18 September 2017
Transcript - #2017183, 2017

Strategic economic dialogue with China

SUBJECTS: Strategic economic dialogue with China

TREASURER:

Today’s strategic economic dialogue, the third of these SEDs took place here in Beijing. This is a very unique forum. This is a forum that is very special to the Australia-China relationship. It is one of the most senior level dialogues we have with the Chinese Government and to meet with Chairman He today and work across a whole range of issues starting off first and foremost with our combined commitment to growing our economies but also resisting against protectionism to ensure that we continue on with changes with our economies that help support the growth that is very hard won in a post GFC environment. We talked about the post GFC environment at some length and the growth challenges that exist in that environment, whether that is for an economy like China which is growing at 6.9 per cent or one like Australia that isn’t, but our growth prospects have been reinforced in recent times. But over the post-GFC period we have done very well to grow through what has been a very difficult period. So, we are able to recommit to those key principles.

There were also some very productive discussions dealing candidly with issues around investment, competition policy, income policy, some of the specific issues that you have to work through in important relationships such as this. We had a fairly extensive discussion over lunch about coal-fired power stations and things like this - investment opportunities. When you have got an economy like China – it is quite staggering, it always is when you haven’t been to China about just the sheer scale of numbers. We are happy to create as many as 500,000 jobs in the last two years. Now, they do that in a fortnight in China, and that puts the scale into some sort of perspective. Both of us have the same challenge and that is to continue to grow our economies to support the jobs that are needed for the broader growth. So, it is 14 – 15 million jobs every year that China has to create and that is extraordinary and their jobs are in the [inaudible] so far to this year.

So, to see those encouraging signs and reports come back from Chairman He and how they are seeing the economy going forward. Dealing with very significant issues in the SOE sector and the coal sector and other places and doing it in a very forward leaning way about the efficiencies about the state owned enterprises. Together with dealing with issues of deleveraging in their economy and reforming their economies in terms of costs and fees as they were outlining. Importantly this one, we had a very positive discussion about how they were seeking to lower the tax burden through investment and companies in this country. Now, I find it very encouraging. Now we have the former French socialist – the Macron Government – leading ahead with tax cuts. You have seen already what the UK Government has done, we know where ASEAN economies, particularly places like Singapore are at with corporate taxes, The US Government taking their corporate taxes down and the Chinese Government having similar conversations about taxation policies and the Labor Party couldn’t be more out of step with global economic experience regardless of what type of government we are talking about. This was reinforced today when it comes to issues of driving investment. All of these countries know that driving investment is the way to drive jobs and to drive increased wages. Ultimately this flows from the success of investment and increasing the productivity of the workforce.

I might leave it there and am happy to respond to all your questions. We also signed an important agreement today on income policy. There was also agreement today on third party cooperation about infrastructure and other investments as part of the ‘One Belt, One Road’ program which is a separate program to Australia but one which we can obviously participate in. We are a founding board member of the Asia Infrastructure Investment Bank and that has been a very positive experience for Australia to date and we think it is doing a very good job in the region.

Chairman He constantly stressed the idea of growth and stability and stable growth being a key theme of the discussion and we couldn’t agree more. China provides a real stability to the region and frankly the world economy and stable growth from China is good news for Australia and the global economy.

QUESTION:

I understand the issue of coal ships being unloaded in Chinese ports has been raised over the last few days and the response was China was seeking to rationalise the steel industry and there was concern over jobs. Is there any indication that there is likely to be a slowdown in demand for coal from China as they go through that process?

TREASURER:

I wouldn’t put it that way. They are going through dealing with some over-capacity issues with their steel and their coal industries. But in both of those sectors Australia has a unique position because of the quality of the ore and the quantities that we are providing. There was also an interesting discussion today that some of those coal mines and some of those operations aren’t consistent with the Government’s environmental objectives as well. So, there are a range of factors that are playing in there. So no I don’t think that necessarily at all compromises Australia’s interests. I think there are two different forces there.

