When Gough Whitlam touched down in China forty years ago he entered a land half a world away from Brisbane in every sense of the word. When I touch down in Beijing next month, it will be my seventh visit as Treasurer to China in five years – which is multiples more than some of my predecessors managed. This trip is to celebrate the 40th anniversary of diplomatic relations between Australia and China. But in the spirit of Whitlam – who said upon arrival that "we have come here to work" – we are also there to work, which is why I will lead a business delegation to Hong Kong and Beijing to foster ties in the Asian Century. Invitations for the delegation are being issued, with invitees drawn from the resources, financial services and science sectors.
I look forward to several days of events in July to help Australian businesses forge their links with China. Meeting my counterparts in Beijing – like the Vice Premiers and the Chairman of the NDRC – and facilitating links between businesses is an absolutely fundamental part of my job. As are meetings with my counterparts in Tokyo, Delhi, Jakarta and other regional capitals, or foreign officials in Australia, like the Party Secretary of Guangdong who I met in Brisbane just a few days ago. Because as the13th largest economy in the world, Australia should be striving to be an engine of the Asian Century – not just a passenger in it.
I remember seeing the sweeping night skyline of Shanghai for the first time some years ago – it looked like a vision of the future with its skyscrapers and iconic Oriental Pearl Tower. A future where China and the Asian region are the primary drivers of global growth. You and I know that future is not remote. It's no longer on the distant horizon. It's already here and that's why we're at this forum. Nobody in this room needs reminding that China is the world's fastest growing economy.
As we all know, its economic evolution is pulling global economic weight from West to East. Its transformation into a modern, industrial powerhouse has been the work of three short decades. And the rest of the world – forty years after Whitlam was there – is knocking on China's door.
While China's economy has moderated recently, due to policy inducement and weak conditions in Europe, its growth story still has a very long way to run. I don't need to tell you how big Australia's opportunity is in this new world economy. Or how big the challenges. Not just our proximity; and not just our products. Today around 75 per cent of our goods exports go to Asia. The country with the most dramatic rise in goods export shares is India – moving from 14th to 4th place in a decade. The percentage of world GDP that's within 10,000 kilometres of us has more than doubled in the last fifty years, to over a third of global output today, and the share will continue to rise to around half of global output in 2030.
We are in the right place at the right time to be big winners from the Asian Century. But it won't just fall into our laps. So my point to you tonight is that the challenges and the opportunities of this Asian Century are bigger than the day to day cut and thrust of political and economic debate. They're bigger than any partisan divides. Bigger than the debates we might have about tax or social policy or any other single factor. They will require the best efforts and forward thinking of governments as well as business. Business as well as the broader community. They will require us to see beyond the short-term challenges of transformation to the long-term gains of real change.
Some people hear ‘Asian Century' and think ‘mining boom'. They hear ‘mining boom' and think ‘high dollar'. And they hear ‘high dollar' and think pressure for businesses in the slow lane of a patchwork economy. We know this is a reality for many and we can't ignore it. Ignoring it would simply endanger the community consensus for the action that is necessary to help address it. That is why we have a broad based plan to improve our productivity and help spread the benefits of the boom to Australian businesses and families. That is why we are introducing a loss carry‑back scheme to support business investments in new skills and markets. That is why we are helping struggling families through boosts to family payments and additional support to put their kids through school, which will in turn support businesses, particularly in retail. And that is why we are undertaking reforms like moving to a clean energy future with a price on carbon pollution and making record investments in skills, the NBN and transport infrastructure.
This is an agenda to help us address the challenges we face from the huge structural transition associated with the mining boom. But this agenda will also help us confront the challenges of the Asian Century. Because it is not just the opportunities that we need to seize in the Asian Century that will determine our future prosperity. It will be the many tests that we confront – some we know about and some unforeseen – and how we deal with them that will also influence our performance in the Asian Century. The outcome of these opportunities are not predetermined or set in stone.
We will need to work hard for them and we would sell ourselves short by thinking otherwise. We don't have a free pass into Asian markets, and whatever measure of success and prosperity comes our way, we will have to compete for it and earn it. Part of this process is recognising that the mining boom is only the first phase of the new global reality. In just the next few decades, on some estimates, the East and the West will have roughly traded places in economic mass. And by the end of this decade, an additional 1.2 billion Asian consumers will join the ranks of the middle class and aspire for the standard of living that so many of us enjoy today. Which means that the next phase of our new global reality will be when Asia becomes both a dominant global producer and a dominant global consumer. Will these consumers come to us to satisfy their demands or will they go elsewhere?
If we get our settings right, they will turn to Australia for first-class services in education and health, research and innovation, engineering and architecture, financial services, tourism, culture and design. That's why we're investing billions in skills and education, to move our economy up the value chain, to build a flexible, highly skilled workforce that can respond nimbly to the Asian Century. It's why the new National Curriculum has Asia-literacy as a core theme across several disciplines, including language learning. A five-year-old who starts school next year will be entering the workforce in about 15 years from now.
