Ａｕｓｔｒａｌｉａ ＆ Ｃｈｉｎａ：Ｎｏ．１ Ｐｒｉｏｒｉｔｙ ｕｐｏｎ Ｆｒｅｅ Ｔｒａｄｅ Ａｇｒｅｅｍｅｎｔ

An Interview whth Australian Ambassador Dr Alan Thomas

“One of the mainthings we've done iswe have conducted ajoint study into theFree Trade Agreement(FTA) between Chinaand Australia. Thatstudy looked at whatthe possible benefitscould be and wascompleted in Marchthis year.”

Australia's Premier John Howard visited China in April，announcing that Australia will acknowledge China's status ofcomplete market economy. In the mean time， both sides havedecided to start the negotiation of free trade agreement(FFA).

Wu Bangguo， Chairman of the Standing Committee of Na-tional People's Congress of the People's Republic of Chinavisited Australia in May， putting forward his suggestion thatthe two sides should enhance bilateral cooperation on the util-ity of energy resources and mines， enlarge the mutual invest-ment and improve the cooperate environment.

Under these situations， China's Foreign Trade interviewedwith Australian Ambassador Dr Alan Thomas. Let's hear hiscomments on the economic and trade relationship betweenChina and Australia.

Q:What do you think of the bilateraleconomic and trade relation betweenChina and Australia?

A:I think our economic relationship has never been verystrong especially in the last two years. In 2004， ourtwo-way trade was over AU$31 billion (US$25 bil-lion). It has been growing about 20% per year for over a decade.

Much of the trade is in big resource commodities， like iron ore， wool， and petroleumproducts. And from next year， LNG will be a very important part of the trade.

China exports to Australia mostly computers， toys， clothing and footwear. I'm verykeen to see that trade diversify into more sectors and more products on both sides.

Q:There is good relationship between Australia and China， sooverseas education and tourism between the two countriesare booming. What do you think of this phenomenon?

A:I was privileged to accompany Chairman Wu Bangguo to Australia. Between Aus-tralia and China， education and tourism are two very important service areas. Theyhave been growing very rapidly in recent years. For us， they are both great suc-cessful stories. We have about 60，000 Chinese students in Australia at the moment， and theyare the largest group of overseas students from many countries studying atAustralia. At thesame time， we have about 30，000 Chinese students studying here in China who are doingAustralian courses which are jointly offered by Australian universities and Chinese univer-sities together.

So we are very keen to see those programs continue to grow. And it's very important forthe long term relationship as well. People go to Australia and study for a period of time， andthey get a very good understanding of each other's country， so in the long term for ourcommercial and trading relationship， it's very important.

The tourism trade between China and Australia is also grow-ing very rapidly. Last year， we had just over 200，000 Chinesetourists travel to Australia. And we had about 130，000 Australiantourists come to China. And again， it's something we want to seea lot more of.

One thing that is helping is the improvement in air services.There are now more flights between China and Australia. ChinaSouthern and Air China have both increased their flights. And inthe other direction， Australian airline Qantas has also returned tothe Chinese market. Last year it started to fly to Shanghai fromAustralia， and from the next year， we hope Qantas will be able tofly to Beijing directly. So those improved air links will also helpfacilitate more tourists， and that's a good thing.

Q:What kind of contributions have you doneto promote the relations during the pastyears?

A:One of the main things we've done is we have conducteda joint study into the Free Trade Agreement (FTA) be-tween China and Australia. That study looked at what thepossible benefits could be and was completed in March this year.

In April this year， Australia's Prime Minister Mr. Howard vis-ited Beijing. And the two governments were able to receive theresult of the study. It was great that we could formally launchnegotiations for FFA.

So one of the main things my embassy has been doing duringthe past 18 months is working towards the launch of those nego-tiations. It has been quite a long and difficult process， becausethere are many sensitive areas of trade on both sides. For instance，we are very aware that for China， agriculture is a sensitive area，but for Australia， it's also a very important area. It is somethingwe really want to discuss， and will be part of the negotiations.Negotiations have now formally started， and during ChairmanWu Bangguo's visit to Australia， the first round of FTA negotia-tions was held in Sydney.