QUESTION:

But is there likely to be a slowdown?

TREASURER:

Well, the prices the way that they have been and the demand the way it is and the quality of the Australian product, no, that is not our expectation.

QUESTION:

Minister, you have talked about both of you agreeing that protectionism is a concern, did you talk about the development of new free trade platforms? Did you talk about [inaudible] the other opportunities?

TREASURER:

It was very much about the practicalities of implementing the one we have which has been tremendous for the Australian economy and the relationship and the practicalities of implementing that relationship. Minister Ciobo was leading those discussions, so, no the agreement we have is tremendous step forward for both of our economies and it is seen very much in those terms. It is not a one-way agreement. It is a two-way agreement with benefits really going both ways. We are very keen to see that implemented. Chinese companies have strong investments into our economy and they benefit from those investments doing well because they have a trade relationship.

QUESTION:

You talk about your new critical infrastructure arrangement forum? I wonder if they were seeking more information from you? Do you feel they particularly understand the moves that your Government has been taking in that regard?

TREASURER:

It was a good opportunity for that today and that was a key reason that we were pleased to be here; to provide the opportunity for explanation, answer questions, deal with any misunderstandings or any information gaps that were there. So, if we did speak about that matter for some time, both Minister Ciobo and I addressed it and what the purpose of the Critical Infrastructure Centre was. We also dealt candidly with some of the more controversial decisions over the last few years as well. So, it was a good opportunity for me, as the decision maker on those decisions, to be able to put in context those decisions and I think that was well received and we are also able to restate that the improved compliance arrangements that we put around our foreign investment policy are that. They are not a change to the foreign investment policy, they are an improvement about the way they are administered and the Critical Infrastructure Centre is a key assistant in that process. The Critical Infrastructure Centre is actually about national security and it is about how you identify where risks are and how you manage those risks, particularly from that perspective. Now that then has an input into these types of decision around foreign investment. But what it importantly does is enables us to address these issues, far, far, far earlier in the process. That is something that is always welcome. I think it was a very productive discussion on those issues today to clear up any confusion.

QUESTION:

You were the decision maker for Ausgrid. The New York Times expressed concerns about a decision to block a Chinese investment in an American [inaudible] being protectionism under the guise of national interest. Did you get any of that sentiment today about your decision?

TREASURER:

No, I think it was a discussion fuelled in what is a very positive partnership and there is a lot of trust in the room and so we are able to talk about these things fairly candidly. The SED is a very, very important forum for us and there was a lot of open, quite helpful discussion.

QUESTION:

Did you discuss the geo-political settings; whether North Korea is weighing down on economic growth, US threats on trade wars and so on?

TREASURER:

No, there are other forums to pursue those matters and in the time we have available this morning is focussed on the economics. There are no shortage of places where those issues are being discussed and I can only echo the comments of the Prime Minister and the Foreign Minister in relation to those issues. I think today was a good demonstration that there are places to deal with those issues, but the day to day work of ensuring our economies keep delivering the jobs and here pulling millions of people out of poverty every year. What I found encouraging, but I was pleased to see, I am not surprised to see that as China’s economy is growing there was a real keenness and this was reflected in the income policy we signed today to see how they can better ensure that they protect against inequality and I was able to refer to the most recent data with our own tax transfer system has been very effective particularly since the Global Financial Crisis about protecting against rising income and indeed wealth equality as the most recent ABS figures showed. Yes, we have got flat wage growth and that is an issue that challenges many economies and we had a discussion about that as well. The tax and transfer systems can protect against rising inequality and that is obviously an issue that is on the agenda here.

QUESTION:

You mentioned resisting protectionism and one of the arguments is that China is encouraging protectionism by trade barriers and resistance to [inaudible]. What is the Australian Government’s view on this, did you express anything about this to the Chinese today and what is your stance on this [inaudible]… ?

