People's Republic of China Country Brief
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 number of recent high-level visits underscore the strength and importance of our bilateral relationship with China. Prime Minister Kevin Rudd made a bilateral visit to China in April 2008 and again in August 2008 to attend the opening of the Olympic Games in Beijing. The then Governor-General Sir Michael Jeffrey also visited China in August 2008 and represented Australia at the closing ceremony of the Games. The Foreign Minister, Stephen Smith, visited China in March 2009. The Minister for Trade, Simon Crean, visited China in March 2009, and in April, August and December 2008. The Treasurer, Wayne Swan, visited China in June and December 2008. Other senior visitors to China in 2008 have so far included the Ministers for Climate Change and Water; Youth and Sport; Agriculture, Fisheries and Forestry; and Resources, Energy and Tourism. Chinese President Hu Jintao visited Australia in September 2007 for the APEC Economic Leaders Meeting and for a bilateral visit. China's Minister of Foreign Affairs Yang Jiechi visited Australia in February 2008, and the Chairman of the National Development Reform Commission, Zhang Ping, visited Australia in October 2008. Senior Chinese Communist Party leaders Li Changchun and Zhou Yongkang visited Australia in March 2009 and November 2008 respectively.
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 security, disarmament, human rights, climate change and consular matters.
Trade ties provide a strong underpinning to the bilateral relationship. The Trade and Economic Framework (TEF) signed in October 2003 provides the basis for the further development of our trade with China. The Framework sets the agenda for strengthening and expanding the economic relationship and lays 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. Completed in March 2005, 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 the FTA. Both countries are working hard to conclude an agreement.
Cooperation on climate change issues is becoming increasingly important in the bilateral relationship, as China will soon be the world's largest greenhouse gas emitter, 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. In April 2008, the Prime Minister and Minister for Climate Change and Water concluded a Joint Statement on Closer Cooperation on Climate Change with China, which includes a commitment to a Ministerial-level dialogue. The inaugural Australia-China Ministerial Dialogue on Climate Change was held on 18 November in Canberra, and was co-hosted by the Minister for Climate Change and Water, Penny Wong, and the Vice Chairman of the National Development and Reform Commission, Xie Zhenhua,
Our bilateral political engagement is extensive, though there are some differences in the relationship which require careful and sensitive management, including Taiwan and human rights. Australia adheres to our one-China policy, which means we do not recognise Taiwan as a country. 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 between the two sides.
Our approach to managing differences on human rights in China aims at being constructive and is based on dialogue. The 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 Canberra on 9 and 10 February 2009. We raised a wide range of issues including freedom of expression, freedom of religion, treatment of political prisoners and ethnic minorities, Tibet, torture, the death penalty, Falun Gong, re-education through labour, women's and children's rights, and the rights of legal practitioners and civil rights activists. The next round of talks is planned to be held in Beijing in 2010.
Our human rights technical assistance program 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 is often counter-productive. Australia recognises that China has made progress over the past 30 years and that the Chinese people enjoy a greater degree of personal freedom than before, but our views on human rights still differ. The Chinese also acknowledge these differences, and that there are continuing human rights failings in China that need to be addressed.
The Australian Government was disappointed by the breakdown of the most recent round of talks between the Chinese Government and the Dalai Lama's representatives. Australia has called on both sides to resume substantive dialogue and to work towards an agreed outcome. We also regularly express our concerns to China about human rights in Tibet. The Dalai Lama has visited Australia several times, most recently in June 2008, in his capacity as a spiritual leader and Nobel Peace Prize winner.
Other facets of the relationship include our development cooperation with China. Our engagement is focused on high-level policy, planning and management, mostly at the national level in the agreed sectors of: governance (economic reform and management, legal and social security reform and human rights); health (controlling the spread of HIV/AIDS and other communicable diseases and strengthening health systems); and the environment (improved environmental governance, policy implementation and water resource management).
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 grouped under three themes: education and science, economics and trade, and society and culture. An important part of the education and science theme is the ACC's Australian Studies in China Program, which provides funding to Australian Studies Centres in Chinese tertiary institutions.
The Chinese community in Australia is an important part of our people-to-people links with China, and high growth in tourism and education has bolstered these links. In 2008, Chinese visitor arrivals surpassed 350,000. Diverse cultural activities are raising the profile of Australia, encouraging tourism and business, and fostering cultural ties between the countries. An Australian film festival will be held in three major Chinese cities in early 2009. Other recent cultural activities include a number of artistic residencies in China and Hong Kong, performances of the West Australian production "The Drover's Wives" at the Shanghai International Arts Festival and a joint cultural heritage conservation program conducted by Ausheritage in China, Macau and Hong Kong.
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 was 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 1979. 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. The 11th NPC held in March 2008 confirmed the appointments of President Hu Jintao, Premier Wen Jiabao and the Chairman of the NPC Wu Bangguo for the next five years. The 11th NPC also appointed Xi Jinping and Li Keqiang as Vice President and Executive Vice-Premier respectively. The focus of the 12th NPC (3-13 March 2009) was maintaining economic growth and social stability in the face of the global economic crisis.
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.