The FTA is one area that we have used to try to push alongthe commercial relationship. Beyond that， we encourage Austra-lian companies to investigate the Chinese market. We have a veryactive Australian business community here in China， we have somebig Chambers of Commerce -- Australia-China Chambers ofCommerce - including one here in Beijing， which has about 260members of Australian businesses in Beijing.

We have another Chamber of Commerce in Shanghai， and thathas about the same number-- another 250. And we have anotherChamber in Guangzhou， which has a membership of about 160.We also have a large chamber in Hong Kong. Those chambers workwith the government and the embassy to promote trade opportuni-ties. They hold lots of seminars and trade promotional events.

We also have an organization called Austrade， which is a gov-ernment organization. And its job is to promote trade betweenChina and Australia. It works full time on looking for marketopportunities for Australian products in China. It also looks toidentify possible areas of investment for Australian companies inChina. And Australians have been very active in the last few yearsin promoting that.

Finally， the main thing that we do is to encourage high levelvisits by our political leaders. They focus a lot of attention onAustralia during the visits they have here. We promote a num- ber of trading opportunities when they are in the country. OurTrade Minister Mr. Vaile visited China in April and he will re-turn again in July. So he visits quite frequently. He talks to hiscounterpart Mr. Bo Xilai， and looks at various opportunities topromote our trade.

The main thing I say to Australian companies is that China isa big market and is not easy to learn， so they have to do theirhomework， and they have to do a lot of research and study beforethey come to China. We also ask them to look at particular re-gions or parts of China to invest in， rather than the whole country.Sometimes to penetrate into the whole China market is too diffi-cult， so we often advise our companies to focus on particular prov-inces. Since China has joined the WTO， there have been a lotmore opportunities for foreign companies. For example， a num-ber of Australian banks have been investing in Chinese banks inparticular regions. One of our largest banks， the CommonwealthBank of Australia has made an investment in the Jinan City Com-mercial Bank， and last month it made a second investment in abank in Hangzhou. Some other Australian banks are looking forsimilar opportunities in other parts of China.

Similarly our insurance companies are looking for opportuni-ties here. The Australia Insurance Group (AIG) is one of our big-gest insurance companies， and it's currently talking to possible Chi-nese partners to offer motor vehicle insurance which is relatively anew thing in China， and some general insurance as well.

These are areas where our government is very keen to seeencouraged， because， as I said， traditionally most of our trade wasjust big commodities， like iron ore， coal， or petroleum. We arevery keen to see that commodities diversify into service indus-tries. So much of our effort is in this area.

At the same time， we are very keen to encourage Chineseinvestments in Australia. China's economy has been very suc-cessful in recent years. We know there's a lot of surplus， meaningChina is keen to invest in strategic areas， and Australia very muchwelcomes Chinese investment. We already have some very goodinvestments from China. Some of them are quite long standinginvestments. For example， China has a large investment in analuminum smelter in Australia by the name of Portland Alumi-num Smelter. That's a very big investment.

There's also a very large Chinese investment in an iron oremine in Australia. It's called Mount Channar. It was signed by LiPeng， the Chairman of NPC in 1980s， so it is an old investment，but very successful. Chairman Wu Bangguo in fact visited theChannar iron ore mine in Australia last month.

There is another also very big Chinese investment in LNGgas field in Australia by China National Offshore Oil Corpora-tion of AU$300 million investment. That will be the first importednatural gas in China and the first shipment will arrive in April2006. They have built a large LNG terminal in Shenzhen and thegas will be imported to Guangdong province. That is the firstmajor LNG project involving imported gas， and Australia has thecontract. It's a very big contract of AU$25 billion. The Australiancompany that has the contract is called ALNG (Australian LiquidNatural Gas) - they have an office here in Beijing. We hope that isthe first of many more major LNG contracts which Australiancompanies might get in China. We have enormous LNG reserves.We have enough to supply Guangdong province by that size ofcontract for 750 years， no problem.

