The Free Trade Agreement (FTA) signed with China on 17 November is a big deal for Australian business and the Australian government. This much was obvious with the almost universal praise it received from big capital and the financial press.

The Financial Review’s Laura Tingle described it as “a stunning transformational agreement that would have seemed unimaginable even a few years ago”. Fellow AFR columnist Tony Walker said that it represented “a watershed moment” in the history of Australia-China relations. The signing ceremony was packed tight with Australia’s top business chiefs.

Industry representatives gushed at the opportunities that the deal would open up. At the forefront were the dairy, beef, wine and horticulture industries. China will slash tariffs on these imports in the coming years. Graziers hope to export up to a million head of cattle under the FTA; the dairy industry sees an opportunity to catch up with New Zealand, which has rapidly increased exports to China under its 2008 FTA.

Mining bosses Twiggy Forrest and Gina Rinehart are now investing in beef processing and dairy. Forrest is heading up a new agriculture marketing body focused on boosting market share in China.

The resources and infrastructure companies will also get a fillip from greater access to Chinese investors who are already heavily involved in the industry.

It is not just merchandise goods that have had the door opened. Banks and professional service companies, such as legal and architecture firms, which thus far have engaged in limited trade in mainland China, have an opportunity to expand their operations.

Private health operators will be able to open hospitals and aged care facilities to cater for the large and ageing wealthy classes. Hotel operators can set up shop in China, while domestic tourism will get a boost from the provision of 5,000 visas for Mandarin-speaking hospitality workers.

Australian universities and vocational education and training colleges, Australia’s largest services exporters, will likely see further growth in enrolments of Chinese students, adding to the 100,000 already here.

Trade minister Andrew Robb boasts that the deal is more favourable to Australia than any others struck by the Asian giant, putting the country in a good position to edge out regional competitors. Given that exports to China already outweigh the combined total of those to Japan and the US, the prospect for still more trade is exciting Australian bosses, who salivate at the opportunity to buy cheap Chinese labour and/or sell products to wealthy Chinese bureaucrats and business people.


How much of these changes actually translate to more money for Australian businesses is an open question, however. The 2004 FTA with the United States is widely regarded as a flop, with exports to the US stalled. In the case of China, tariffs on minerals, by far Australia’s biggest export, are less than 10 percent and their abolition won’t make much difference.

Similarly, tariffs on Chinese manufacturing goods, which constitute 94 percent of total imports from that country, are already low, limiting the prospects for any cheapening of these goods on Australian markets.

Some areas of agriculture, like sugar, cotton, rice and wheat, have received very limited concessions or, in the case of wool, are already covered by a quota agreement.

In terms of the services sector, a lot depends on how this all translates into business on the ground – to what extent will Australian companies be able to penetrate the dense local business and political networks that favour local companies?

Australian banking forays into the much more familiar British industry have been disastrous, and the ANZ Bank’s orientation to Asia strategy is yet to boost its earnings, so it’s not clear that there will be a rush to set up in China.

Few of the benefits of this deal will trickle down to the working class. Only one quarter of respondents to an Essential Media poll on the eve of the G20 thought that “working people” would benefit from the FTA, as against 44 percent who thought that business would win. They’re right.

Just look at the resources boom, built on the back of exports to China: the benefits have overwhelmingly gone to the mining companies and the suppliers that service the sector.

And the big boost to dairy and beef exports to China will likely push up the price of milk and beef at home, just as LNG exports are driving up domestic gas prices.

Economic integration

The Chinese government views the FTA as an opportunity to further integrate Australia into a regional division of labour centred on China.

Chinese president Xi Jinping told the Australian parliament that his country was looking for more than just trade but also a “comprehensive strategic dialogue”. He wants to prise Australia from its historic loyalty and integration into the economic and military alliance dominated by the US.

China is using its rapidly-growing economic clout to advance its interests in the region. Establishing the renminbi as an international currency, providing more opportunities for inbound and outward investors and extending the country’s “soft power” are central to this project.

China has just allocated US$50 billion for the multilateral Asian Infrastructure Investment Bank. The institution aims to provide investment opportunities for Chinese investors in the Asian region in potential competition with the US- and Japan-led World Bank and Asian Development Bank.

This comes on top of its promotion of the 16-member Regional Comprehensive Economic Partnership for the Asian region which, if it comes off, will be dominated by China. This is a rival to the 12-member Trans-Pacific Partnership Agreement, which excludes China and which, if it is finalised, will be dominated by the US.

The just-launched Shanghai-Hong Kong Stock Connect gives overseas investors the chance to buy shares in Chinese companies and also allows Chinese companies to invest in Hong Kong listed companies, thereby reducing their dependence on US Treasury bonds as an outlet for surplus funds.

Australian capitalism sees advantages in closer economic relations with China. As well as the FTA, the Reserve Bank has signed a deal with the People’s Bank of China to establish renminbi clearing arrangements in Australia, opening the way for the Australian bank to underwrite bilateral trade in the Chinese currency. The NSW government will soon start to issue renminbi-denominated bonds, providing it with alternative funding sources.

Imperialist competition

Australia is facing a longer term conundrum. More and more Australian business is becoming enmeshed in trade with China – that’s where the money is coming from.

But the United States, Australia’s traditional military ally and still its most significant foreign investor, is engaged in an increasingly tense struggle with China for domination over the Asia-Pacific.

The US wants its allies to stick close and help it contain China’s expansion. This was again made clear by president Obama last week. His address at the University of Queensland reiterated the commitment to the US military build-up in the region – the so-called “pivot” to Asia. In a case of pot calling kettle black, Obama warned China that the US would not put up with “coercion or intimidation by big nations bullying the small”.

The Australian ruling class, whose power in the region for decades has been enhanced by its close military alliance with the US, is sticking with its traditional ally. Australia already provides facilities for 2,500 marines in Darwin and US intelligence materiel in the Northern Territory and Western Australia.

At the G20, just as toasts of eternal friendship were being raised, Abbott, Obama and Japanese prime minister Shinzō Abe agreed on further military and security arrangements to contain Chinese expansion.

Australia’s firm support for US domination over the Asia-Pacific is not without problems for the ruling class. Federal cabinet was split over the recent invitation by China to join the board of the Asian Infrastructure Investment Bank. After initially signalling interest, with the encouragement of the Treasury, the government stood aside after being lobbied by the US.

For the moment, the Australian ruling class is not being compelled to choose between the two and hopes it never will. Like Japan and South Korea, it is forging ahead with closer economic ties with China while boosting its involvement in the US-led containment strategy.

China is not powerful enough to force the issue and so is biding its time, engaging only in pinprick irritations with US allies in the South China Sea.

Behind the big smiles for the benefit of the world’s media, the rival ruling classes of the region are preparing contingencies for future wars.