Thursday, January 17 2019 | ASIA TODAY INTERNATIONAL - Reporting the Business that Matters in Asia
JOBS AT HEART OF CHINA’S FREE TRADE DREAM
A KEY thrust of China’s interest in securing an FTA with Australia is the export of Chinese workers for Chinese-owned and funded projects in Australia . . .
AUSTRALIA’s Abbott Government has shown itself a quick learner in areas of international trade negotiation, signing off Free Trade Agreements with Japan and South Korea in quick succession — and hopeful of closing a deal with China as well.
If the Australia-China Free Trade Agreement is signed, it will mark China’s first FTA with a major developed economy, and, potentially, could be used as a model for negotiation with other developed countries.
Whether an agreement can be reached rests on political will and the mood of the respective Governments.
Japan was ready for an agreement. Trade liberalisation is an integral part of Shinzo Abe’s “three-arrow” economic regeneration strategy.
Similarly, the agreement with South Korea was relatively easy to achieve as Seoul seeks to broaden its trade links with other countries — perhaps to lessen its increasing dependence on China. Recent utterances of assorted Chinese leaders seem to indicate that they, too, are more prepared now to negotiate than previously.
Speaking a day after Australia’s successful conclusion of FTA talks with Tokyo and Seoul, Chinese Premier Li Keqiang said China and Australia should be more practical and make mutual concessions in pushing through the deadlocked bilateral free trade negotiations.
The official Chinese newspaper, the People’s Daily, quoted the Chinese Premier as saying: “Signing a bilateral FTA as soon as possible is an important consensus being shared between China and Australia. We hope both sides carry forward the talks in a pragmatic approach, make mutual concessions and ensuring mutual benefits.”
The two countries should strive to reach a more balanced agreement, he said.
Another State-owned newsagency, Xinhua, opined that according to China’s Foreign Ministry, a resolution “is firmly in Abbott’s grasp”.
Some would say, cynically, that the Chinese also cannily know they can probably squeeze a better deal from an Abbott Government because it has made an FTA with China a policy priority. China-Australia trade negotiations began nine years ago, and have continued in a fitful stop-start manner over the intervening years.
Two key thrusts of China’s interest in securing a free trade agreement with
Australia are 1) freer investment access to Australia, and 2) the export of Chinese workers for the increasing number of Chinese-owned and funded projects in Australia.
There are political imperatives in these two Chinese objectives.
First, Beijing endorsed a “go global” policy last May, sanctioning and encouraging Chinese companies to make offshore acquisitions. (Chinese capital now flows at a furious pace into targetted markets, including Australia. In the first two months of this year, Chinese investment in Australia increased 31 per cent on-year.)
And employment, or rather unemployment, is a growing issue in China, with an ever-growing number of Chinese graduates, for example, unable to find work. While sending Chinese workers to work on Chinese-owned projects in Australia would not really account for even a droplet in the ocean of unemployment in China, in the overall scheme of things it would set a precedent.
If it gets this concession, China will have managed to embed in a trade agreement the free movement of its people, and for China, this could become the model when negotiating with other developed countries. (Obviously, China has no such constraints when it is dealing with developing countries. Its projects in Africa, or for that matter Papua New Guinea, engage almost exclusively Chinese nationals.)
In a recent press briefing, China’s Foreign Ministry spokeswoman, Hua Chunying, was quoted as saying: “We expect Australia to create a fairer environment and more convenience for Chinese business investment and operation.” She added that China welcomes more Australian business investment in China.
It is not Chinese investment per se that concerns governments in many countries, including some politicians in Australia. After all, Chinese property companies, which are privately-owned, have been freely investing and buying up real estate around the world, including in Australia.
The real problem is State-owned enterprises (SOEs), which have preferential treatment for bank finance in China, and are controlled by political appointees and those close to the political hierarchy. Countries like the United States have reservations about the activities of Chinese SOEs.
