Australia in the Asian Century

Dr Craig Emerson was first elected to the House of Representatives as the Member for Rankin in Queensland in 1998. He served as an Opposition shadow minister in the Howard era, from 2001, and in government from 2007 has held the portfolios of Small Business, Independent Contractors and the Service Economy; Competition Policy and Consumer Affairs; Trade and now Trade and Competitiveness. Before entering federal parliament, Craig Emerson worked as an economic analyst with the United Nations, and as an economic adviser to the Hawke Government. He then took up the position of Director-General of the Queensland Department of the Environment in 1990. On Thursday 27 September 2012 Dr Emerson addressed The Sydney Institute on the topic of the Australian economy in the Asian century. The paper which follows is an edited transcript of Craig Emerson’s address.

AUSTRALIA IN THE ASIAN CENTURY

            CRAIG EMERSON

It was around 1999 when I first appeared at The Sydney Institute with Julie Bishop as an up-and-coming backbencher. Since then, Julie’s been a cabinet minister and no doubt would like to be one again. And I have made it to the ministerial ranks also.

I want to talk to you tonight about Australia in the Asian century. You will have heard something of that already but if I can add a little more substance to what you have heard to this point, then that will have been a worthwhile contribution. We’re hoping to release a White Paper on “Australia in the Asian Century” in a month or so. It has been a very big endeavour and I want to give you some insights into our thinking, motivation behind that and where we think we might proceed on the basis of the work that has been done.

It’s true that for most people around the world, that when we think of the first decade and a bit more of the twenty-first century, there have been two big economic events. The first is the deepest global recession since the Great Depression, begun with a global financial crisis. We weathered that very well as a nation, all hands were on deck. It was a joint effort, a real partnership. We are able to say proudly that Australia is in its twenty-second year of continuous economic growth having weathered that global financial crisis and that deep recession.

But the second event defining the early part of the twenty-first century is Asia’s re-emergence. I deliberately refer to Asia’s re-emergence because history tells us that, until the nineteenth century, Asia made up around half of the global economy. I don’t know whether they had an Australian Bureau of Statistics or an Asian Bureau of Statistics around that time, or a Global Bureau of Statistics, but reliable economic historians estimate that Asia contributed around half of the global economy until the nineteenth century. It was only during a short period in the broad history of human development, from the mid eighteenth century to the mid twentieth century, that economic power shifted from Asia to the west, driven by European and North American industrialisation.

But, after the Second World War, the West’s relative advantage began eroding.  We saw Japan become a powerhouse with its post-war reconstruction and industrialisation, Taiwan followed and, a little later, South Korea developed large industrial bases. And, of course, Singapore was developing rapidly as well.

Over the last few decades this shift in the global centre of economic activity back to Asia has accelerated as the Asian giants of China, India and Indonesia have begun to transform their economies through opening up those economies to the world.

Most dramatic, of course, has been China’s transformation – and that seems to make most of the headlines – based not only its industrialisation but also its urbanisation. Even now, despite that urbanisation, a majority of Chinese citizenry still live on the land. But it has truly been a transformative event.

When a country like China, with a population a third bigger again than North America and the EU combined, starts industrialising, it’s no surprise that it fundamentally changes economic relationships and that global centre of economic activity. A great humanitarian endeavour it has been, because, in Asia, the rise of China – or the re-emergence of China, India and Indonesia – has literally liberated hundreds of millions of people from poverty.

In my lifetime alone Asia’s share of the global economy has doubled. And that’s why we have been working on this white paper, to determine how to make the most of the opportunities on offer in the Asian Century. Of course we will talk about Asia’s rise, how that happened and how that has affected Australia in the past but primarily it’s a forward-looking document and will set out national objectives for Australia. It will consider how to support our businesses to better continue the process of Australia’s economic integration with Asia.

I used to work for Bob Hawke and he was a great Prime Minister. That engagement of Bob Hawke with the Chinese leadership was a very defining moment in our economic history. But this year, in December, we also celebrate the 40 years of Australian diplomatic recognition of the People’s Republic of China.