Q:We really welcome that kind of energycooperation， but have you considered thetransportation cost of shipment orpipeline? Will there be profits?

A:It's very competitive. Australia is relatively close to China.The gas fields are in the north of Australia and the gasgets here in something like 7 days， it's quite quick. Chi-nese companies have done the calculation that it is a very com-petitive way of supplying natural gas. The shipping in fact will beChinese owned shipping. COSCO is helping to build the newships for this particular project. In fact， I am going down to Shang-hai next week to have a look at the ships， which are under con-struction already. Part of the contract was China would supplythe ships and there would be a transfer in shipbuilding technol-ogy to China because there is a particular type of ship they haveto build. This project enables China to develop its shipbuildingtechnology as well. So it's a good project for both sides. Chinagets gas and shipbuilding technology and we get to sell our gas.There are many other big Australian companies looking for op-portunities for natural gas in China， including BHP Billion，Woodside Petroleum， and Gorgon. They are all looking at pos-sible contracts here in China for LNG gas in various provinces，like Guangzhou， Zhejiang， Jiangsu， Shanghai. And there are vari-ous discussions at the moment with Chinese authorities on pos-sible supply contracts. So it is a major part of our trade with China，and in the long term， we will have a very good energy partner-ship.

One other energy area that we are looking at is uranium fornuclear power. Australia has one third of the world's uraniumsupply. China has expressed an interest in buying uranium fromus， and we are keen to do that. We are carrying out discussionswith the NDRC (National Development Reform Commission).We have to sign some agreements on local safeguards to protectnuclear material. We are currently negotiating a safeguards agree-ment between China and Australia. Once it has been signed， wedon't expect any problems. Chinacan then buy uranium from Austra-lia. We know that China wants tobuild a lot more nuclear powerplants for nuclear power， and Aus-tralia is keen to supply that uraniumif possible. So that will be anotherimportant area of trade we believein the future.

One other area I want to men-tion is coal. We do sell coal to China，but more than selling coal， we areinterested in coal mining technol-ogy. There are two things Australiacan offer to China. One is that wehave a way of cleaning coal， and weare able to process the coal in a wayin which it causes less pollution， andit's much cleaner. The other thing iscoal mine safety. Australia has thebest safety record in the world. InAustralia， usually there are no deaths from coal mining. A num-ber of Australian companies are talking to Chinese coal miningcompanies to see if we can help improve safety standard. We knowthis is a priority for the Chinese government， and Australia is verykeen to assist in that area. We believe that we can work togetherto help improve Chinese coal mining standards. So that's anotherimportant opportunity for both of us.

Q:For absorbing investment， what advantagedoes your country boast?

A:Firstly， Australia welcomes foreign investments. It's a stra-tegic government policy. You know foreign investmentis a good thing， therefore we believe we should have poli-cies which encourage the investment.

Secondly， we are a very stable country.

Thirdly， we have a very strong and robust economy. We havehad over 20 years of positive economic growth， and one of thehighest growth rates in the developed world. We have a very openeconomy. We have deregulated， for example， all our service in-dustries， and foreign banks are allowed into Australia. It's an easycountry to enter for a foreign company or as a foreign investor.We have a very good legal system， very open and transparent. Ifthere are any problems or any disputes， Chinese companies canbe very confident that they can go to the courts in Australia， andthey can reach a dispute resolution or receive some compensa-tion.

All these factors taken together， Australia is a very attractiveplace for foreign investment. As I mentioned， China has somevery successful examples of investment in Australia. Another oneI meant to mention is Southern Airlines. It has invested a pilottraining centre in Australia. They train their pilots in Australia，together with Qantas Airline. That training centre is 100% ownedby China Southern Airlines. They built that in Australia ten yearsago， and it has been highly successful.

