At ANZ, we’re optimistic about the impact the free trade agreement (ChAFTA) between Australia and China is going to provide for a variety of businesses in Australia, and the nation more generally – for five reasons.
"In the past more than 80 per cent of businesses have failed to take advantage of free trade agreements."
Mark Ganz, Director, Client Insights and Solutions
China FTA is not just for big business
The significance of the relationship with China
China is Australia’s largest two-way trading partner. It's the largest and one of the fastest-growing nations in the world. Achieving this deal provides a significant long-term opportunity for Australia.
Under the FTA China also commits to provide almost-unmatched access for Australian services providers. In fact only Hong Kong and Macau, both special administrative regions of China, will have better access.
All FTAs typically reduce tariffs, provide better market access and encourage investment flows, but doing this with China provides a potentially greater upside for Australia due to the strong underlying growth, increasingly for food and services.
The China FTA has already had a significant impact on business sentiment. This could not be more true than in the dairy sector.
For too long organisations in Australia have felt that a strong FTA between New Zealand and China left Australian farms disadvantaged and increasingly so as time went on.
That mentality and rhetoric has now changed course to that of opportunity, lifting business sentiment. While it will take up to 11 years for tariffs to be eliminated progress in this area is a great win for the industry.
It plays to both Australia and China’s strengths
Despite all of the fuss made about mining and the end of the mining boom, Australia is a services-based economy, and services remain the largest contributor to GDP. Opening up China’s market to Australian service providers – in particular financial, legal and education services – is huge. Access will be improved in around 40 areas to levels either equivalent or better than those enjoyed by other nations. Tourism, aged care, health, finance, engineering, construction and legal firms are among the potential beneficiaries.
Similarly, China has immense funds looking for a home and to invest. The changes to the FTA which mimic the leeway given to US, investors should see the stock of Chinese investment grow from a surprisingly low 1.3 per cent.
Inbound private Chinese investment proposals below $1.08 billion will no longer require Foreign Investment Review Board (FIRB) approval except in agriculture where the thresholds are $15m for land and $53m for agribusiness. State-owned enterprise investment proposals will still require FIRB approval.
It’s a test case for the incubation of the Chinese services industry
China wants to shift its economy away from the heavy manufacturing focus to one that is more internally driven as opposed to externally driven. The Australia FTA in addition to the Shanghai Free Trade Zone means incubating and effectively piloting the services industry and seeing what happens. How will Chinese consumers and companies respond? The interaction between Australian services firms and those in China can then influence the FTAs that China negotiates in the future.
I’s a story of long-term potential
Some of these benefits are going to take time to bear fruit, as trade barriers are slowly lessened over the coming years while other areas of opportunity are still being discussed.
Unfortunately in the past more than 80 per cent of businesses have failed to take advantage of free trade agreements. With over 12 months at hand before the agreement comes into law and with details still emerging, its important that businesses become familiar with the content of the agreement and how it will impact them; preparing for the benefits that will flow through over the next few years.
ANZ will hold seminars in early 2015 on the China and Australia free trade agreement.
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.