Australia-China FTA Conference in Shenzhen
28-29 June 2006
Day 1 - Resources and Investment
Australia and China's Growing Resources and Energy Partnership
Mr Mark Paterson, Secretary of the Department of Industry, Tourism and Resources
Distinguished Guests, Ladies and Gentlemen.
Thank you for the opportunity to talk with you about our resources and investment trading relationship. This is a relationship that is one of Australia's most important, one that is built strongly on resources trade over many years and one that I believe has a long term future.
Our resources trade is built on the strength of China's booming economy on the one side and Australia's plentiful endowment of mineral wealth on the other.
It is also a relationship that could be expanded and enriched for the benefit of both our nations. While our relationship is rich, it can be richer.
Part of what I want to say to you today is that there are many opportunities for our two countries to work more closely together in the minerals and energy area and we should not miss the opportunity presented by the FTA to do this. Two such areas are mining services and investment and I will have more to say about these later.
China has experienced spectacular economic growth
China is the world's largest consumer of copper, tin, zinc, steel, iron ore and coal, the second largest consumer of aluminium, petroleum products and lead and the third largest consumer of nickel.
In part this spectacular growth has been driven by China's rapid urbanisation creating demand for housing, infrastructure, jobs and skills. It is also driven by the growth of China's middle class who have high levels of disposable income and high expectations for quality, choice and service.
But our trading relationship is not just about shipping raw materials from Australia to China and electronic equipment from China to Australia.
In the resources area, it can be, and needs to be, much more than this. It is about creating the investment climate that provides the foundation for long term mineral and energy investment that benefits both our nations.
What can be achieved is demonstrated no more clearly than here in Guangdong Province.
The first shipment of Australian LNG to China under the contract is due to arrive at the new Guangdong LNG terminal virtually as we speak. This shipment marks a major milestone in the Australia-China economic relationship. At the time of signing, this was Australia's largest single export contract ever negotiated and is worth about A$25 billion over 25 years.
It demonstrates what can be achieved with proper attention to the longer term in both energy security and investment generation.
Access to this LNG supply will directly assist Guangdong's and Hong Kong's economic growth aspirations. It will also bring environmental benefits to China.
We look forward to building this relationship through expanded trade and investment links, more frequent policy dialogue and the strong technical cooperation that a Free Trade Agreement could bring.
Australia is resource rich
As a nation with abundant natural resources, Australia is well placed to meet China's resources demand.
Australia ranks in the top 6 in world production for 17 mineral resources, including iron ore, uranium, coal, mineral sands and alumina/bauxite. These are minerals in demand by China.
In 2004 mineral exports from Australia accounted for approximately 60 per cent of Australia's total goods exports to China, representing a massive 470 per cent growth over the last decade.
Australia is the world's 5th largest LNG exporter. We have the capacity to expand LNG production from the current level of 16 million tonnes per annum to well over 50 million tonnes per annum by 2012.
Investment
Australia recognises the needs of countries such as China for access to secure energy and resource supplies.
For this reason, Australia is stepping up, even more than before, to meet that demand and to provide security of supply.
In 2005-06 Australia's total mineral exploration expenditure is at its highest since 1978. Mining capital expenditure is the highest on record.
We welcome overseas investment
China is a player in this investment. To the end of 2004, China had invested around A$2 billion into Australian projects, the largest of which are in the minerals and energy resources sector.
China's National Offshore Oil Corporation (CNOOC (see nook)) has acquired 5 per cent equity in the Australian Northwest Continental Shelf Natural Gas Project, and a 25 per cent stake of the newly established China Liquefied Natural Gas Joint Venture.
Shanghai Baosteel, Jiangsu Shagang Group, SinoSteel and many other Chinese steel companies are already engaged in or negotiating iron ore joint ventures with Australian suppliers.
Australia welcomes such foreign investment to discover or develop energy and mineral resources.
The huge investment required to develop major resource deposits, often in remote regions, requires investors to have a high degree of comfort that their investment will be worth the effort.
Long term contracts provide one form of investment security, as exemplified by the LNG contract that I mentioned previously.
Joint Chinese - Australian equity is another form of investment security, and this can go hand in hand with long term contracts. The LNG contract again falls into this category.
In this context I welcome CNOOCs recent investment in offshore exploration in Western Australia and their strong interest in the 2006 release of offshore petroleum exploration areas. Another Chinese entity, Sinopec has taken an interest in a petroleum exploration permit in the Ashmore and Cartier islands.
Australia welcomes such foreign investment. Australia is foreign investor friendly nation.
The success of such investments and commercial agreements by companies is due to the Australian Government's policy of allowing these arrangements to be made in a free and open market without conditions.
As China continues to globalise its economy it is also working to support a practice of its industry operating in a free market where normal commercial negotiations and arrangements take place.
It is within this framework that Australia welcomes the opportunity to work with China to advance economic cooperation between our two countries and build on our complementary advantages.
The FTA provides an avenue for China to secure its energy future and to work with Australia in building major infrastructure developments.
Turning now to Australian investment in China.
