People’s Republic of China Country Brief - December 2007
Overview of Australia-China Relations
The Australian Government pursues constructive and friendly relations with China on the basis of mutual respect and recognition both of our shared interests and of our differences. China’s importance to Australia has grown with China’s increasing economic, political and strategic weight.
A host of recent high-level visits underscores the strength and importance of our bilateral relationship with China. President Hu Jintao visited Australia in September 2007 for the APEC Economic Leaders Meeting and a bilateral visit. The former Australian Ministers for Foreign Affairs, Trade, Health and Defence visited China in 2007; Chinese Vice-Premier Zeng Peiyan also visited Australia in 2007.
Australia and China maintain a number of bilateral dialogues to advance cooperation while managing the two countries’ differences. Our dialogues cover trade and economic cooperation, resources, aid, defence, regional securityand disarmament, human rights and consular matters.
Trade ties are a key asset in the relationship. China overtook the United States as our second-largest trading partner in late 2006.
The Trade and Economic Framework (TEF) signed in October 2003 provides the basis for the further development of our trade with China. In addition, a free trade agreement is currently under negotiation (see below). The Framework sets the agenda for strengthening and expanding the economic relationship and provides a sound foundation for Australia and China to identify and take advantage of new commercial opportunities. The TEF focuses on closer cooperation and developing strategies to promote business opportunities in areas of high potential.
The TEF included a commitment by Australia and China to undertake a joint Free Trade Agreement (FTA) feasibility study, which was completed in March 2005. The Department of Foreign Affairs and Trade consulted widely with the business community and State and Territory governments, receiving around 140 submissions on the FTA Feasibility Study. The study concluded that the negotiation of an FTA would result in significant economic benefits for both Australia and China. In April 2005, both countries agreed to commence negotiations on a Free Trade Agreement. Ten rounds of negotiations have been held to date, most recently from 22-26 October in Canberra. For up-to-date information on Australia-China Free Trade Agreement negotiations, click on the link to visit the FTA page of the DFAT website.
Cooperation on environmental issues is becoming increasingly important in the relationship, as China faces becoming the world’s largest greenhouse gas emitter in 2007 or 2008, according to the International Energy Agency. Cooperation to combat climate change is now a priority for both countries and is regularly discussed at high-level bilateral meetings.The Australia China Joint Coordination Group on Clean Coal Technologies was established in January 2007. For more information on our bilateral cooperation on environmental issues, click on the link to visit the environment page of the DFAT website.
Our bilateral political engagement is extensive, though there are some sensitive political issues in the relationship which require careful management, including Taiwan and human rights. Australia adheres to a one-China policy, which means we do not recognise Taiwan as a country. But we maintain unofficial contacts with Taiwan, primarily to promote our legitimate economic, trade and cultural interests there. Australia has consistently said that cross-strait differences should be managed peacefully, through dialogue.
Australia does not recognise the Dalai Lama as a political leader, but has encouraged dialogue between the Dalai Lama and Chinese authorities. We also regularly express our concerns about human rights in Tibet to China. The Dalai Lama has visited Australia several times, most recently in June 2007, in his capacity as a spiritual leader and Nobel Peace Prize winner.
Australia has no view on the Falun Gong's beliefs or practices, but believes China's ban on the Falun Gong and its treatment of practitioners breach internationally-recognised human rights including freedom of expression and association.
Our approach to managing differences on human rights in China is constructive and based on dialogue rather than public confrontation. The annual Australia-China Human Rights Dialogue is an important forum for frank exchanges on human rights and for identifying areas where Australia can help China implement international human rights standards, including through technical cooperation. The most recent round of our bilateral Human Rights Dialogue took place in Beijing on 30 July 2007. We raised a wide range of issues including freedom of expression, freedom of religion, treatment of political prisoners and ethnic minorities, torture, the death penalty, Falun Gong, re-education through labour, labour rights, women’s and children’s rights, and the rights of legal practitioners and civil rights activists.
Our human rights technical assistance aims to enhance China's legal system and advance human rights at a practical level. Though progress is slow, this approach is preferable to the alternative – public condemnation of China – which would generate no progress at all. Chinese people enjoy a greater degree of personal freedom than before - a fact that Australia has recognised - but our views on human rights still differ. The Chinese also acknowledge these differences, and that there are ongoing human rights failings in China that need to be addressed.
Other facets of the relationship include our aid to China, and cooperation on environmental issues. Australia’s development assistance to China is focused on rural poverty and health problems in under-developed areas such as Tibet and Xinjiang. Another important component of the aid program is building capacity in aspects of economic planning and governance. For example, we are advising China on its goal of developing a modern, comprehensive social security system. We also provided training assistance to China in trade and economic matters in preparation for its joining the WTO, as well as to improve China’s capacity to participate in the WTO Doha Round and FTA negotiations.