TREASURER:

Well, we discussed a number of issues about inward investment as well as outward investment, but I wouldn’t put Australia’s position in a similar context with the United States. I think we have got a different set of issues. So, no that is not an issue that we have found overly troubling but we would always seek opportunities if they can be provided. We have a terrific free trade agreement with China. And obviously, the TPP in the region as well. That didn’t fall over at least at that level with all of those participants because of China.

QUESTION:

You mentioned issues with steel over-production in China. In that context, did you raise the issue of dumping?

TREASURER:

Well, we discussed the coal import issue.

QUESTION:

[Inaudible] but we have noticed that Australia investment in China is not that big. So what do think the reason for that is? Is the Government doing anything to encourage more Australian [inaudible]?

TREASURER:

Well, we don’t necessarily see that as our role. If Australian companies want to invest in China or anywhere else, well, that is a matter for them. I am keen to see them invest in the Australian economy and I am pleased that non-mining investment figures in particular were very encouraging in the last set of National Accounts. So, I note also that the Chinese Government has made some decisions about restricting outward flow of capital in particular sectors. We would obviously like to see that investment made where it is economic. We have a national foreign investment policy which ensures that national interest is first and foremost in the consideration of any decision and every decision that is made on a case by case basis.

QUESTION:

Do you get the impression there is still an appetite for investment in Australia?

TREASURER:

Yes, yes very much. I think the improvements, the amplification, the clarity which these forums provide are very useful. Heaven forbid I say that sometimes these issues are over analysed and trumped up or misrepresented – that can happen. But I think these provide a direct opportunity to clarify anything like that.

QUESTION:

Did you receive any clarity of recent restricted and banned list that the State Council put out on Chinese companies and their overseas investments. There is speculation that Chinese companies are significantly overinvested in Australia in real estate and that was now being restricted?

TREASURER:

We did have a discussion about that and as it impacts on investment in the tourism accommodation sector and things like that which is similarly impacted, and we highlighted that where there has been an extraordinary growth in Chinese visitation to Australia that is often accompanied, we have seen that in the past, with increases in investment from those source countries where that visitation has occurred. There can be some real synergies in that and so we certainly highlighted the value of that to both our economies and to that ongoing relationship. But they have a separate set of issues that they are trying to manage for in terms of protecting their foreign reserves and the outflow of capital. They have their reasons for doing that. That is not for me to make judgments about that. They have also been very upfront in a very refreshing way about how they are managing credit and they were very open today about the steps they are taking to deleverage and manage those credit risks especially in the SOE sector. I found that a very encouraging discussion. Those issues have obvious impacts for regional financial stability and in fact all financial stability and to see such an open and conscious addressing of those issues in these forums is tremendous.

QUESTION:

Do you think after discussions that there is going to be an impact on a deal Chinese companies might make with Australia where they are unable to get the capital out of China?

TREASURER:

Well, I think we are yet to see that. I think a lot has been said about it, particularly in the residential real estate sector, but as yet, from the feedback I have had from the sector in Australia, we are yet to see that, anywhere near, if at all, the level that has been forecast. So, not at this stage, but obviously if there is further detail provided on that provided on that down the road about how those things will apply well we will see what is happening there.

QUESTION:

[inaudible] is there likely to be an issue if an SOE was to invest in Australia of getting the capital out?

TREASURER:

No, I don’t think that is the issue. That is not troubling me. When you have got them investing in important sectors and generating a healthy return that is not a credit risk problem. A credit risk problem is when you have got investments and things that aren’t doing that and Australia is not one of those options. Investments in Australia, ones where they are good credit decisions and so I don’t think that works into their concerns.

QUESTION:

You mentioned you signed an agreement on One Belt One Road. What did you agree to?

TREASURER:

We didn’t sign an agreement on One Belt One Road. What we talked about was an agreement to cooperate in third party markets on those things which is a separate issue to what I think you may be asking. Whether it is northern Australia or One Belt, One Road, they are separate processes but to an extent there are ways we can work together on those. That is fine we are willing to pursue those opportunities. Thanks very much for your time.