At ShineWing Australia, we believe the agreement between Australia and our largest trading partner China, will unlock significant opportunity for Australian businesses.
The long awaited China-Australia Free Trade Agreement, referred to as ChAFTA, was officially signed on 17 June 2015 after a decade of negotiations.
ChAFTA allows for the progressive removal and/or reduction of tariffs and will provide greater access to Australian goods and services as well as increased investment in Australian industry and infrastructure.
ChAFTA will make 95% of Australia’s exports to China tariff free on full implementation. The relaxation of trade regulations between China and Australia will unlock the door to unprecedented opportunities between the two nations and is expected to drive the two-way flow of goods and services which exceeded $160 billion last year.
Asia is experiencing rapid urbanisation and GDP growth which is fast outpacing the Western world. China alone makes up 19% of the world’s population and continues to grow at a rapid rate, especially within the middle class. It is projected that by 2030, Asia as a whole will represent 66% of the world’s middle class population, up from 28% in 2009.
Many sectors of the economy will benefit from ChAFTA including mining, agriculture, tourism and hospitality, specialised manufacturing, insurers and the services sectors – just to name a few.
It has been well publicised that the mining industry has been facing significant pressures from falling metal prices over recent years. ChAFTA will provide a welcomed boost, offering certainty that no tariffs will apply to iron ore, gold, petroleum oils and liquefied natural gas. Furthermore, there will be removal or reduction in tariffs on coaling and thermal coal, refined copper and alloys, alumina, opal and other precious stones. With prices of our key mineral exports falling and the supply of these metals outweighing their demand, ChAFTA is welcomed by the industry. ChAFTA will position Australia on a more competitive footing which is expected to drive up the demand for our mining outputs.
The agricultural sector was one of the key areas of focus for ChAFTA, with China being Australia’s fastest growing dairy export market. The agreement covers a range of measures which will facilitate opportunities in the industry. The sector will enjoy the reduction in tariffs over the next 4-9 years on dairy, beef, wool, wine, sheep meat, pork and a variety of horticulture. Dairy is projected to gain an $11 billion boost over the period which is likely to result in increased dairy production in Australia. In turn, this will result in a better economic outcome for our farmers and increased employment in regional Australia.
The services sector is a large segment of Australia’s economy and whilst it makes up around 80% of GDP, it currently only forms 15% our exports. Opening up the lines of trade between the two nations, ChAFTA will provide improved market access to our Australian services exports. In particular, financial service providers, insurers, aged care providers, fund managers, education services exporters and professional services providers (including those in the accounting, legal, construction, engineering, environmental services and tourism industries). This is an exciting opportunity for Australian service providers who will now have access to a new untapped market within China.
Australian aged care providers also stand to benefit from China’s ageing population. China have authorised Australian companies to establish profit-making aged care institutions in China, again opening up the service providers to a new market. It is estimated that there are more than 200 million elderly citizens in China at present and this number is expected to more than double by 2050. The Australian brand is well respected by consumers in China, representing a clear opportunity for Australian entrants into the market.
For Australia, ChAFTA will promote economic growth, boost employment and drive investment.
Opening doors for foreign investment
Chinese investment in Australia is growing rapidly, reaching approximately $64 billion at the end of 2014.
The implementation of ChAFTA is expected to drive Chinese investment in Australia even higher, through the liberalisation of the Foreign Investment Review Board’s (FIRB) screening thresholds for private investors in non-sensitive sectors. The real estate and infrastructure market is expected to benefit from increased Chinese investment in particular.
A Centre for International Economics report projected that Australia’s recent free trade agreements should see Australia’s exports growing by $17 billion by 2034. Dairy exports are predicted to be 59% higher and the export of services is expected to rise by 13.9% over the same period. This is expected to create 178,000 new jobs in Australia and contribute to the rise of Australian GDP.
Australian investment into China will also increase as Australian businesses take advantage of easier access into Chinese markets. The creation of new markets will encourage economic growth and employment in Australia.
China has been a net importer in its trade with Australia. The liberalised investment regime in Australia will help to increase China’s share of exports to Australia and therefore its overall balance of trade.
Cheaper Chinese imports
ChAFTA and the consequent reduction of tariffs, should result in cheaper imports and greater availability of Chinese products to Australian consumers and businesses. The remaining Australian tariffs on Chinese imports, including tariffs on Chinese manufacturing exports, electronics and white goods, will be eliminated progressively. This should result in potential capital and operating cost savings for businesses and cheaper purchases for consumers.
Relaxation in visa and immigration formalities
Chinese companies participating in large infrastructure projects with a capital expenditure exceeding $150 million which is undertaken in Australia, may be able to negotiate beneficial visa terms for their staff, executives and workers.
This will be supported by:
ChAFTA will have a large impact a number of industries in Australia and the opportunity to leverage the agreement is significant. Visit our think BIG channel for a high level summary or contact your ShineWing Australia Relationship Partner to discuss how you can benefit directly from ChAFTA.