Australia is the lucky country. Even the national anthem highlights the rich deposits of natural resources with the lines “we've golden soil and wealth for toil” along with a prosaic prediction of the mining boom under the guise of “our land abounds in nature's gifts, of beauty rich and rare”.
However, has 26 years of consecutive annual economic growth, strong institutions and the ability to weather global financial challenges, made corporate Australia too “comfortable and relaxed” as foretold by John Howard in 1996?
A recent report by Deloitte Access for Chartered Accountants Australia and New Zealand, found almost two thirds of over 1,500 senior members of the business community believe free trade agreements have little or no impact or are uncertain about them.
Blackmores CEO Christine Holgate, who also chairs the Australia-ASEAN Council Board, often chides corporate Australia for investing more in New Zealand than in the rest of Asian combined.
“Why would you do that when the Australia and NZ economy only adds up to 2 per cent of the world’s economy and …..35 per cent of global growth is coming from China,” Holgate stated at the State of the Nation address in 2016 for the Committee for Economic Development of Australia.
It is a fair point. Why?
Traditionally, Australia’s top three destinations (USA, UK, NZ) for outbound foreign direct investment taken together account for more than 45 per cent of the total outward FDI stock and are all English speaking.
The next highest is Singapore and then PNG, both countries who speak English, reinforcing the notion that when it comes to setting up off-shore, Australian business prefer to stay within their linguistic and cultural comfort zone.
Pragmatically, Australian boards and executive teams base their offshore engagement on legal frameworks, ease of doing business, contacts, and ability to repatriate funds. In many Asian countries, business decisions are based on relationships and networks rather than business models and sound economic principles of supply and demand. Business in Australia is also governed by short termism, where long term growth that dilutes dividends or threatens quick and easy returns is routinely dismissed as too hard or not a priority.
In that context, China is a difficult country to make concrete strategies if there is uncertainty about the veracity of its economic data. Famously, Mao’s failed mass industrialisation initiative, the Great Leap Forward led to millions starving to death based on exaggerated production and crop yields. Recently, the People’s Daily reported that Liaoning province in China’s north-east had been fabricating its economic data over a 3-year period from 2011. In one instance, a Liaoning county had overstated its fiscal revenues by a staggering 127 percent in 2013.
Traditionally, Australia has been caught between its history and its geography. The bi-partisan Asian Century white paper and the Business Alliance for Asia Literacy signed in 2009 by the Business Council of Australia, major corporations and Australian Industry Group sought to pivot education and business towards Asia.
While these initiatives reflect corporate Australia’s maturity, the results are disappointing with former trade minister Andrew Robb suggesting in December 2016 that while Australia had benefited from Asia’s growing middle class “our cultural awareness is meagre, language skills are largely non-existent, and our investment levels in the region embarrassing”.
Robb said that “we trade with the region but in large part we don’t engage with the region”.
The former trade minister’s frustration stems from a historic 18 months that sealed free trade agreements (FTA) with China, Japan and South Korea, and calls by the Abbott government that it was open for business.
It seems that while the doors were opened, no one knew how to walk through to effectively engage or attract investment.
However, some elements of corporate Australia are looking to the government to assist in market access, especially in agriculture, where the proposed ‘dining boom’ and food bowl of Asia’ seems like rhetoric with only 5 fresh items (dairy, beef, table grapes, citrus and nectarines) available for sale in China.
Despite the finger pointing, the reality is that with 70% of Australia’s GDP attributed to the service economy, it is this sector that needs to get out and benefit from the terms negotiated by Australia, especially in China as currently it only accounts for 17% of exports.
The China Australia Free Trade Agreement (ChAFTA) provides new or significantly improved market access commitments for Australia’s service sector not included in any of China's previous FTAs (except Hong Kong and Macau). This is further enhanced by Australia securing a Most-Favoured Nation (MFN) clause, meaning that Australia's competitive position will be protected in the future if China extends any more beneficial treatment to other trade partners across a wide range of services including education, engineering, environmental, and tourism.
The complacency of corporate Australia toward FTAs must be countered by the competitive advantage they offer.
In addition, despite a benign two-day Sino-US summit in Florida, where President Trump’s previous hardline stance on China failed to materialise, the prospect of a world where Trump promises to tear apart existing economic agreements, the ChAFTA becomes a golden ticket for Australian industry to leap frog American competitors, who will be handicapped by Trump pandering to US protectionists.
Australia has also been seen by international markets as a base and bridge into Asia. Canadian dairy giant Saputo made it clear when acquiring Warrnambool Cheese and Butter that this investment was a strategic springboard to capitalize on China’s growing middle class where dairy consumption has increased by 7.5%.
If Trump creates an economic Cold War with China, Australia will benefit through becoming a Checkpoint Charlie for parallel exports and covert channels for investment. Australia’s establishment as unofficial broker also plays well into Chinese cultural ideas of financial counter insurgency.
However, despite the structural and competitive advantages through FTAs and Trump’s potential economic isolationism, corporate Australia needs to use its golden tickets and not just trade but engage with Asia otherwise like former Singaporean Prime Minster Lee Kuan Yew warned, it will be left out and become the “white trash of Asia”.