By the end of 2004, Australian companies had invested A$1.2 billion in China - spread across 5,000 investments. A further A$1 billion is under consideration.
In addition to the joint LNG venture, our partnerships have extended to Coal Mine Safety, methane reduction and to clean coal development. These initiatives have seen the establishment of training programs, taskforces, cooperative ventures and the transfer of technical knowledge and experience.
Our understanding is that China is committed to improving its mining safety record. Mine safety is an area in which Australia has a world class reputation and one in which we are pleased to work with China to help reduce fatalities and increase Chinese coal mine productivity.
Australia's excellent mine safety record is underpinned by high levels of safety expertise within the industry and a strong regulatory regime.
Premier Wen Jiabao witnessed the signing of an MOU between our two countries on Coal Mine Safety during the Premier's visit to Australia in April this year. The MOU will enable China to benefit from our own experience and raise its operating safety levels to world's best practice.
Australia has also developed a range of leading edge technology for extracting, capturing, and utilising coal seam methane, a major cause of coal mine accidents. Australian technology and expertise can help China better manage and reduce its coal mine methane levels and improve its mine safety.
Australian coal technologies are diverse and in addition to coal mine safety and methane abatement, include workforce training, mining technology equipment, underground coal gasification, carbon dioxide storage and sequestration, coal liquefaction, and coal bed methane utilization.
Other opportunities for partnering include the Asia-Pacific Partnership on Clean Development and Climate. Australia and China are both members, alongside India, Japan, the United States of America and the Republic of Korea.
Australia is actively working on a range of clean coal technology projects under AP6 that reduce emissions and are cost competitive.
In other energy sources and in minerals Australia has much to offer China
The Australian mining industry is diversified, modern, globally competitive and efficient. It is internationally recognised for its sound environmental management.
It is a leading provider of geoscientific and mining technology services in the areas of exploration, assessment, extraction, processing and utilisation.
Australia's resources sector has contributed over A$500 billion directly to Australia’s wealth over the past 20 years.
Australian mining companies can provide the essential skills, hardware and knowledge to work with China in mineral exploration, extraction and processing.
The experience in Australia is that investment in mining developments generates significant regional and remote infrastructure development - something understandably of great interest in China and an emphasis in Chinese Government policy.
Many of Australia's largest mining developments are located in remote areas - much as in China.
Since 1967, Australia's resource industry has built 26 towns, 12 ports and additional port bulk handling infrastructure at many existing ports, 25 airfields and over 2,000 kilometres of railway line.
It has contributed to increased employment and social infrastructure - health, education and welfare - in remote areas.
China's rapid economic growth has severely stretched the capabilities of its existing infrastructure - leading to delays, cost increases, reduced productivity and efficiency and impeding the social and economic development of more remote areas.
We both recognise the challenges: striving to satisfy energy demand, to be economically efficient, to remain internationally competitive, to build infrastructure, to develop our resources and at the same time to safeguard the environment.
Australia has skills, investment dollars, the resources and the willingness to work with China to jointly achieve these goals.
However there are barriers, and I don't want to shy away from these. Australian companies face difficult hurdles in investing in China.
The world's two largest mining companies, BHP Billiton and Rio Tinto both have no or very few major mineral investments in China. This is no accident.
China's foreign investment approvals process creates investor uncertainty and exacerbates investor risk.
For example,
- China's Catalogue on the Guidance of Foreign Investment unduly restricts the areas in which a Wholly Foreign Owned Enterprise (WFOE) can undertake exploration activities;
- Exploration and mining are discouraged where certain mineral combinations such as copper and gold - which are often found together, fall into different investment categories, one encouraged, one restricted.
- Rules governing the granting of exploration licenses require companies to demonstrate prior experience in China. This make it difficult for foreign companies to qualify as geological exploration units registered in China.
- Current Chinese regulations only provide the holder of an exploration licence with a "privileged priority" in securing a subsequent mining right. Rather, what is sought is a guarantee that a party that holds the exploration license and complies with necessary environmental and other regulations will obtain the mining licence
- Current registered capital requirements are best suited to investments in the manufacturing sector, not in mining.
- There is a need to allow greater scope for the definition of capital to include mine infrastructure or other exploration related costs.
- Access to geological data continues has improved, but continues to be difficult.
Opening up foreign investment opportunities within China, particularly mining and energy investments, can provide employment, skills and training and significant infrastructure development in remote areas.
I am talking about building housing and facilities for employees; building reliable water and electrical power supplies; providing education and training opportunities for staff and their families; raising management skills; building transport links and the like. All these create national and regional wealth, jobs, boost incomes, and provide social and community benefits.
All the better if in China's resource rich, but comparatively poor, western regions.
Most importantly, Australian mining companies are well regarded internationally for their adaptation of the "social licence to operate". Australia recognises that mineral operations are not sustainable if they do not have the support of their communities at the local, regional and national levels.
It is for these reasons that I encourage my Chinese counterparts and industry to support the development of a broad and extensive FTA between our two countries, one that includes mining and energy services and that relaxes investment barriers.
Thank you.