China's growth obscures longer term problems
Updated
A leading economist is warning Australia against hanging its economic future so prominently on the success of China.
China is one of the few important economies to defy the recession with an official GDP growth of 6-per cent. The government says job creation, tourism and construction are all on the rise.
It will soon surpass Japan as Australia's major trading partner and business leaders are pressing for a bi-lateral free trade agreement to be finalised. But China says the FTA still has obstacles to clear.
Presenter: Karon Snowdon
Speakers: China's Ambassador to Australia Zhang Junsai; Simon Crean, Australian Trade Minister; Stephen Joske, Director of China Forecasting with the Economist Intelligence Unit.
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SNOWDON: Australia is banking on China.
Its performance gives the Rudd Government the optimism to forecast above trend growth in Australia beginning with the next financial year. .. and has become entangled in the dominant political debate for over a week.
And business leaders say a bi-lateral trade agreement would inject more than one hundred billion US dollars into Australia over the next two decades.
Yet after four years and thirteen rounds of formal negotiations, an agreement still seems a long way off.
China's Ambassador to Australia Zhang Junsai indicates that despite the support of both leaderships to accelerate the process, hurdles remain.
ZHANG: I think we have made some progress but (we) both realise we have some issues to solve. Because China and Australia are at different development levels so we should accomodate the interests of the other side. So we will continue to do so. So I'm very pelased at the recent two visits by the Trade Minister (Simon Crean) and he gets a better understanding of the actual situation in China after touring to the west of China.
SNOWDON:The Trade Minister Simon Crean has said this week he can't say how far off a final deal is.
CREAN: I wont set a time because that becomes the benchmark, I'm not going to fall into that trap. But what I can guarantee you is that not only wont we give up we're going to redouble the effort because all of the evidence shows me is that China is growing, its going to be important to our growth forecast and what's important for us is to not just wait for them to come to us we should be going to them.
SNOWDON: There's no doubt the economic relationship is strong and getting stronger.
Australia's merchandise exports to China for the year to March were up by almost 30 per cent.
Its counting on China's massive infrastructure spending and construction programs to continue that trend. Some forecasters have China growing by 11 per cent in 2011.
But a word of warning - by favouring the old state owned enterprises Beijing's response to the global recession - while sensible in the short term could set back its industrial reform.
That's the view of Stephen Joske, Director of China Forecasting with the Economist Intelligence Unit.
He says Australia would be wrong to hang its future just on China.
JOSKE: To continue high growth China is going to have to continue reforming its state owned enterprises. The private sector in China produces better returns and is better at generating jobs. So for the future China does have to rely more on the private sector.
SNOWDON: So what needs to change?
JOSKE: What they need is just a clearer plan of how the privatisation or corporatisation process will go ahead. They've sent out some mixed signals that on the one hand we recognise the importance of the private sector but on the other hand we want to keep the dominant role of the of the state sector. So we're not really sure how the balance will work out. Just like policy makers right around the world they're very, very focussed on the short term issues of keeping employment creation going and probably not giving enough attention to some of these longer term issues that still need to be worked on.
SNOWDON: Everyone's looking to China I guess to maintain a reasonable rate of growth. What's your forecast on that?
JOSKE: The Chinese economy is going to recover later this year which should be earlier than most of the rest of the world so its good news for Australia but its not going to rescue the Australian economy and put us back to where we were a couple of years ago. China's just not big enough. And the simple mathematics are while 85 per cent of the world economy is in recession, you know the entire developed world, commodity prices aren't going to recover. China alone can't drive them. You can't just sit back and wait for China to recover and hope everything will be alright.
