The Right Side of History
By John Brumby
Close ties with China hold enormous potential for Australia, and JOHN BRUMBY argues that we must treat the Asian Century not as a threat, but an opportunity.
Will we embrace deeper partnerships in trade, technology and culture with China and the rest of Asia? Or will we be left to play catch up in a rapidly changing global economy?
In a recent speech Wayne Swan asked whether Australia would be on the right side of history in this, the Asian Century. This is indeed the right question for Australia today. A child born in the first year of this century will come of age in an Australia that is profoundly shaped by our relationships in Asia. It will either be an Australia that is closely engaged, contributing to and benefiting from the energy, growth and innovation of the most dynamic region in the world; or an Australia playing catch up in a changed global economy it has failed to fully embrace and understand.
Talking to China
The first imperative is to increase our governmental and diplomatic presence in China. Talking to China is crucial. In my opinion, Australia’s Free Trade Agreement with the US would never have occurred were it not for our strong diplomatic relationship, forged through almost 70 years of dialogue, discussion, negotiation and friendship. With China, we don’t have that kind of time.
A deepening of our relationship with China will not come about by Australian leaders visiting and lecturing their hosts about governance, investment, or any other matter. Rather, it will come about via a solid diplomatic presence, mutually respectful dialogue, and a sharing, in friendship, of our respective cultures, values, and ideas.
In this regard, the Prime Minister’s recent announcement of a new consulate in Chengdu, the capital of China’s Sichuan Province, is welcome news. But as former ambassador Geoff Raby has pointed out, until the Prime Minister announced the new consulate, our diplomatic footprint in China hadn’t changed in seventeen years.
The new consulate joins just four others. By way of comparison, we have four diplomatic offices in Italy alone. Our two way trade with Italy last year was just under $7.5 billion per annum. With China, it was over $113 billion.
In some ways the states have been more nimble than successive federal governments in responding to China. When our government came to office in 1999, Victoria had no representation in mainland China – just an office in Hong Kong. We opened new Government Business Offices in Shanghai and Nanjing – and the current government proposes a further office in Beijing. Also NSW, Queensland and WA each have representation in two Chinese cities.
Trade and investment
The second priority is to deepen, diversify, and mature our trade and investment relationship. Some might be tempted to look at the figures and say the job’s done: After all, last year Australia’s two-way trade with China was worth $13,470 to each Australian household alone – an increase since 2007 of 93 per cent.
But to rest easy at this point would be to misunderstand the nature of China today. China is no longer just a demand sink for resources, nor the world’s cheap manufacturing hub. When I joined the Australian board of Huawei last year, it was because I wanted to be involved with a company that symbolised the future of China, not the past. Huawei is China’s largest privately owned company, with an annual turnover of more than $US33 billion, and a presence in over a hundred countries worldwide.
According to the World Intellectual Property Organisation, Huawei last year filed the third largest number of international patent applications of any company in the world. In fact, the total number of applications from China rose by more than 33 per cent on the previous year – which is by far the largest increase of any country. In a world continually transformed by technological advance, it makes sense to engage with the region that will more and more be driving that advance.
Likewise, when we consider trade heading in the other direction, we need to look past the obvious needs of a rapidly developing country for nickel, zinc and iron ore. There are new export opportunities to consider today. For example, as the Chinese people become more affluent they also become more susceptible to the kinds of lifestyle diseases we are all too familiar with in the West. 80 per cent of deaths and disability in China are now caused by chronic disease, which is why it’s important to remember that here in Australia we don’t just have an abundance of natural resources, but also a wealth of experience in tackling these problems. We need to recognise strengths like these in the Asian Century – and see how they fit with the challenges faced by a rapidly rising Asia.
We also need to recognise our limitations – which brings me to the thorny question of Foreign Direct Investment. Australia has almost always been a net importer of capital. We built the strong economy we enjoy today in significant part by leveraging foreign savings. KPMG predicts that between US$1 trillion and US$2 trillion
of Chinese investment will head overseas between now and 2020. By 2011, China had invested only $13.4 billion in Australia. For comparison, the United States direct investment total by 2011 was $122 billion.
We need to make sure that all of the barriers that might stand between Australia and new trade and investment opportunities are removed. Barriers both visible and invisible. Barriers arising from historical bias, or outdated perceptions. Engagement in the Asian Century requires the free flow of ideas, knowledge, technology, goods, services, and capital.
Partnerships in innovation
But true engagement requires more than just exchange between two countries. It requires partnership. And in many ways the most important partnerships for Australia in the Asian Century will be those in Science, Technology, and Innovation.
