expertise as well as helps to raise additional capital for the Bank. But also, it is another layer of good corporate governance [inaudible] and it should be reassuring to the United States and to other countries, including Japan, that there are many countries that have always stood by good corporate governance principles that do want to participate in the AIIB. We would love – should we decide to sign the MoU and finally join – we would love for the United States and Japan and other countries to join. We would be encouraging them to do so, and in fact, I don’t mind saying I have encouraged them to do so, should we all join, and the proper governance procedures be put in place. Now, we need final reassurance about that. Obviously, the timetable is very tight at the moment and we will have more to say about that in the next few days, but this is not Australia acting unilaterally. We are working closely with like-minded friends and there is a common purpose to ensure that the AIIB actually works – actually works to the benefit of the entire Asian region and hopefully the world.
HOST:
Thank you. I think we have got another question over here on the left.
QUESTION:
Thank you Minister [inaudible] could we just talk process for a moment? If we do sign the MOU, does that then give us a table presumably afterwards for a negotiation and [inaudible] charter of the Bank? What happens after the MoU?
TREASURER:
For the MoU – if we were to agree to sign the MoU in the next few days, we would indicate that to China and then it would mean that other countries – all the countries would be required to agree to ourselves and others such as the United Kingdom, Italy, Germany, and so on, also participating as a founding member, and after the 31st of March, there would be a seat at the table to negotiate the articles and of course we would be very active in that regard – a very active participant. And I must say, China would be very enthusiastic about us being an active participant. Their support for our involvement has never waned. They have been very encouraging at the highest levels of the Government. It really is quite remarkable how much discussion has occurred around AIIB at an international level amongst all parties. That would seem to indicate that it is a vitally important initiative for our region.
HOST:
Thank you further questions. There’s one right at the back on the right hand side.
QUESTION:
Hi Treasurer, [inaudible] Centre for Financial Studies and I’m just wanting to change track a little bit from a discussion on this to talk about the financial services sector. We’re doing some deep research that will demonstrate that the relationship between China and Australia in the financial services sector is much deeper and actually larger than the statistics would indicate at first brush. I’m wondering if you can share your reflections on this? I’m noting the major sponsors even of this event are financial services companies. It’s been a very successful sector in the bilateral relationship. So, what are your thoughts on the sector and any lessons for other areas?
TREASURER:
I must say it’s been one of the privileges of the last 18 months to be able to work with Governor Zhou who is the head of the Central Bank of China in progressing the relationship between the Australian financial services sector and of course, the Chinese financial services sector. The initiative in relation to Renminbi trading and the approval for that to happen was not an accident. It actually came about because of a lot of work and goodwill from Governor Zhou and also from Glenn Stevens and the Treasury here in Australia. We have a massive opportunity in Asia to expand our export of services. I will have more to say about this in the next few weeks and particularly in the Budget, as well. Services represent around 70 per cent of Australia’s economy but only around 20 per cent of our exports. China, as I said in my notes a little bit earlier, has this phenomenal demographic bubble, which means that their search for retirement income savings and integrity around the management of financial services, is going to provide a wealth of opportunity for a financial services provider out of Australia, where we have a good reputation for integrity, transparency, and importantly, innovation. So, I would say to you that in the next 30-40 years, we are going to see a tsunami of opportunity come out of Asia, but in particular, out of China for the financial services industry based in Australia; in retirement savings, in sophisticated financial products, in commodity derivatives, in foreign exchange trading, in particular, as the Renminbi becomes a more global and more freely traded currency. For example, Australian FX traders are regarded as some of the very best in the world because the Australian dollar is one of the most liquid and easily traded currencies in the world and certainly in our region. So, there is a wealth of opportunity. But I wouldn’t limit it to just financial services because that will be an access platform for architectural services, for engineering services, for education, for tourism, for health, because ultimately, the emergence of the middle-class in China wants what we have. They want better quality healthcare, they want bigger houses, and they want better roads, better cars. They want luxury goods, they want better quality food, including more protein; this is what we are good at and our services exports are, from my perspective, the big winner out of the Free Trade Agreement with China, but importantly, they are the big winner for Australian small businesses that open their eyes to the opportunity because, you know, I’m sorry, I see you’re getting agitated about the time, the world’s divided in three time zones now: the Asian time zone, the American time zone and the European time zone. Because of the disintermediation of the world as a result of new technology, we can transport and service the goods and the services to the fastest growing region not just in the world but arguably in the history of humanity and we can do it in real-time and we can do it to our great advantage. Now, really, this is the century of opportunity that Australia has always dreamt of but is coming faster than we can appreciate.
HOST:
Here, here. I was only thinking what an excellent answer it was, actually. I wasn’t trying to hurry you up at all, but many of the points, Joe, that you made, were also reinforced in this Report, which we launched today and we had an excellent discussion earlier about ecommerce, financial services – the whole services sector, and we would endorse 110 per cent everything you just said. So, further questions? I know we are starting to run short of time. There’s one right at the back there.
QUESTION:
Thank you Treasurer. [Inaudible] from Deloitte Access Economics. I would just like to get your opinion on what do you see as the biggest opportunities, and more importantly, challenges for China in investing in Australia’s infrastructure projects? Thank you.
TREASURER:
Well, as a new Treasurer, I obviously carefully considered the investment proposals before me in relation state-owned enterprises. We carefully considered all of the issues surrounding substantial investment by state-owned enterprises and where we took the view, unlike our predecessors, that if that investment by a state-owned enterprise was good for Australia and not contrary to our national interests, then that investment would be approved. There have been a number of investments that have helped to trigger further investment. No doubt about that; Yancoal, State Grid, a range of others, and unless it is clear that an investment by a state-owned enterprise is contrary to national interest, then it will obviously have the same level of approval as that of anyone else. The one thing I am doing with state-owned enterprises and their investment in Australia is encouraging them – well, even putting it in the conditions that they should have Australian directors as part of a domestic board, and I am doing that because I want to see a deeper integration between the Australian business community and the Chinese business community. And it’s not for any purpose other than to form those direct on the ground relationships and [inaudible] should be a benchmark in that regard where there has been that sort of integration without government promoting it and it has been to the massive benefit of the investor but also to the massive benefit of stakeholders such as the sugarcane farmers in the region. So, I would say to any Chinese investor looking for a substantial investment in Australia, look at working with Australian directors – have Australian directors on your board and also look at ways you can integrate closer with the broader community. The second thing is: we are fully aware that there is a massive amount of interest in China to invest in Australia not just at a corporate level but at an individual level. I think people will be surprised at how significant an increase has occurred in foreign investment in residential real estate in the last 12 months and that will come out when the Foreign Investment Review Board report is tabled I think it is next week in the Parliament. There has been a substantial increase in the level of foreign investment. That is good in that it has helped to deliver a massive increase in construction in residential real estate in the last 12 months but obviously there are trade-offs and that is why we have released a discussion paper and we have sought community feedback in relation to strengthening the resources of the Foreign Investment Review Board, and importantly, ensuring that there is integrity in the enforcement of our foreign investment rules. We will continue to work hard in that area but I say, as I say at all these events: we want foreign investment, we need foreign investment, but we also need that foreign investment not to be contrary to the national interest. Thank you very much.