Last year, there were 450,254 road accidents on the mainland, and Chinese are buying 5 million cars a year. That is all good news for one of Australia's best known insurance companies, IAG. Last week, the company signed a memorandum of understanding to eventually acquire a 40 per cent stake in China Pacific Property Insurance, one of China's biggest insurers. IAG is expected to cough up A$350 million to A$450 million ($2 billion to $2.57 billion) to acquire an initial 25 per cent stake in China Pacific. It reflects IAG's eagerness to participate in China Pacific's car-insurance business, which makes up 60 per cent of its revenue, and is tapping the growth in car sales on the mainland. But IAG's much-publicised move into China comes at a time when the Australian government agency responsible for negotiating a free-trade agreement between the two countries released a report with some sobering news for Australian financial service companies, law firms and education providers. Hamstrung by an ageing and declining domestic population, they see fast-growing China as an economic lifeline. The Department of Foreign Affairs and Trade released a weighty report, entitled Unlocking China's Services Sector, last week. While Australian service exports to China sit at a healthy A$2.3 billion, Australian Deputy Prime Minister and Minister for Trade Mark Vaile warned at the launch of the report that further reforms to China's services sector were still needed. 'There are still burdensome licensing and operating requirements in many areas; China's regulatory and legal processes are often opaque,' Mr Vaile observed. He honed in on the report's finding that 92 per cent of IT software used in China is pirated. The report provides a reality check for China-Australia free-trade agreement enthusiasts, and those Australians in business, politics and the media who see China as an economic nirvana in the short term. The report observes that while foreign financial institutions can enter the Chinese market, access 'is constrained by high capital requirements and prudential requirements which are beyond international norms'. China's telecommunications sector is 'highly restrictive with healthy competition being constrained by an unclear licensing system, compromised pricing regulations, inadequate regulations on interconnection and high capital requirements,' the report says. And while Australia's cash-strapped universities are aggressively marketing their courses to full-fee-paying Chinese students, the report warns that China's current regulatory regime restricts 'the delivery of education and training'. With an acute sense of understatement, the report concludes: 'China has to be viewed as a long-term market' when it comes to Australian service companies' investment. Perhaps this is why IAG's investment in China is being viewed cautiously by some analysts in Australia. Arjan van Veen, of investment bank Credit Suisse, reckons that because the Chinese domestic insurance market is so competitive, his bank views IAG's investment 'as carrying significant risk despite the strong growth appeal of the market'. It's easy for Australian companies who sell commodities, such as iron ore and wool, to do business with China but when it comes to Australian businesses selling car insurance or mobile phones to Chinese consumers, for the moment, the red tape and hidden costs loom large. Greg Barns is a political commentator in Australia and a former Australian government adviser