Thursday, 12 January 2017

The impact of ChAFTA on trade and business

Five trends you need to know

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The China-Australia Free Trade Agreement (ChAFTA) came into effect in December 2015, to secure greater ties with Australia's largest trading partner.

Total two-way trade with China is valued at around USD150 billion, comprising almost one-quarter of Australia's total trade with the world. The bilateral FTA means Australian producers and exporters are no longer disadvantaged by significant tariffs, putting them on a level playing field with other nations which have an FTA with China such as New Zealand, Chile and ASEAN countries.

Australia will benefit as China undergoes its rapid transformation from an export-led economy to one that is driven by consumer demand for discretionary goods and services. The number of Chinese upper middle class citizens is predicted to more than triple to over 500 million people by 2050, presenting a unique opportunity for Australian businesses to tap into the growing number of Chinese consumers.

ChAFTA is already delivering economic benefits to Australian businesses, especially in trade flows and in nurturing the country's services sector. Here are the key trends that Australian businesses should leverage, in effect of this bilateral agreement.

  1. Elimination of tariffs
    More than 85 per cent of Australia's goods exported to China (valued at over USD90 billion) now enter duty free or at preferential rates due to ChAFTA. This total will rise to 93 per cent by January 1, 2019 and to 97.9 per cent once ChAFTA is fully implemented on January 1, 2029.
  2. Key industries impacted by ChAFTA trade
    Agriculture and processed foods - China is Australia's largest agriculture, forestry and fisheries export market, worth USD9 billion in 2014-15. ChAFTA will allow improved access to the Chinese market for agriculture and processed foods. ChAFTA eliminated tariffs entirely for some grains and will see a sharp reduction in the future on other agriculture exports including seafood, sheep meat, pork, beef, dairy wine and wool.

    Resources, energy and manufacturing - More than USD70 billion worth of resources, energy and manufacturing products were exported to China in 2014-15. Under ChAFTA, 92.8 per cent of China's imports of resources, energy and manufacturing products from Australia were shipped duty free from December 2015. This figure will rise to 99.9 per cent by January 2029. Australian exporters also stand to benefit as ChAFTA secures no tariffs on major exports such as iron ore, gold, crude petroleum oils and liquefied natural gas.
  3. Education sector growth supported by ChAFTA
    There were over 91,600 students from China enrolled to study at Australian tertiary institutions in 2016, representing 37 per cent of all foreign students in Australia. This number is tipped to grow under a key outcome of ChAFTA. China will list an additional 77 Australian private higher education institutions on a Chinese Ministry of Education overseas study website designed to provide Chinese students and employers with a means of assessing the quality of Australian institutions.
  4. Tourism sector to boom by 2020
    China is Australia's most valuable and fastest-growing inbound tourism market and is expected to be worth more than USD13 billion by 2020 up from almost USD9 billion in 2016. The year 2017 has been declared the Australia-China Year of Tourism - the same year that China is tipped to overtake New Zealand as the nation's largest tourism market.

    ChAFTA will strengthen the tourism sector through initiatives such as supporting increased Chinese investment in Australia´s tourism industry through higher screening thresholds for private Chinese investment in tourism infrastructure. Conversely, China will allow Australian operators to construct, renovate and operate 100 per cent Australian-owned hotels and restaurants in China. Australian travel agencies and tour operators will also be able to establish subsidiaries and provide travel services, tours and hotel accommodation directly to domestic and foreign travellers in China.
  5. China's ageing demographic a key opportunity for Australia's healthcare services
    In 2020, China's population is expected to reach 1.4 billion with almost one-fifth of them to be aged 60 years and over. The ageing population will need aged care facilities to support their medical needs and a highly trained staff to care for them. Under ChAFTA, Australian service suppliers are allowed to establish profit-making aged care institutions throughout China and open Australian-owned hospitals in some provinces, greatly expanding Australia's private health sector offering of medical services.
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