Asia-literacy will be a basic tool in that same 20-year-old's kit when she enters the workforce, whether she joins a multinational firm, or starts a business of her own. Whether she's learnt Mandarin or Hindi or Bahasa Malay at school. Whether she's working in Asia, or teleconferencing from Melbourne with colleagues in Hanoi or Seoul. For her, the idea of not having the capacity to link into Asia will be unthinkable. That – as we know – is why the Prime Minister has commissioned Dr Henry to lead the White Paper on Australia in the Asian Century. To ask what we can do to make sure Australia doesn't miss the amazing opportunities on our doorstep. The first answer is that we've got to continue with our long-term reform work while that five-year-old makes her way through school.
We have to do the policy grunt work now to get our economic settings right for the future. We must keep taking the tough decisions to make sure we keep our hard fought reputation as a country on the right side of history, not just the right side of the world. The Labor Party is the party of reform in this country and we have been for the last 30 years. We've overseen some of the biggest economic reforms in Australia's history. These are difficult, hotly debated reforms, but reform isn't about responding to the latest fad or constantly pulling rabbits out of hats.
It's about undertaking clear and concise analysis of the facts and circumstances, as well as the policy options available. Central to this is ensuring we focus on areas where there is clear scope for improvement, for example, lifting our productivity performance – which is vital to helping us become Asia-ready. We all talk about the need to improve productivity growth and the many policies that could achieve this. There always will be sectors which can improve their productivity performance, and there will always be lively debate around: whether certain sectors require urgent attention and which policies could be swiftly adopted to achieve this improvement.
While I welcome the productivity debate, there are also claims and counterclaims about what is necessary to improve our productivity performance, and not all of them are grounded in facts. So we need to have a mature debate about productivity – one which is broad-ranging, considered and well informed. Before we call for solutions, we need to better understand the problem. Whichever direction we come at this, we generally accept that there has been a long term decline in productivity growth for well over a decade. We also generally accept that part of this reflects a long term structural decline that needs to be reversed so we can sustain the same growth in our living standards that we have enjoyed over decades past.
Yes, we have seen a lift in productivity more recently, but we also know we can't read too much into the quarterly or annual figures, and there's no doubt productivity growth has been lagging in some areas. And yes, in terms of labour productivity levels we are in the top dozen or so of countries in the world but we need sustainable productivity growth to maintain and improve our labour productivity levels in the medium to long term. There is no reason in my view why we can't aspire to be well within the top ten over time. What is less understood is that while there are factors that weigh on our current productivity growth, they don't necessarily weigh on our long run prosperity. For example, it is normal for productivity growth to be lower during an investment boom, before we see the results of the capital spending.
We are boosting the long run productive capacity of our economy, but we don't see the statistical productivity dividends until the investment results in increased output. We also need a better understanding of which industries or areas of our economy genuinely require more attention in terms of productivity. While mining-related sectors have increased their share of GDP and employment in recent years, we continue to see the ongoing shift towards services – a trend likely to continue over the next decade. Importantly, many of our service sectors have long had a lower level of labour productivity compared to other parts of our economy, often because of higher labour intensity.
So to achieve the best possible productivity outcomes, we will need sustained productivity improvements in our service sectors – exactly the same sectors that will be trying to win the attention of Asia's rising middle class. This is a complex debate, and I won't go into all of it here, except to pose the substantial questions that we need to put to ourselves, including at tomorrow's forum:
- Are we well positioned to achieve greater productivity growth in areas which are likely to drive our economy in the Asian Century?
- And of all the potential reforms and business models available to us, which of them will unlock the greatest productivity potential for our industries and our companies?
- So, in this room, a key question for all of us is: what are we doing to get ourselves Asia-ready?
- What would it take to set up – and stay up – in Asia? What are we doing to build relationships across Asia? What partnerships across business and society are we forging to help us do this?
I know for a fact that Australian organisations are engaged with Asia. There are plenty of examples of Australian businesses, community groups and entrepreneurs doing great things in Asia. Success in the future will depend on our ability to integrate more fully with Asian markets. We need to keep taking more action – government, business, and community in cooperation – to seize that promise of success.
Forty years ago, Gough Whitlam's ground-breaking move connected Australia to China, and twenty years later, Paul Keating argued that we had to lift our gaze to the region. Tonight I am arguing that we can't afford to let our opportunities slide past due to unwillingness or inability to change. I know for many of you the high dollar has been tough, and our terms of trade are likely to remain at historical highs for a while yet.
It's true we can't accurately predict our exchange rate movements. But we do know that as the Asian middle class rises, as Asian wages grow, and provided we lift our productivity growth levels, we can reasonably expect any competiveness gap to get smaller. So for this reason and all the reasons I've talked about tonight, I am optimistic about our path through the Asian Century.
We have the courage and the capability to make this the Australian Century in Asia. The world will keep moving and we won't get anywhere standing still. I encourage everyone in this room – and those outside of it as well – to move together with us.
Thank you.