People-to-people links also play a vital role in the Australia-China relationship. The Australia-China Council (ACC)is the active agency in promoting such links and its current priorities are the Youth Exchange Programs, which encourage young Australians to develop their interest in China; and the Australian Studies Program,
which provides funding to Australian Studies centres in Chinese universities. Parliamentary exchanges also provide a means to expand dialogue.
The Chinese community in Australia is an important part of our people-to-people links with China, and high growth in education and tourism has bolstered these links. In 2006, more than 90,000 Chinese enrolments were received at Australian education institutions, while Chinese visitor arrivals surpassed 300,000. Cultural activities such as the Australian film festival and the May 2007 ‘Experience Australia’ commercial and cultural promotion campaign in Shenzhen are raising the profile of Australia, encouraging tourism and business, and fostering cultural ties between the countries.
History and Background
Although not the earliest known civilisation, China has the world's longest continuous history as a single civilisation. Samples of archaic Chinese writing, from which the modern characters evolved, have been found dating back to 2000 BC. The earliest settlements occurred on the great river valleys and plains of China with subsequent expansion and development on both the mainland and coastal islands. China was first unified under the Qin Dynasty (BC221-206), and the pattern of imperial rule they initiated continued until the fall of the Qing Dynasty in 1911.
During the Han Dynasty (BC206-AD220) China’s territory was extended far to the west, as well as south of the Yangtze River and into Korea. The use of paper and proto-porcelain manufacture date from this time. After the fall of the Han Dynasty in 220AD, the empire was not unified again until the Sui Dynasty (AD581-618). This was succeeded by the Tang (AD618-907), which extended its suzerainty to include Turkestan (now Xinjiang) and Tibet. The later Song Dynasty (AD960-1279) was eventually overthrown by Mongol incursions, which culminated in the founding in 1279 of the Yuan Dynasty (AD1279-1368) by Kublai Khan. The short period of the Mongol Empire was notable for its flourishing of trade and contact with the outside world.
During the subsequent Ming Dynasty (AD1368-1644), literature, art and ceramics reached hitherto unsurpassed heights of quality; trade grew; Europeans came to China by sea for the first time; and the Portuguese established several ports, including Macau. The Manchus (Qing Dynasty AD1644-1911) overthrew the Ming and proceeded to extend Chinese territory further to the south and the west. However, technological developments within China did not keep pace with those in Europe, and, amid a period of natural disasters and civil wars, the Qing were unprepared to resist the series of seaboard incursions by the industrialised European countries in the nineteenth century. The Taiping rebellion of the mid-19th century, although eventually suppressed, shook the Qing Dynasty to its core.
The ossification and decline of the Qing Dynasty and its failure to counter the growing foreign challenge, particularly after the defeat of the Boxer uprising by foreign expeditionary forces in 1900, gave impetus to a growing reform movement, which culminated in the establishment of the Republic of 1911, with Sun Yat-sen (Sun Zhongshan in Mandarin) as its first President.
Modern period
In the first five years of the Republic, disagreement between the revolutionaries led to a breakdown in central government. Resistance to the conservatism of Yuan Shikai, who had taken over power, led to the rise of warlords throughout the country. The Nationalists or Guomindang (KMT) under the leadership of SunYat-sen and later Chiang Kai-shek (Jiang Jieshi), entered an alliance with the Chinese Communist Party (CCP), founded in 1921, until the two parties split in 1927.
From 1927 to 1936 the KMT and CCP, which had built up peasant armies, were at war. Chiang, from his capital at Nanjing, established control over the eastern seaboard of China. Pressure from KMT armies eventually forced the CCP to leave its main base in Jiangxi Province and embark on the arduous Long March to northern Shaanxi Province. The Japanese had overrun Manchuria in 1931, and had infiltrated further south while the KMT was concentrating much of its energy on pursuing the CCP during the Long March. Only when Chiang Kai-shek was obliged by dissident KMT troops to co-operate with the CCP to fight the Japanese did the KMT and the CCP enter an uneasy truce. In the ensuing war with Japan, the CCP began to take the initiative in resistance, using guerrilla warfare methods to retain control and gain the confidence and respect of the peasants in the occupied areas.
After the defeat of the Japanese, civil war resumed until the CCP army eventually took control of most of China and Mao Zedong proclaimed the establishment of the People’s Republic of China in Beijing on 1 October 1949. Chiang Kai-shek and the remnants of his Nationalist Government fled to Taiwan. In the course of re-shaping China into a socialist state, the political gradualism and Soviet-style command economy of the early years of the People’s Republic gave way to more radical socialist measures in the mid-1950s with the failed economic experiment, the “Great Leap Forward”, and the formation of rural communes. Over-ambitious planning, combined with natural disasters, checked China’s growth rate severely.