Q:Are there any preferential policies offeringto Chinese investors?

A:We believe all foreign investments are fundamentally de-sirable. If there are any particular projects Chinese in-vestors are interested in which we believe have strategicinterests for Australia--there are ways in which we can help fasttrack them. For example， we can help on immigration issues. Ifthere is a particular investment Australia particularly wants fromChina， we can make it easier for the managers and senior execu-tives of Chinese enterprises to get their visas fromAustralia. Some-times they might even migrate to Australia to live. The govern-ment will help facilitate this kind of thing.

In Australia， we have a central government and six state gov-ernments. For each of the state governments， if they think a par-ticular project is highly desirable， then there are various incen-tives they may give to the foreign investors to bring an invest-ment to their state. This may be in the form of taxation， conces-sion or other sorts of incentives.

Overall， everything is aimed at encouraging investments， notdiscouraging it. ，We want investments to come to Australia. Aus-tralia has a very small population， only 20 million people， so weneed foreign capital. We always need foreign investment to helpdevelop our very large resources， and that will always be the case.So， foreign investors should be aware that it's a very welcomingatmosphere. Government regulation has been set up to be a mini-mum， to make the investment as easy as possible.

Q:In which particular fields does Australiawant Chinese enterprises to invest in?

A:Most Chinese investments traditionally have been in theresources area， like iron ore， or aluminum energy areas.We welcome that， for LNG， and we hope there will bemore of that. But there have also been some Chinese investmentsin manufacturing areas， and wewould like to see more of that as wellas in agricultural area. We don't haveany sectors of the economy whichwe quarantine or say you can't in-vest in. We would welcome Chineseinvestment in Australia in a widerange of industries.

Q:What about Chineserestaurants inAustralia?

A:There's a great number，and they are very popular.When I was a child， wehad mainly British food， very bor-ing， very dull. Now we have a verylarge Chinese population in Austra-lia， and for the last ten years， morethan half of migration has been fromAsia， and most of our tourists arefrom Asia. China is our main tour-ism source. Most of all， there's interaction. There's been enor-mous interest in Asian cuisine， Asian food. You will find a widerange of Chinese restaurants， Indian restaurants and so on， - butChinese will be the largest and the most popular.

Q:China has a long history of culture，what do Australian see this?

A:People who migrate to Australia from China， generallyspeaking， are very successful. They have contributed toa very great extent. Every few years the Australian gov-ernment does a survey， which includes the languages spoken athome: An interesting fact is that after English， Chinese languageis the second most spoken language in Australia. That also givesyou some indication of the extent that Chinese migrants and visi-tors have become integrated into our society and that has a bigimpact on the economy of course.

Q:Could you please talk about theautomobile industry in Australia? Are thereany chances for Chinese investment?

A:Australia has reduced the tariffs on automobiles over thepast few years. And they are scheduled to reduce themeven more. They are already very low， and they will be-come even lower. A very large percentage of Australians driveimported automobiles. At the moment， most of our imported carscome from Japan or Korea， but China is likely going to be anincreasing source of cars as well. Australia's car manufacturingindustry capacity itself is very small， so we largely import cars，and I think that will continue.

We know China is going to be a very important car manufac-turer， probably the manufacturer of the world in the future. Andwe are very keen for our car manufacturing industry to developwith China and to look at ways in which we can work together.Selling car parts to China is one way， and we are about to beginexporting cars to China as well. And I have no doubt we will beimporting Chinese cars into Australia. To speak very frankly， itused to be highly protected industry. We used to have high tariffs.We chose to protect our car manufacturing industry. But now， ourindustry has had to adjust. Our automobile tariff now is very low.

Q:Do you think it's a good time for Chinesecars to hold an exhibition in Australia?

