Identifier
Created
Classification
Origin
08CANBERRA792
2008-08-08 01:16:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Canberra
Cable title:  

EXPERTS DISCUSS AUSTRALIA-CHINA ECONOMIC

Tags:  ECON ETRD PREL AS 
pdf how-to read a cable
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FM AMEMBASSY CANBERRA
TO RUEHC/SECSTATE WASHDC PRIORITY 9961
INFO RUEHBJ/AMEMBASSY BEIJING 9121
RUEHUL/AMEMBASSY SEOUL 9516
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RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
UNCLAS SECTION 01 OF 02 CANBERRA 000792 

SENSITIVE
SIPDIS

EAP/EP FOR HADDA

E.O. 12958: N/A
TAGS: ECON ETRD PREL AS
SUBJECT: EXPERTS DISCUSS AUSTRALIA-CHINA ECONOMIC
RELATIONSHIP

UNCLAS SECTION 01 OF 02 CANBERRA 000792

SENSITIVE
SIPDIS

EAP/EP FOR HADDA

E.O. 12958: N/A
TAGS: ECON ETRD PREL AS
SUBJECT: EXPERTS DISCUSS AUSTRALIA-CHINA ECONOMIC
RELATIONSHIP


1. (SBU) Summary: The consensus among several of the
leading Australian economic thinkers in Canberra is that the
commodities boom will begin to cool off, but that Chinese and
other developing market economic growth will continue to prop
up Australian export strength over the long run. Australians
are concerned about the motives behind Chinese investment in
the resources sector, but China is only the latest outsider
to want to control a piece of the pie. End Summary.


2. (SBU) At a lunch hosted by the Charge d'Affaires on July
30, Dr. Steven Kennedy, Chief Macroeconomist Advisor from the
Prime Minister's Office; Rio Tinto's Lyall Howard (nephew of
former PM John Howard); Peter Downes, Principal
Macroeconomist at the Center for International Economics; and
John Hogan, the head of the Australian Bureau of Agriculture
and Resource Economics (ABARE) Agriculture & Trade Branch
discussed Australia's economic relationship with China, the
PRC's dependency on Australian commodities and Australians'
views on foreign direct investment in Australia.

FTA: Services are Crucial
--------------


3. (SBU) Kennedy mentioned that Australian financial
services firms remain very interested in expanding in China,
and an Australia-China FTA should present itself as an
opportunity to access the Chinese market. However, all at
the table agreed that China had fallen short so far on the
level of reciprocity it was prepared to accept. No one at
the table saw any possibility of a quick breakthrough on
services or other issues in the next round of negotiations.

Commodity Prices To Cool Off, But Trend Up
--------------


4. (SBU) Downes said his Centre's prediction was that
Australian commodity prices in the short term would come back
from record-breaking prices to a more modest level, probably
around $40 per ton for iron ore, for example, by about 2013,
compared with spot prices in China that have gone as high as
$200 per ton this year. However, given the inability of the
government in China to restrain infrastructure investment,
long-term demand would remain strong and push prices up.
Both Kennedy and Howard agreed with Downes that commodity
prices would contract soon, but trend higher over the long
term. Kennedy felt that the recent failure to reach an
agreement in the Doha round would shake somewhat global
business confidence and could further influence a downward
commodity price shift. Howard said that Rio would welcome
the price fall as the drop in prices will sift out the
"predatory" newcomers that have popped up in the sector and
allow Rio to regain a larger share of the market. Hogan
stated that ABARE also forecasts a drop in prices but sees
the long term growth of China, even with a slowing Chinese
economy and higher inflation, as providing a reliable market
for Australian commodities exports. ABARE was growing more
confident that agricultural commodities would form a greater
share of Australian exports to China as global food price
rises affected availability in the PRC, Hogan said.

Views about Foreign Direct Investment
--------------


4. (SBU) Howard mentioned an independent study, commissioned
by Rio Tinto, that analyzed Australians' attitudes towards
foreign direct investment in Australia. Howard reported that
respondents aged 45 and older were suspicious of Chinese
Qrespondents aged 45 and older were suspicious of Chinese
investment in Australia and, while they believed that it was
"OK for China to buy from Australia," wanted to know "why
China felt it needed to own firms within Australia." They
had a relatively sophisticated view of the need for foreign
investment, but feared the impact of broader foreign
ownership on jobs and pension systems like the Superannuation
Fund. Somewhat unexpectedly, Howard said, respondents aged
20-45 were indifferent or apathetic towards foreign direct
investment. The younger respondents showed a "discouraging"
level of ignorance on the economy as a whole, Howard said.
The lunch guests remarked that Australians still appeared to
welcome investment from the "Anglosphere" (Canada, the U.K.
and U.S.) but were more suspicious of investment by newly
developing economies like China.


CANBERRA 00000792 002 OF 002



5. (SBU) Comment: All of our interlocutors noted that
Australians, although concerned that Chinese investors might
not operate in a transparent, market-driven fashion, had been
through a similar experience with Japanese and Korean
investment. General opinion was that Australia is
well-placed to handle these issues, and that they will not
develop into a source of significant tension with Beijing.
End comment.

MCCALLUM