Macroscope | Chafing at the bit for ChAFTA: Why China-Australia free trade matters

Something happened in the Australian political scene when I was away last week. The issue of the Chinese Australia Free Trade Agreement (ChAFTA) hit fever pitch.

And guess where I was? I was in China. Specifically I was in Shanghai, Xian in northwestern China, and Hong Kong teaching an AGSM MBA programme and talking with various companies, both Australian and Chinese, about the stock market, the exchange rate and ChAFTA.

On the Chinese side, there were some jitters in the Shanghai stock market but as these are small traders with no institutional investors, it is expected not to greatly affect the real economy in China. At Baosteel, they bemoaned the price of iron ore, and the wish to capture global supply chains controlled by Brazil and Australia but the hot steel kept rolling through the factory.

The steelmakers and other Chinese industrialists did welcome the recent devaluation of the yuan as helping Chinese industry but they still aim to transition away from being a “nation of shippers” reliant on exporting to a “nation of shoppers” by boosting consumption.

Out west in Xian, director Fu Hua from Intel said he believed the strong growth in the second- and third-tier cities would counterbalance any drop off in Shanghai and Shenzhen. That is why Intel has R&D facilities in Xian (as does Johnson and Johnson) and manufacturing in Chengdu.

In fact, second- and third-tier cities have created a boom for Australian construction businesses and architects like Hassells (which employs 600 people in China). As Beijing directs economic activity westwards, demand for infrastructure grows and Australian services providers in building and construction, architects and designers are helping to build “the great mall of China”, and the roads, airports and civic buildings.