A:Given that China is becoming the manufacturing centreof the world for cars， it's only a matter of time beforeChinese cars start to penetrate the Australian market.We started with Japanese cars， moved on to Korean cars， and I'msure the next stage is Chinese cars. Australia embraces new tech-nology， new fuel efficient cars， so I'm sure there's great potentialfor the Chinese automobile industry as well.

One thing to remember is that although Australia is a smallcountry， it's a very wealthy population. Our per capita GDP isUS$35，000 per capita， so it's about 35 times China's. Everybodyin Australia owns a car， many people own two cars. And theychange their cars frequently， so I think it's a very good market formanufacturing goods. Even though it seems small， it's a verywealthy and excellent market.

Q:China's car production ranks the second，and the consumption of cars rank thethird， If Chinese cars go to Australia， willacai manufacturers be afraid?

A:No， I don't think so. Even now the existing car manu-facturing industry in Australia is largely there becauseof foreign investment. Mitsubishi has a large investmentproducing Mitsubishi cars. Ford is another big manufacturing in-vestment. Most of our existing manufacturing capacity in carshas very heavily depended on foreign investment. It will con-tinue to do so. Australia is not afraid of foreign investment， wewelcome it， whether it's from Japan， US， or China.

Another thing I want to mention is the dairy industry. It hasbecome a very important area between China and Australia. Thedairy industry is relatively undeveloped in China， but your gov-ernment is very keen to see its grow. Last year， for example， Aus-tralia exported 80，000 live dairy cattle to help build up your dairystock. And we also have capacity held with processing in milkproducts， production of cheese， milk， butter and other things. Thisindustry is growing very fast， and that's good for China and Chi-nese dairy farmers， and it's very good for our dairy farmers. Eventhough we are dairy exporters， we are very happy to see China'sdairy industry growing， because it helps to grow consumption ofdairy products generally in China. The market is bigger than theproduction， so there will always be some space for export as well.

Agriculture is a sensitive area for Chinese farmers， but this isone area where Australian farmers and Chinese farmers are actu-ally working together very well. Both are producing profit.

Q:Do you have any suggestions for theChinese government on how to promotethe bilateral economic and trade relationson how to encourage the investment in China?

A:For both governments， the next year really is the FTA.If we can negotiate that successfully， that will provide alot of opportunities for us to take our economic relation-ship to a new level. This negotiation is going to be quite long， Ithink， and very hard， very difficult， because both sides have veryhigh expectations. Some of the issues that we mentioned will betaken up as part of the FTA negotiation. So on investment， forexample， in both directions， there are some aspects of our invest-ment regulation that Chinese investors would like to see changed，liberalized. That is something they can pursue， they can take upin the course of FTA negotiation. There are some things for Aus-tralian investors that we would like to see liberalized or changedin China to encourage investment and we will be pursuing that.Investment will be an important part of the PtA negotiation. Bothsides will be looking to ways to remove various barriers to tradein both directions.

Australia is a major agricultural producer， but there is a lot ofproducts we cannot sell to China， because there are restrictions. Wewould like to see many of those restrictions removed. China wouldalso be looking for more opportunities to sell manufacturing goodsto Australia and there are many obstacles to that. But there are someareas which China wants to negotiate as part of the FTA.

In the Chinese market， we are also very keen to have moreopportunities in the services area， so Australia will be spending alot of time on the services industry in the free trade negotiations.So services industries and agriculture are the two big areas thatAustralia will be pursuing very hard as part of the negotiation.China will have its own priorities. Banking and legal services isalso another area Australia is very keen to pursue. We have al-ready many Australian law companies which have offices here.But they can't practice Chinese law. They can only do interna-tional law. So we would like to see some changes there.

What we want in a FTA is a Win-Win situation. Both sideswill have to win something， or we won't sign it. The negotiationhas to be two ways. In the next two years， if we can successfullyconclude a FTA， we believe that China-Australia trade can bebroadened and diversified and can reach much higher levels.

It will be successful with or without a PTA， but with a PTA， itwill be even better. So that's our No.1 priority. And I think itsChinese government's No.1 priority， too.