Thanks, it's really great to be here and have the opportunity to host our friends after they made me feel so welcome recently in Shanghai and Beijing.
I'd just like to start by extending our many thanks to His Excellency Chinese Vice President Xi Jinping for visiting us in Australia, and all of the officials and business leaders who have joined us.
In all my years of public office, I don't think there has been a more important time in the history of our two nations. Nor has there been a time at which our relationship was stronger. We've built the foundations of our shared understanding through many years – and through many forums.
Our relationship has gone from strength to strength since 1972 when diplomatic relations were formally established by the Whitlam Government. Each discussion has brought with it new learnings – for both our governments – which let us deepen and broaden our friendship and respect.
I was reminded of the strength of our accord when I visited the World Expo in Shanghai just a few weeks ago, which I think really showcased the sophistication, the vibrancy and the energy of Shanghai as a regional hub.
The soundness of our bilateral economic relationship is underpinned by our consistent dialogue – and it's hard to overstate the huge economic dividends that both our countries have gained from our trade and investment links.
In fact over the last 20 years, the value of trade between China and Australia has grown from around $2 billion to a massive $78 billion or so. You'll be aware that China was Australia's largest trading partner last year, as well as our largest source of imports. And I want to see this relationship grow.
Sharing Our Banking Knowledge
While our economic ties span many Australian industries, geographies and levels of production, I just want to focus on one sector today where I am particularly pleased with our progress and hopeful for the future.
China and Australia have both continued to develop and share their knowledge of banking and financial services over the last decade or so. I'm really excited that we already have six Chinese banks operating in Australia, and as you know well, our Australian banks already have a significant footprint in China. Three of our 'big four' banks – the ANZ, the Commonwealth, and the NAB – have minority stakes in several Chinese financial institutions and have already opened branches in major cities.
In fact, on my recent visit to China, I was delighted to help open the new Shanghai branch of the ANZ Bank, whose objective it is to provide a unique range of services to Chinese customers, tailored to their needs. Of course the fourth of Australia's major banks, Westpac, also opened a branch in Shanghai back in January 2008.
And on the broader financial services landscape, Australia's Macquarie Group has been growing its service offering in China – now operating several branches and pursuing a domestic securities licence through a joint venture.
I know that each of these organisations – with whom I talk regularly – are incredibly grateful for the privileges which they have been allowed. And of course the Australian Government also extends its gratitude.
Australia as a Financial Centre
Given the focus of this event, it's appropriate that I now turn to our plans to build Australia's reputation as a regional hub for financial services in Asia.
Of course, on this agenda, we have much to learn from Shanghai, which has already made impressive progress in becoming a destination for capital from investors all around the world. Just as Shanghai has become a gateway for financial services in Asia, Australia's growing global presence in this sector provides some great opportunities for both the Australian and Chinese economies.
Our nations have much to gain from developing increased trade and investment flows in financial services. Australian financial service providers have much to offer China's rapidly-growing financial markets in terms of technical expertise, management systems and back-office arrangements.
The Australian Government has a firm agenda to boost global recognition of our strong and sound regulatory infrastructure, and world-class supervision. Our banks are highly-rated, well-capitalised and did not engage in the risky lending seen in some other countries.
I am proud of the prudential strength of Australia's individual banking institutions, and the strength of our financial system as a whole. The stability of Australia's banking system has been recognised consistently by both the IMF and the OECD. Only ten of the hundred largest banking groups in the world are rated AA or above. And four of those banking groups are Australian – our 'big four' banks that I mentioned earlier.
The strength of our financial system enabled us to come through the global recession in very good shape. Our recovery was also due to the swift and decisive action taken by the Australian Government.
Because of our actions in Australia we have lower debt and deficits than comparable countries, and we still have our AAA rating. I am also delighted to say we have the second lowest unemployment of the major advanced economies.
Of course, I could speak in similar terms about China, which did the global economy a service with swift action to buffer against the effects of the financial crisis.
And while there is certainly no room for complacency, and there is global uncertainty, Australia remains optimistic about our economic prospects. We'll stay focused on building on our strong reputation, and we'll keep reforming to maximise our international competitiveness.
Our financial services agenda has been spearheaded by Minister Bowen – who has a really deep understanding of where our industry sits in the world, and what we need to do to move up the order. On everything from tax, to the corporate bond market, to stock exchange competition and superannuation – he's leveraging our robust supervision and fiscal strength to enhance our reputation as a great place to invest.
We want to expand on our already broad-based agenda for microeconomic reform to build an even more competitive, open, and efficiently-regulated financial marketplace.
As just an example of what we're doing – we'll be phasing down the interest withholding tax paid by financial institutions, including local subsidiaries and branches when they pay interest on borrowings from their overseas parents. This reform extends to any financial institution accessing offshore retail deposits, which they on-lend to Australian business and consumers. These changes will give an extra competitive boost to smaller lenders in Australia who source funds from related parties or deposits back home.
We are also offering a new tax incentive that cuts the tax paid on interest income from a range of savings products for the first $1,000. This will promote deposits as a tax-effective savings vehicle and help to reduce the average cost of funding for financial institutions operating here. All banks operating in Australia are expected to benefit from a greater supply of stable deposit funding, reducing their need to borrow in volatile international capital markets.
I would also like to emphasise that the tax discount applies to interest income on corporate bonds, in the same way that it applies to debentures and annuities. This represents a major step in developing a deep and liquid Australian corporate bond market, and complements reforms to allow listed companies to issue bonds to retail investors using a simplified disclosure process. Together with the reduction in our corporate tax rate, this will help us build on our reputation as one of the most attractive investment destinations in the world.
Conclusion
I hope that this has given you a quick overview of Australia's firm agenda to continue to build on our financial strengths, and enhance our reputation as one of the investment capitals of the world. I'm proud of our long history of economic reform and financial deregulation – it's a legacy that I intend for us to continue.
I am also confident that the already strong relationship enjoyed between China and Australia will continue to deepen into the future. And we look forward to continuing to work together in partnership to take advantage of these shared opportunities.
Thanks again for having me.