China, Australia urged to deepen ties

Australia and China have been urged to embark on a friendship agreement modelled on Australia’s 40-year-old treaty with Japan in a major broadening and deepening of the economic and political relationship.

A year-long study supported by government and business in both countries, The Australia-China Joint Economic Report (ACJER), examines the potential to improve trade and economic growth as the drivers of both China’s economic rebalancing and as Australia’s shifts from reliance on resource exports.

"There is every reason to believe the Australia-China relationship will become more, not less important to both countries."

It proposes a series of potentially controversial closer ties just days after the relationship between the two countries has come under pressure with the Turnbull government’s preliminary rejection of bids by two Chinese companies for control of the NSW electricity company Ausgrid.

The report says:

• The two countries should have a clearer policy on what foreign investment is allowed and Australia should treat many Chinese state owned investors more like private investors.

• Governments should establish an Australia-China Commission modelled on the Fulbright Commission set up after World War 2 to broaden Australian contact with the US with academic, community and cultural exchanges.

• China and Australia should embark on new close cooperation on the maritime economy as two countries which have a common interest in access to ocean transport corridors.


The report has been delivered to Prime Minister Malcolm Turnbull and Chinese Premier Li Keqiang and will be presented to a series of events across the country at time when there is growing uncertainty about the direction of China’s economy and China’s more assertive approach to regional security particularly in the South China Sea.

Its main argument that Australia can reap large long-term economic benefits from becoming more of a testing ground for China’s economic and business expansion abroad is likely to be contested by strategic planners who believe Australia should be more focused on preparing for conflict with China.

While the report was written before the Ausgrid decision, it has a direct relevance saying: “Seizing the potential benefits will require active engagement on Australia’s part with China on the latter’s financial opening rather than reactive policymaking, or, worse, a turn towards protective economic nationalism.”

It proposes a series of new approaches to regulating foreign investment which would curb the Federal Treasurer’s power to make decisions like that on Ausgrid.

They include a clear negative list of what is out of bounds for all foreign investors, a system where foreign companies would pre-qualify to invest, more power for sectoral regulators rather than politicians and a system that would pre-approve state owned foreign investors when they show the act like private companies.

It says Australia should conclude a bilateral investment treaty with China to follow up last year’s trade agreement and this could then become a model for the investment between countries across the Asia Pacific.

China has been Australia’s biggest trading partner since 2007 with two-way trade of $A155 billion last year, but the report forecasts this can continue to grow very fast even with a shift away from resources exports.

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It says even if China’s economic growth rate slows below five per cent over the next ten years, exports could still grow 28 per cent. But if the two countries pursue a range of economic reforms and closer engagement outlined in the study, exports could grow by 120 per cent in real terms over a decade.

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“There is every reason to believe the Australia-China relationship will become more, not less important to both countries as the Chinese economy continues to change and upgrade,” the report says.

“For Australia, this means enhanced long-term economic capacity through opportunities for new trade and productivity-boosting innovation as well as through  improving national infrastructure and the development of regional Australia.

“For China, this means a sustainable path through middle-income status on its way to becoming a high-income economy through economic upgrading and diversification.”


The study treads delicately around the emerging security tensions with China over issues such as maritime boundaries and cyber security.

But its call for much closer cooperation with China over maritime security would put Australia at the heart of new Chinese thinking over how to protect its access to resources and global trade supply lines.

In an oblique comment suggesting the need for more understanding of Chinese maritime assertiveness, the report notes a need for more debate about the implications of China becoming maritime economy.

Australia should be helping redress this deficiency by working with China over the implications of growing resource dependency for resource security; maritime resource development and protection; maritime scientific and weather research; and Australian participation in the Maritime Silk Road infrastructure building plan.

The proposal for a cooperation treaty modelled on the 1976 Treaty of Nara with Japan would step up the recent pace of diplomatic relations under both Labor and Coalition governments and aim to elevate Australia above China’s other diplomatic partners.

It would lock the two countries into more regular meetings between top politicians, involve regular cooperation amongst lower level officials on many areas of government policy and extend into many non-government areas to deepen professional and community cooperation.

“While fully respectful of each other’s existing relationships (such as Australia’s ANZUS relationship with the United States), the new partnership will be a powerful force for the stability and prosperity of the region, and indeed for the global system,” the report says underlining is ambition for the Australia-China connection to have a global significance.

“Nurtured carefully and imaginatively by governments, businesses, research institutions and other stakeholders on both sides, this deeper partnership could become one of the most strategically vital and productive bilateral relationships that either country has in the world.”

Greg Earl is a former foreign correspondent and Asia editor.

The Australia-China Joint Economic Report (ACJER) is the first major independent study of the Australia-China relationship and was commissioned by former Treasurer Joe Hockey from a group of experts in each country led by the Australian National University and the China Centre for International Economic Exchanges.

The Australian Group of Experts included: Ian Watt, former secretary of the Department of the Prime Minister and Cabinet; Professor             Gary Banks, chief executive of the Australia and New Zealand School of Government and former chair of the Productivity Commission; Professor Allan Gyngell, director of the Crawford Australian Leadership Forum at ANU and former director-general of the Office of National Assessments; Heather Smith, Secretary of the Department of Communications and the Arts; Phil Lowe, the next Governor of the Reserve Bank of Australia; and Emeritus ANU professor Peter Drysdale; along with advice from  Ross Garnaut and Geoff Raby, both former ambassadors to China.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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