Chief Executive Officer, HSBC Singapore
Australia's far north is a natural fulcrum from which it can leverage its relationships with key trading markets in Asia to capitalise on China's rise as a dominant global economy.
China's little-known proposal to include Australia's northern development plan in its ambitious Belt and Road Initiative will facilitate this process by better connecting Australia with China and more than 60 other countries, via both essential infrastructure and a financial framework for cross-border trade.
Chinese Premier Li Keqiang's visit to Australia this week has brought Belt and Road to broad public attention for the first time but its purpose and structure clearly require explanation to gain acceptance.
Northern Australia supplies Asia Pacific countries with many of their major goods and services, including mineral and agricultural goods1, and is already developing as a trade gateway for all of Australia.
This makes it an ideal base for initiatives that will further strengthen our links with China, in particular.
Australia has been a key beneficiary of China's economic growth and it is critical that we take steps to maintain the good fortune that our relationship with our largest trading partner2 and seventh-largest source3 of foreign direct investment has delivered us.
After all, over the past eight years Australia's economy has grown by 23 per cent due largely to Chinese demand for our commodities and services, while the US and UK have notched up respective growth rates of 15 per cent and 14 per cent4. Japan has recorded growth of only 8 per cent in the same period and the euro area economy, as a whole, is only around 6 per cent larger than it was at the end of 20085.
Australia's potential inclusion in Belt and Road is part of the wider economic integration of the Asia Pacific made possible by free trade agreements, including the China-Australia Free Trade Agreement (ChaFTA). Together, these combined measures will help stymie the impact of any protectionist measures introduced in response to anti-globalisation sentiment.
Australia is already reaping the benefits of ChAFTA – some Australian exports to China at least doubling in the first three quarters of 2016 as tariffs were cut6 – and Belt and Road has similar potential to boost the nation's trade and investment.
To understand why, it's first important to understand Belt and Road itself. It is a multi-faceted, multi-decade strategy aimed at boosting the flow of trade, capital and services between China and countries to its west and south. First laid out in 2013, it consists of a set of big-picture long-term policies – rather than a list of detailed and imminent spending plans and budgets.
The "Belt" refers to the historic overland Silk Road trading routes that connected China, via central Asia, to Europe and the Middle East. The "Road" refers to the maritime equivalents to the south, linking China, Southeast Asia, India, Africa – and potentially Australia after Chinese President Xi Jinping in April last year called for the alignment of Belt and Road with Australia's northern development plan.
The initiative's geographical sweep covers countries as far afield as Southeast Asia, Africa and Europe, which between them account for 29 per cent of the world's GDP and nearly two-thirds of its population7.
China expects its annual trade with these countries to surpass USD2.5 trillion in the next decade, up from about USD1 trillion in 20158.
The overall vision is to create the physical infrastructure (such as transport and telecommunications) financial initiatives (lending, capital-raising) and policy conditions (customs, taxation coordination, trade and investment alliances) that will facilitate regional trade and cooperation.
PwC estimates that around USD494 billion worth of projects and deals were announced in 2016, across seven infrastructure sectors, including utilities, transport, energy and environment. One-third of these were in China, the remainder were spread across the rest of the region9.
Northern Australia's proximity to Asian markets that are forecast to account for an estimated two-thirds of the global middle class by 2030 makes it a logical destination to include in Belt and Road10. Darwin is just three to five hours flight from South East Asia and southern China, operates in similar time zones to the key Asian markets11.
It could benefit significantly from the investment that inclusion in Belt and Road could bring, be it from China itself or from other avenues, and provide an even greater channel for Australia to export its goods and services to the world.
This includes Australia's proven expertise in infrastructure development – as the success of Belt and Road will rely heavily on contractors and other project partners that automatically meet global standards for governance, planning and execution.
The Belt and Road Initiative is too breathtaking in its scope to be ignored. It has the potential to reshape trade and investment flows far beyond China itself, and Australia should welcome the opportunity to be part of it.
Originally published in The Australian on 24 March 2017
1 Our North, Our Future: White Paper on Developing Northern Australia
4 Figures supplied by Daniel Smith, HSBC Australia economist
5 Figures supplied by Daniel Smith, HSBC Australia economist
7 http://www.cbbc.org/cbbc/media/cbbc_media/One-Belt-One-Road-main-body.pdf; see also http://www.adb.org/sites/default/files/publication/156103/adbi-wp248.pdf; NDRC: Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road
8 Xi Jinping in 2015 Boao Forum, Xinhuanet, 29MAR15 (http://news.xinhuanet.com/english/2015-03/29/c_134107329.htm), and http://www.gov.cn/xinwen/2016-04/07/content_5062049.htm
10 Our North, Our Future: White Paper on Developing Northern Australia
11 Our North, Our Future: White Paper on Developing Northern Australia