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By Oren Laurent
President, Banc De Binary
After a decade of negotiations, a free trade deal between China and Australia was finally completed in Canberra on Monday. In the coming years, both countries stand to benefit significantly from their commitment to cement and diversify business ties. For Australia, it is a landmark achievement which offers great opportunities; for China, the world’s second largest economy, this is another indication of its expanding influence overseas.
Essentially, at the heart of the deal, is the fact that Chinese markets will be open to exporters of Australian agricultural goods and services, and in return, Australian resources will be accessible to Chinese investors.
This isn’t the start of their trade relationship. Australia is already the most China-dependent of the world’s developed economies and over 35% of its exports went to the Asian superpower last year, according to the IMF. Yet, the deal does take economic and strategic ties between the countries to a whole new level. In the long-term, this week’s deal could mean that 95% of Australia’s exports to China will be free of any tariffs.
It’s no surprise that Australia has celebrated the agreement as the best ever between Beijing and the West. After all, such deals are often particularly beneficial for the smaller economic partner. That, in this case, is of course Australia, whose economy has been heavily dependent on the mining sector and energy exports; it will profit tremendously from greater diversification. Although services make up around two third of Australia’s gross domestic product, they accounted for only 17% exports in 2013. Now, Australian companies will be able to market medicines and healthcare services to China’s aging population, as well as financial services and wine, dairy, and meat produce to its growing middle and upper-classes.
China obviously gains by providing its population with the imports and services they need. But there’s more in it for them than just that. In exchange for supporting Australia’s export-strong economy, China now has demanded the same investment privileges in the country as America and Japan. Its private companies will be able to invest as much as A$1bln without any formal review.
This is another example of Beijing’s political-economic strategy to establish influence and assert its soft power overseas. It sees in Australia a willing business partner who offers it energy, resources, and financial opportunities – all components it needs for its economy to continue developing should it want to contend for the world’s number one superpower spot.
Trade agreements are never just simple economic deals. They are indicators of a political and social connection, and they open new doors for business as much as supporting existing ventures. They create cooperation and dependency, which, like in any human relationship, gives both sides strength as long as the commitment remains. The deal between Australia and China may have been in the making since 2005 but it has been signed now a great time for both counties. Both economies can grow from it, and their citizens will be the winners if they adapt to change and maximise the new opportunities available.
