After more than 10 years of negotiations, Australia and China on Monday, agreed on a comprehensive trade deal that would eliminate tariffs on several Australian exports while easing investment restrictions for Chinese investors.
Under the deal, tariffs on Australian dairy products would be eliminated within four years, and those on beef within nine years.
The deal includes provisions to scrap Chinese tariffs on Australian resources and energy products.
Private Chinese companies would be able to make single investments of up to A$1.078 billion ($950 million) in Australia without needing a review by the government's regulator. Previously, the limit was A$248 million.
Besides, under the FTA:
- Australian law firms will be able to establish commercial associations with Chinese law firms in the Shanghai Free Trade Zone;
- A further 77 institutions will be added to an existing 105 Australian education providers that can take overseas students
- Australian service providers will be allowed to construct, renovate and operate whole Australian-owned hotels and restaurants in China;
China, which is looking more at the domestic market, from being an exporting nation and there will therefore be greater demand for education, tourism, as well as hospitals and aged care – a sector in which Australian providers can now establish wholly-Australia owned hospitals and profit-making aged-care institutions.
Australia exported close to $7 billion worth of services products in 2013.
With the signing of the FTA between the two countries:
- Australian insurance companies will have access to China's third-party liability motor vehicle market;
- Waiting period for Australian banks to engage in local currency, Renminbi, cut from three years to one year; and
- Australian securities brokerage and advisory firms will be able to provide trading accounts, custody, advice and portfolio management to Chinese investors allowed to invest offshore.
China has granted Australia a Renminbi quota, which will allow Australian financial institutions to invest offshore Chinese currency in Chinese financial products, including securities. Australia will have access to the financial markets of one of the world's most powerful economies as it finally begins to liberalise its economy.
Chinese investments in Australia jumped 41.2 per cent in 2013 to $31.9 billion, but China only accounts for 1.3 per cent of total foreign investment. The threshold for private, non-state-owned investment from China in non-sensitive sectors that needs approval by the Foreign Investment Review Board will increase from $248 million to $1.08 billion.
The Australian government will screen investments over $15 million in telecommunications, media and defence industries and in agricultural land, as well as investments in agribusiness over $53 million.
The Australian government will continue to screen all Chinese state-owned enterprise investment in Australia. However, private companies will have greater access to the Australian market, which should be good for local employment and the broader economy. Interestingly, property, which has been the focus of speculation about foreign buyers forcing up the market, was not listed as a sensitive sector.
China imported more than $85 billion worth of Australian resources, energy and manufactured goods in 2013. Australian miners who are struggling with falling commodity prices will enjoy a slight cost reduction.
China is also the largest market for Australian pharmaceutical companies, importing $559 million last year, with China's ageing population offering a huge opportunity