Economic Overview
Until its recent slowdown, China had experienced a sustained period of rapid economic expansion, with GDP growth averaging 9.5 per cent over the last two decades. Although growth in 2008 slowed to a seven-year-low of 9 per cent in 2008, and 7.1 per cent in the first half of 2009, these growth rates remain high by international standards and China remains 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). At the end of 2007, China overtook the United States to become the world's second largest exporter of goods, and is now the third largest exporter of goods and services after the United States and Germany. Despite this growth, China's per capita GDP, at around US$3,180, remains relatively low.
China faces the long-term challenge of rebalancing its economy away from its current pattern of investment and export-led growth to more sustainable growth generated by expanding household consumption and a larger services sector.
In the short-term, the Chinese Government's top priority is maintaining its economic growth target of 8 per cent. On 9 November 2008, China approved a 4 trillion yuan (US$586 billion) government spending package for 2009-2010 to counter the economic slowdown and boost domestic demand. This stimulus package includes key infrastructure-related projects, such as building rural infrastructure, upgrading public housing, expanding railways, highways, ports and airports, and accelerating disaster reconstruction. The Chinese Government has also instituted a 'moderately easy' monetary policy in response to the economic slowdown, cutting interest and lowering commercial bank reserve requirements.
Securing supplies to meet its rapidly growing energy needs is also 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 into energy and resources projects around the world. China is also promoting renewable energy options and imposing energy efficiency targets.
Reform of the agricultural sector remains a key challenge, particularly in building a system of enforceable land rights, providing greater access to credit for farmers and allowing freer movement of workers from country to city regions. Rising unemployment and a deceleration in the growth of demand for China's agricultural exports from 17.8 per cent in 2007 to 9.4 per cent in 2008 are indicative of significant problems in the rural sector.
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. 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. The Chinese Government has earmarked 13 billion yuan under its economic stimulus program to deal with some of these emerging social issues.
Bilateral Economic and Trade Relationship
In 2008, China was Australia's second-largest two-way trading partner, closely behind Japan. Two-way trade with China was worth $73.8 billion, an increase of 27 per cent over 2007. Separately, China was Australia's largest import source ($36.7 billion) and second-largest export destination ($37.1 billion). Merchandise exports accounted for 87 per cent of Australia's total exports to China, and services 13 per cent.
The composition of Australia's merchandise exports to China was as follows: minerals, 76.2 per cent; agricultural, 11 per cent; manufacturing, 7.4 per cent; and fuels (coal, oil and natural gas) 5.5 per cent. Between 2004 and 2008, mineral exports to China grew at an average annual rate of almost 44 per cent. Over the same period, agricultural exports grew at an average annual rate of 3.1 per cent. Manufacturing exports grew at an average annual rate of 10.0 per cent, but fell by 9.1 per cent in 2008.
Resources exports continue to underpin Australia's bilateral trade with China. In 2008, iron ore exports were worth approximately $18 billion, close to half of Australia's total exports to China. Other significant resources exports include copper, nickel, coal, crude petroleum and liquefied natural gas. In China, Australia is seen as a competitive and reliable supplier of a wide range of resources. In the long-term, the fundamental drivers of urbanisation, industrialisation and population growth should continue to stimulate Chinese demand for Australian resources.
Australia's services exports to China are dominated by education and recreational travel, accounting for over 80 per cent of services exports in recent years. Services exports have averaged an annual growth of 18 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 over 20 per cent in 2008 to $4.7 billion. In 2008, there were over 127,000 Chinese student enrolments in Australia, an annual increase of 19.7 per cent. China is Australia's largest market for international student enrolments, providing 23.4 per cent of all international enrolments.
In 2008, 356, 400 Chinese visitors travelled to Australia, accounting for 6.4 per cent of the 5.6 million people who visited Australia in 2008. This makes 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 2017, with an economic value for the Australian economy of $5.5 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.
Australia exported $3.5 billion in agricultural goods to China in 2008, representing 7 per cent growth over 2007. Strong growth was recorded in exports of hides and skins, animal oils and fats, milk and cream, meat and alcoholic beverages. Wool was our largest agricultural export to China (173, 000 tonnes worth $1.4 billion in 2008 - 61 per cent of China's total wool imports).
In 2008, China was Australia's largest source of imports, with total imports worth $36.7 billion. Merchandise imports accounted for over 95 per cent of the total, with the import mix dominated by clothing ($3.9 billion) telecommunications equipment ($2.9 billion), computers ($2.8 billion), prams, toys, games and sporting goods ($2.0 billion) and furniture, mattresses and cushions ($1.5 billion).
Australia-China two-way investment has lagged behind the trade relationship, but is growing. At the end of 2008, total investment from China reached almost $7.9 billion, making mainland China our fifteenth largest investor. China's has shown particular interest in investing in Australia's resources sector, reflecting China's development needs.
China's US$2.13 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 relevant approvals, including from the Foreign Investment Review Board.
At the end of 2008, total Australian investment in China reached $6.9 billion, making China our 14th largest investment destination. Australian financial institutions have a number of investments in Chinese banks and there is interest in the mining sector. More opportunities for Australian investment will open up as China's services sector expands.
Export Opportunities
Business success in the Chinese market requires awareness of the opportunities available and an understanding of the Chinese culture and legal system. 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.
Updated 29 July 2009