I could talk about Harold Holt beginning the processes to dismantle the White Australia policy. I could talk about John McEwen and Bob Menzies creating and writing and negotiating a commerce agreement with Japan in 1957. And I could talk about many other leaders. But it was in the Paul Keating era that we saw efforts towards the engagement of Australia with Asia and a concerted effort to achieve economic integration, or as Bob Hawke used to describe it, “enmeshment” between Australia and Asia.

One of the phenomena associated with the development or re-emergence of Asia is that East-Asia leads the world in a relatively new phenomenon called global value chains. This is where different countries with their particular skills and cost advantages each contribute something towards a final product that is sold in a final market place. That something could be components for manufacturing, it could be services associated with the production, distribution and sale of a product. It could be legal services, it could be design services. The truth is that the intra-Asian trade is growing far more rapidly than Asia’s trade with the rest of the world, through these values chains. For our manufacturers and service industries, we need to develop a mindset that looks at these opportunities, these regional and global value chains, and find out where we can link into those.

Currently our participation as a country in these value chains is very low by international standards. That needs to change. These value chains will expand and proliferate across all parts of the global economy. From the government perspective, we need to ensure that our export-assistance programs are better geared towards these emerging value chains.

We want to support our small and medium size enterprises in particular to grow and to integrate into those value chains, with an emphasis on Asia’s emerging and frontier markets. It’s fair to say that our efforts through AusTrade, through the Export Market Development Grants Scheme, through the export finance and insurance corporation have been spread widely around the world. There may be an argument to start thinking about focussing those more on the frontier and emerging market where our “costs” for searching and getting familiar with these markets are very high compared with the more mature markets.

AusTrade which is now setting up offices in emerging markets such as Kazakhstan, Mongolia, Latin America and Columbia just by way of example. That has meant we’ve actually had to close some offices. But it is a re-focussing of our effort and we are looking at the possibility of doing that in relation to the export-finance and investment corporation as well.Because these markets are difficult to break into but of course the opportunities, the potential rewards are great.

I met with Robert Graziano, the president of Ford, today. He told me about the Ford Ranger. It’s a vehicle that is designed in Australia but produced across three countries in Ford’s global production chain. It’s an example of Australia succeeding in what we do best, adding value to production that involves large doses of research and development, and skills. That’s our strength, rather than low wage cost or massive scale of production, which are the strengths of other countries in the region.

We now work in an environment where the developed countries outside the region are still grappling with the problems of getting out from beneath their mountains of debt. This offers an opportunity for us to concentrate our efforts on the future with engagement and enmeshment with Asia.

There has been a lot said about whether the resources boom is partly over, fully over or half over. So, a few facts. Obviously, our mineral prices have gone up over the last decade or so. The prices for metallurgical coal have increased sixfold in a handful of years, and the price of iron ore has pushed our terms of trade to a 140-year high. On the back of that, investment is pouring into the country.

That has helped shield Australia from the worst effects of the global recession. And our exports to Asia nearly doubled, from $120 billion to $220 billion, between 2001 and 2011. Many have observed that export prices have come down and this is being equated with a collapse in export prices. In fact, they’ve come down from stellar peaks to a shoulder, not to some sort of abyss. That’s why we don’t share the pessimism that is displayed in the media regularly that the resources boom is over or that export prices have collapsed.

The international monetary fund itself has confirmed that in the next couple of years, Australia will reach peaks of investment as a share of GDP. That means that the price boom might be coming off, but we’re not even halfway through the investment boom. There’s probably up to a decade more of investment associated with the mining boom. And investment will increase mine output. And what we’ve been doing through this whole period is looking at ways of diversifying our economy.

When I took a group of more than 100 businesses through China in August 2011, we didn’t go to Beijing. We went to western cities in China, including Chengdu, Chenda, Chongqing and Wuhan. These are enormous cities of 8-30 million people. In Chonquin, to consider it is made up of 30 million people is breathtaking. We took our service industries people there, our designers, our architects, people who are good at energy efficiency, even media content creators.

