Australia may not reap all it sows from China trade deal
Australia may not reap all the benefits it hopes from a landmark China trade agreement as some key farm commodities remain excluded
A trade deal signed with great fanfare between China and Australia has been touted as a major step towards Australia shifting its economy from a "mining boom" to a "dining boom", but the reality is likely to be more sobering.
It has high hopes for the proposal for a free-trade agreement (FTA) signed on Monday by Australian Prime Minister Tony Abbott and President Xi Jinping, but the more likely winner from the deal is the services sector.
The deal is designed to open up Chinese markets to Australian farm exporters and the services sector, while easing curbs on Chinese investment in Australia. China is already Australia's top trading partner, with two-way trade of around A$150 billion (HK$1.01 trillion) last year.
Several major foodstuffs, including sugar, rice and cotton, are currently excluded from the FTA, and Australia's frequent severe droughts impose a natural production ceiling on those sectors that are part of the pact.
Experts are waiting for the full text of the pact, which Australia called the best ever between Beijing and a Western country, warning the devil may yet be in the detail.
"Labor is deeply concerned that key export sectors like sugar have been told to expect nothing from the deal," the leader of the opposition Labor Party in the Australian Senate, Penny Wong, said. "Mr Abbott has talked about a two-step FTA. The fact is Australia can't afford a second-rate FTA with China."
HSBC chief economist Paul Bloxham said the deal would support Australia's "great rebalancing act", but others warned the agricultural sector was comparatively tiny.
Of Australia's total exports to China of A$94.7 billion last year, iron ore accounted for A$52.7 billion, according to Australia's Department of Foreign Affairs and Trade. Wool, the top agricultural export, made up just A$1.9 billion.
Boosting agriculture also requires big investment in isolated, dry and volatile areas with limited water supply. Large swathes of eastern Australia are currently in drought.
Australian farms' return on capital has seldom topped 2 per cent a year during the past decade, excluding changes in land values, according to government research bureau ABARES.
Meanwhile, the sugar, rice, wheat and cotton sectors will have to wait three years for a review of their tariffs. Even then, any changes are likely to be contingent on Australia relaxing its existing requirement that all investment proposals by Chinese state-owned entities be scrutinised by Australia's Foreign Investment Review Board.
"In this day and age, sugar being excluded in what looks like a political trade-off is an absolutely unacceptable outcome," said Paul Schembri, chairman of industry group Canegrowers.
At the other end of the deal, China faces a supply glut as economic growth falters. Inventories of iron ore, coal and cotton are bulging and state granaries are overflowing.