China’s economy had only just been returned to an even keel when the country was plunged into the Great Proletarian Cultural Revolution (1966-76). The Great Leap Forward had weakened the Mao’s influence throughout the country and strengthened the position of economic reformers such as Liu Shaoqi and Deng Xiaoping. Using units of student “Red Guards”, Mao’s supporters unleashed a reign of ideological terror, purging vast numbers of the nation’s leadership and instigated a cult of personality around Mao. The PLA backed Mao and restored order after the chaos of the Red Guards in 1966-67. During the Cultural Revolution, ultra-leftists dominated the cultural, economic and political life of China. However, on the diplomatic front, China began to open up to the world, joining the UN in 1971, and normalising diplomatic relations with the US in 1972. Australia and China established diplomatic relations in 1972. The Cultural Revolution only ended after the death of Mao Zedong in September 1976, and the subsequent arrest of the so-called “Gang of Four”.
In late 1978, Deng Xiaoping gained the political ascendancy over Mao’s appointed successor Hua Guofeng, and began sweeping economic changes known as “reform and opening up”, which have transformed Chinese economy and society and led to substantial increases in living standards. Tensions arising from the pace of economic change in China and lack of political change led to a confrontation in May and June 1989, among leaders and between the leadership and a large section of the urban public, resulting in the brutal suppression of demonstrations in Tiananmen Square in Beijing.
From 1989 to late 1991, China entered a period of economic stabilisation and political constraint. Reform slowed. Deng Xiaoping, who had been less prominent after June 1989, reasserted his role as leading elder statesman in 1992 when he toured the southern provinces and launched a push for accelerated reform that was subsequently endorsed by the Communist Party's National Congress in October of that year. Deng's death in February 1997 did not affect domestic stability, and power was smoothly passed to Jiang Zemin. The 16th Party Congress in 2002 elected Hu Jintao as Jiang’s successor.
Domestic Politics and Leadership
Under China’s political system, state structures are subordinate to the Chinese Communist Party (CCP), which holds predominant political power. According to the Constitution adopted in March 1982, the National People’s Congress (NPC) is the highest organ of state power. The NPC meets once a year for about two weeks to enact laws, appoint or remove the Premier and Ministers of the State Council, and approve national economic plans and state budgets. Following the closing of the tenth National People’s Congress (NPC) on 16 March 2007, Premier Wen Jiabao confirmed the course of the leadership under Hu, focusing on social stability and economic development under the rubric “Building a Socialist Harmonious Society”. The NPC also passed a law that recognised some forms of private property for the first time since 1949.
The 17th Communist Party Congress was held from 15 to 21 October 2007. It reappointed Hu Jintao as General Secretary and also established China’s future goals in economic, domestic and foreign policy, as well as reaffirming the priorities of the past five years. The Congress also changed the Party Constitution to reflect the importance of the concepts of “scientific development” and “harmonious society”, which seek to ameliorate the social effects of China’s economic reforms and rapid growth.
The current generation of Chinese leadership has committed itself to promoting social equality and justice; protecting the environment; improving China’s legal system and human rights protection; fighting corruption and expanding “inner party democracy” (as a response to corruption), while explicitly rejecting broader democratic change.
Economic Overview
China is experiencing a sustained period of rapid economic expansion with GDP growth averaging 9.5 per cent over the last two decades. China’s GDP grew by 11.1 per cent in 2006 and China is now the single largest contributor to global growth. China is the world’s second largest economy in purchasing power parity terms (fourth largest in exchange rate terms). It is set to overtake the United States to become the world’s second largest exporter by the end of 2007. Despite this growth, China’s per capita GDP, at around US$2000, remains relatively low.
Securing supplies to meet its rapidly growing energy needs is a major challenge for China. China is now the world’s second largest producer and consumer of energy after the United States. To ensure its future energy supplies, China has been actively pushing outward investment in energy and resources projects around the world. China is also promoting renewable energy options and imposing energy efficiency targets.
Due to China’s one child policy and a rising life expectancy, China has a rapidly ageing population. The proportion of those aged over 65 is set to increase from 7 per cent of the population in 2000 to about 20 per cent in 2040. The ratio of working-age people to non-working-age people will fall over the same period from the current level of five to one, to three to one, while about two thirds of China’s aggregate population growth will occur in the 65+ grouping. This will place unprecedented strain on China’s social security system, healthcare system, workforce, and families caring for elderly members in the absence of adequate aged care facilities.
Reform of the agricultural sector remains a key challenge, particularly in building a system of enforceable land rights, providing greater access to funds for farmers and allowing freer movement of workers from country to city regions.