The reason for this is simple: China has no intention of falling into the so called ‘middle-income trap’. This occurs when developing countries – relying on low cost labour and the take-up of existing technologies – hit a wall in terms of productivity growth. There’s only one way out of the trap, and that’s innovation.
China’s determination to become an innovation powerhouse is resulting in what the Australia China Business Council has called ‘the largest investment in Research and Development in human history.’ China’s 12th Five Year Plan aims to increase total R&D spending to 2.2 per cent of GDP by 2015. In 2010, they were at 1.75 per cent – $105 billion – which means that in the next 18 months, China’s R&D spend will increase by more than the total amount Australia spends each year.
Australia can and must leverage some of that unprecedented Chinese R&D spend by forging new partnerships in innovation. After all, General Electric’s 2011 Global Innovation Barometer suggests that 40 per cent of innovation in the next decade will happen in collaboration across borders. We need to extend the hand of partnership into China, and give China a reason to extend their reach to our shores.
The CSIRO is calling for a big increase in what they call ‘science diplomacy’ – and the inclusion of scientific collaboration objectives in bilateral economic dialogue and agreements. I would argue for an annual, ministerial level Australia-China forum, which sets ambitious targets and reports back publicly on new scientific collaborations.
Governments must also continue to create an environment of innovation here in Australia. In the year 2000, our Government in Victoria set a goal to become one of the top five biotechnology hubs in the world by the end of the decade. We wanted to give the world’s best scientists a reason to be here – and on a number of measures, we achieved that goal.
We also passed the nation’s most ambitious climate change legislation – again in the hope of stimulating innovation and creating an environment in which new technologies and solutions could emerge. While the Western world argues about climate change, China knows from experience that it simply must grow greener and cleaner: Over the last ten years, environmental degradation and depletion cost China ten per cent of their GDP.
It’s no wonder they have doubled their wind power capacity every year since 2005, or that they are now the world’s largest manufacturer of solar panels. I believe the Gillard Government’s decision to put a price on carbon will drive investment in cleaner technologies, which in turn will open up new opportunities for partnerships and collaborations with the world’s largest emitter of greenhouse gases.
A fuller engagement
Finally, it is very important that we recognise the full human potential of engagement in the Asian Century. China’s story is one of an ancient culture now re- engaging with the world; and given the centrality of art and culture in all Asian societies, our engagement with China must be about more than trade and investment.
In 2010 the National Art Museum of China showed a series of work by indigenous Australian artists from our National Museum of Australia, and late last year the Australian museum reciprocated with an exhibition of contemporary Chinese art called A New Horizon. The name is apt. As we shift our gaze from West to East, a ‘new horizon’ is exactly what we see. It’s one we have barely begun to explore.
As so often, Asialink has been a strong voice for greater cultural engagement. They advocate the training up of an ‘Asia capable’ cultural workforce here in Australia; a strong Asian focus in the new cultural policy to be launched by the Gillard Government later this year; and a deeper sharing of Australian culture with Asia – one that transcends the kind of shallow ‘nation marketing’ we’ve sometimes seen in the past.
I fully endorse these aims. Here in Victoria we know how valuable – and mutually enriching – the sharing of cultures can be. After all, we are the most diverse state in Australia. 43 per cent of us were either born overseas, or have a parent who was born overseas. We also have a Chinese community that is almost as old as the colony itself. All of this is an advantage in the Asian Century.
While I have focused on China, much of what I have had to say applies to the other rising Asian nations in turn. The World Bank estimates that the global middle class will expand from 1.8 billion people in 2009, to 5 billion by 2030 – two-thirds of whom will be in Asia.
India, for example, is already Australia’s second largest source of foreign students. Indonesia has long been the recipient of Australia’s largest bilateral aid program, but now there are opportunities beyond aid. Their economy is growing impressively at around six per cent each year, but with a per capita income around one tenth that of Australia’s, there is enormous potential for future growth.
So it should be clear that the term ‘Asian Century’ is not just a catchy name. It reflects a coming reality that will shape our future and determine the opportunities that our children and grandchildren will enjoy. It should be viewed not as a threat, but an opportunity: To play a greater diplomatic role in the region; to reap the benefits of increased trade and investment; to join forces with the emerging centre
of world innovation; and to enrich our cultural lives and relationships within our region.
We can, if we choose to, shift our relationships in Asia to the next level. But we need to act now if we are to be true partners in this Asian Century.
This essay was published in The Melbourne Review on 3 August 2012.