There was a lot of engagement, and we think that by working with such provincial areas, we can ensure that our service industries – which contribute 80 per cent of our employment – enjoy that economic integration as well. But I wanted to touch on another part of our economy which some people have regarded as having very little by the way of future prospects. That is pessimism not shared by this government. That area is agriculture.

Between now and 2050, the world’s population will grow from 7 billion to 9.3 billion people. That’s a big addition to the world’s population. Through such developments as I have been describing here tonight, Asia’s middle classes will expand, by 2035, to three billion people. Three billion middle class potential customers will inhabit wealthy parts of our region, demanding the sorts of services that we take for granted – education services, tourism services, and high protein food like beef, sheep meat, pork, chicken, poultry and fish.

Here we have northern Australia with its capacity and untapped potential to produce beef, in particular. This is a once in a lifetime opportunity for Australia. This is an opportunity, not a threat. What China wants is greater availability of food on the world market. They’re happy to buy it. But China, like Indonesia, like India, like other countries of the world, is very anxious about the prospect of food shortages. Food shortages lead to malnutrition, starvation in some countries, and they lead to civil unrest. You only need to look at 2008 to see what happened with food riots around the world.

This is an issue of a great humanitarian endeavour, and an issue in my view of peace and stability in the world. In planning for the future, we can’t turn our backs and say that Australia only will produce food for itself, not withstanding that 60 per cent of our produce already goes to the international market, and not play a part in this great humanitarian endeavour.

My family left rural Australia in 1970. We had to because things were bad. Timber quotas were being applied because the timber had been overcut. The country town I lived in has now shrunk from 900 people to less than 500 people. If it continues to shrink, the bank, the post office, the doctor, the hospital will go, and then any people left will go.

We now have a once in a generation opportunity to revitalise our rural areas and to achieve genuine market-driven regional development. What Julia Gillard is saying, is that this is an opportunity to achieve the sorts of regional development that Gough Whitlam was talking about 40 years ago with the Bathhurst-Orange growth centres, and Albury-Wodonga growth centres. This time, instead of being delivered by the government, it will be delivered by the market.

Let’s join in this great humanitarian endeavour to ensure that as Asia’s re-emergence continues, when those three billion people become middle class customers in our region demanding high-protein foods, that we play our role in this effort to achieve regional development. Let’s put aside and dismiss out of hand the xenophobic rantings that we’ve heard, which are all about seeking to harvest votes, not to harvest wheat.

People obviously are apprehensive about overseas investment in Australia’s agricultural land. That’s inevitable. What we need to do is to make sure that we get enough information in front of the to tell people that the truth about “exponential increase” in foreign ownership of agricultural land is no land grab by foreigners. In 1984, 5.9 per cent of our agricultural land was owned by foreigners. The exponential increase between 1984 and 2010 was just 0.1 percentage point. It went from 5.9 per cent to 6 per cent. Most people don’t know that.

We’ll continue to work on this joint study. Our plan is to release the results in conjunction with the Asian Century White Paper. And I would urge everyone here, if you’re interested, to participate in what is going to be a great national debate and a great national opportunity.

I want to finish by saying that all of this will work if we have a free trade area for Asia and the Pacific. That’s what we’re seeking. There are two potential mechanisms to deliver this. One is the Trans-Pacific Partnership that comprises eleven APEC member economies, and if Japan joins, it will be twelve. Another concept which may emerge which is a Regional Comprehensive Economic Partnership, involving some of the overlapping countries, ASEAN and its six free-trade agreement partners in the region, which includes Australia. Either could be a pathway to a free trade area for Asia and the Pacific.

I’ll leave with this observation. When I stepped in for Prime Minister Julia Gillard, at the talks in Vladivostok, leaders had various items on the agenda to discuss. On the issue of food security, countries were asking for the freedom to allow markets to work, not for government to step in, not for export controls, but to ensure that through specialisation and through market forces the world itself will find the most productive places to meet that great food challenge.

I thought that an encouraging development out of APEC, and exactly how Australia wants to travel. The twenty-first century is the Asian Century. Australia needs to be in the right place at the right time – in the Asian region, in the Asian century.