Other key problems include infrastructure bottlenecks on the eastern seaboard, particularly in the energy and rail transport sectors which threaten to limit industries’ capacity to source adequate electricity and raw material inputs; unemployment, exacerbated by the reform of SOEs, and underemployment in the rural sector.
China faces the long-term challenge of rebalancing its economy away from its current pattern of export- and investment-led growth to more sustainable growth generated by expanding household consumption and allowing a greater role for the service sector.
Bilateral Economic and Trade Relationship
Two-way merchandise trade with China reached $49.9 billion in 2006-07, a 21 per cent increase on 2005-06. China accounts for 14 per cent of our merchandise export trade, worth $22.8 billion. Australia’s top six merchandise exports to China in 2006-07 were iron ore ($8.4 billion), wool ($1.7 billion), lead, zinc and manganese ores ($959 million), copper ores ($915 million) and coal ($507 million). Merchandise imports from China were valued at $27.1 billion in 2006-07, led by clothing ($3.4 billion), computers ($2.8 billion), telecommunications equipment ($1.9 billion), toys, games and sporting goods ($1.4 billion) and furniture ($1.2 billion).
Resources (minerals and fuels) exports account for more than two thirds of our merchandise exports to China, where Australia is seen as a competitive and reliable supplier of a wide range of resources. The commencement of LNG shipments from the North West Shelf to the Dapeng terminal in Guangdong in May 2006 added a new dimension to this partnership, and will boost export earnings by up to $25 billion over 25 years.
China is Australia’s second largest export market for Australian agricultural products with exports worth over $3 billion in 2006-07. Australia’s largest agricultural exports are wool, raw hides and skins and cotton. Australian citrus exports to China commenced in September 2006 after the formal signing of a citrus protocol during Chinese Premier Wen Jiabao’s visit to Australia in April, 2006.
Education and travel dominate Australia's service exports to China, accounting for around 80 per cent of services exports in recent years. Services exports have averaged an annual growth of 23 per cent over the past five years. Rising Chinese consumer income and service sector reforms offer significant opportunities for Australian services exports. Total services exports to China increased by 10 per cent in 2006 to $3.6 billion. Chinese student enrolments in Australia grew by 10 per cent in 2006 to 90,287. China is Australia’s largest market for international student enrolments, providing 24 per cent of all enrolments (29 per cent if Hong Kong is included).
Chinese visitors to Australia rose by 8 per cent in 2006 to 308,500. Chinese visitors make up 6 per cent of the five and a half million people who visit Australia annually, making China our fifth largest source of international visitors. Tourism Australia forecasts that visitor arrivals from China are likely to grow to almost one million by 2015, with an economic value for the Australian economy of $4.3 billion. The rise in visitor numbers is being driven by increasing disposable incomes, the growing desirability in China of international travel, and government-to-government arrangements such as the ‘Approved Destination Status' scheme which encourages Chinese visitors to Australia.
Non-resource merchandise exports are also benefiting from China’s economic growth, in particular from spending by China’s emerging middle class. This growing middle class is opening up opportunities for Australian exports of food, such as dairy items, organics and wine, and consumer goods, such as art, jewellery, cosmetics, giftware and pet care products. Australian manufacturing is also benefiting from China’s emerging middle class, with exports increasing by 21 per cent to $2.8 billion in 2006-07. In this sector, Australian companies largely supply production inputs, including machinery and equipment, electrical products and chemicals.
Australia-China two-way investmenthas lagged behind the trade relationship but is growing. In 2006 China was the 17th largest investor in Australia with total investment of $3.4 billion. China’s largest investments are in the resources sector, reflecting China’s development demands.
China’s US$1.4 trillion in foreign exchange reserves and a new ‘go-global’ policy encouraging overseas investment are expected to result in more Chinese investment in Australia. China’s investment here is also showing signs of expanding into new sectors, including manufacturing, information and communications technology, agribusiness and biotechnology. The Australian Government welcomes foreign direct investment in Australia, subject to approval by the Foreign Investment Review Board.
In 2006 China was Australia’s 21st largest investment destination ($3 billion). China has approved some 5000 Australian investments. Australian financial institutions have a number of investments in Chinese Banks and there is substantial interest in the mining sector. More opportunities for Australian investment will open up as China liberalises its services sector.
Export Opportunities
Business success in the Chinese market requires awareness of the opportunities available and an appreciation of how the legal system and culture operates. In addition, a well placed and sourced personal introduction is helpful. Austrade's network of offices in China is well placed to assist.
For more information on doing business in China and about specific export opportunities, go to the Austrade website. As well as country-specific information, the Austrade website also has a database that can be searched by industry.
Trade Watch Contacts
If you would like more information on the trade and economic conditions in China please email the Department of Foreign Affairs and Trade: Tradewatch@dfat.gov.au