With their unlimited resources, they are seen as creating unfair competition to other companies. More crucially, there are those, like the Greens, who argue that SOEs represent the Government of their country, and, therefore, if a foreign Government is buying into Australia, these deals have to be scrutinised on the grounds of national interest.
According to Xinhua, “The Foreign Investment Review Board (FIRB) in Australia now requires in-house stamped approval for investments of any amount from any State-owned enterprises. This is clearly targetted at China’s economic frontline.
“The move not only provides an additional level of bureaucracy for China’s largest investors in Australia, but also empowers a mercantile approach from the Treasurer’s
office which is more or less beholden to an electorate’s mood,” says Xinhua.
Chinese negotiators have sought both clarification and a higher threshold, seeking exemption for investments under AUD1 billion. Currently, the limit is AUD248 million, above which FIRB approval is required.
Investment from other countries, such as Japan and the United States, enjoys higher exemptions.
When in Shanghai in April, Prime Minister Tony Abbott foreshadowed Australia’s willingness to grant China the same access to Australia under a free trade agreement as other trading partners.
Clearly, there are benefits for Australia to be had from an FTA with China, and for that matter, with any other country. Some Australian companies speak of the better
access they now enjoy in markets such as Thailand, one of the first to sign an FTA with Australia.
In time, and despite scepticism of the benefits in some quarters, Australian companies will also speak of improved market access to Japan and Korea.
The reality is, though, that while governments can prize open closed markets through FTAs or regional trade agreements, they cannot guarantee level playing fields thereafter.
Any Government can bring in new laws — at will — to hinder business and to protect their own industry. It is an instinctive political imperative in difficult economic times.
Sometimes, the rules are for other reasons. China recently implemented a stricter law to protect State and trade secrets. The law has been designed to protect sensitive sectors, such as the military, energy, oil and gas, mines and minerals, science and technology, and personal information about Chinese leaders.
In a briefing note to clients, the international law firm Baker and McKenzie says the law provides rules for classifying, labelling and protecting State secrets, and managing State secrets-related business. It also clarifies the responsibility and authority of
administrative bodies in relation to the protection of State secrets.
The legal firm cites recent cases of individuals who have fallen foul of Chinese State secret laws. It raises the case of Xue Feng, an American Chinese geologist educated in the US, who was detained in 2007 after negotiating the sale of an oil industry database to his employer, an American consultancy company.
The database is said to contain documents on geological conditions of onshore oil wells, including co-ordinates of more than 30,000 oil and gas wells of the China National Petroleum Corporation and Petro China Ltd.
Xue Feng was tried and convicted of spying and collecting State Secrets by the Beijing Intermediate People’s court in 2010, his actions found to be endangering China’s national security and interest.
Sentenced to eight years and fined RMB200,000, Xue appealed against his conviction, arguing that the database did not include protected information, as the information is data that other countries around the world make public.
Closer to home, Stern Hu, a senior Australian executive, and three other employees of mining house Rio Tinto, were detained in 2009 by the Ministry of State Security and alleged to have used improper means to probe and steal Chinese State secrets.
After a short trial in Shanghai in 2010, Hu was sentenced to five years imprisonment and a fine of RMB500,000 on the count of stealing of trade secrets.
The charges alleged that the Rio Tinto employees stole information on Chinese steel industry iron ore bid prices, iron ore negotiations, and domestic output production plans.
State secrets aside, there are other grey issues, such as intellectual property rights protection and dispute settlement, which most FTAs are often unable to cover
adequately or satisfactorily.
The hope is that, with each new FTA, Australia will learn to improve on previous inadequacies — that in the haste to conclude a trade agreement, whether with China or any other country, Canberra will not gloss over some salient points.
Trade specialists say that Australia has come to rue the day it did not sign a better agreement with the United States. That agreement, concluded in 2004, has been used as an example of a poorly- negotiated deal.
* Florence Chong is Editor of ATI Magazine.