However US, European and Japanese investors will not necessarily hold the keys to the Chinese market.
The essential link between Chinese investment and trade is most obvious in agriculture. Increased investment in Australian agriculture will be needed to take full advantage of the expanding Chinese market. Farm consolidation is necessary to support more the professional management and state of the art plant and equipment required to lift productivity and rates of return.
The top 25 per cent of broad-acre farms (ranked by rate of return) currently account for almost 55 per cent of production, while the bottom 25 per cent of farms account for less than 10 per cent.
A substantial proportion of that investment should come from China. Why? Because Chinese food manufacturers and retailers will be investing heavily to meet rapidly evolving Western tastes in China’s new middle-class.
They will need reliable and highly flexible supply chains, which will require close working relationships with Australian managements as well as substantial investment at the Australian end.
Like the Japanese steelmakers before them, China’s food industry will need to secure control of the natural resource and the expertise that goes with it, either by negotiating elaborate supply contracts or by the acquisition of Australian producers.
Vertical integration minimises transaction costs and maximises flexibility and will be the preferred option of many of the largest Chinese food importers.
If Australia does not accommodate the needs of China’s food industry, the likelihood is other countries such as Canada and New Zealand will.
Australian farmers also will find themselves competing against Chinese producers, and there can be a substantial gap between the theory and practice of Chinese market access. Just ask Bellamy’s or the US beef producers. Australian agriculture may be grateful for having partners with political clout in Beijing.
However, it is not only Australian agriculture which stands to benefit from the free flow of foreign investment, including Chinese investment.
Australia’s private hospital industry is excitedly exploring the new investment opportunities promised by the new China-Australia Free Trade Agreement. Healthcare should be in the vanguard of Australia’s high-end service exports to China’s new middle class.
The success of service exports is vital for Australia. With the shift in manufacturing from the advanced economies to Asia, countries like Australia are more dependent on services for employment and trade.
Fortunately, services represent the fastest growing component of global trade. But the delivery of professional and business services such as healthcare requires a permanent presence in the export market. It needs foreign investment and partnerships.
It is estimated around 70 per cent of Australian service exports to the US are sold by majority Australian-owned affiliates.
The investment needed to export services to China has been made more possible by the FTA but, again, there is the gap between the theoretically possible and the reality created by China’s politicians and regulators.
A US government report to Congress earlier this year warned “barriers, often imposed through non-transparent and lengthy licensing processes, prevent or discourage foreign suppliers from gaining market access through informal bans on entry, high capital requirements, branching restrictions or restrictions taking away previously acquired market access rights”.