China deal must sharpen SA’s focus
The free trade agreement with China highlights what we already know about the South Australian economy – that agriculture is the bedrock, that the services sector is increasingly important, and that manufacturing must be cutting-edge.
The challenge is whether we can translate what we know into a plan to take advantage of the deal’s benefits.
The agreement, signed yesterday, is good news for many South Australian businesses – but certainly not all.
Among the potential winners, there will be some losers as a result of the agreement, not least of which will be sections of South Australia’s manufacturing sector.
As trade minister Martin Hamilton-Smith warned this morning, manufacturers that compete with lost-cost similar products made elsewhere are likely to face extinction, with the agreement committing Australia to remove remaining tariffs on car components, steel and textiles.
On the upside, the agreement will make it easier for South Australian dairy, beef, sheep and wine exporters to access the massive Chinese market, although wheat has been left out of the deal.
The services sector – education, legal services, financial institutions, tourism and hospitality – is also a winner with preferential access to be granted to Australian companies.
When the agreement comes into force, 92.9 per cent of China’s imports of resources, energy and mining products from Australia will enter duty-free, with most remaining tariffs eliminated within four years.
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Chinese televisions, clothes and cars will be cheaper. Tariffs will be abolished for the $13 billion dairy industry and beef and sheep farmers will benefit from the abolition of tariffs ranging from 12 to 25 per cent. All tariffs on horticulture will be eliminated.
The head of the South Australian Centre for Economic Studies, Michael O’Neil, says it’s a deal based on the nations’ complementary needs.
He told InDaily that as the Chinese middle class grows and its urbanisation continues at pace, it needs good food, construction materials and services – all of which are covered by the deal.
In return, Australian consumers will get cheaper electronics, clothes and footwear from China.
O’Neil said the deal highlighted the need for South Australia to re-invest in agricultural R&D to maintain our competitive edge, and to support innovative manufacturing – both common themes.
While low level manufacturing enterprises will struggle against low-cost Chinese competitors, he said SA businesses involved in precision engineering and nano-technology, for example, were likely to be way ahead of their competitors in China.
The services sector also has huge opportunities, O’Neil said.
“The Chinese population is ageing as well, so the aged care area offers opportunities,” he said. “The pay-0ff for companies that can crack these markets is huge.”
O’Neil also lamented the lost opportunities for companies which could feed China’s huge urban construction expansion, including Caroma, which recently announced it would close its Adelaide factory.
“How the hell they couldn’t have secured some markets in China? If they had caught 1 per cent of the market, they would be a booming company.”
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He says we are best-placed to take advantage of the lowering of agricultural tariffs.
“How we do that is another matter,” he said. “How are we actually going to bulk that up to get into the markets? The opportunity is there – the challenge of how to do that should focus us.”
The CEO of industry body Food SA, Catherine Barnett, believes the agreement offers exciting times for SA food producers, but the advantages will differ from product to product.
“Seafood will be one of the winners. Agriculture (farming, dairy and meat) will have good outcomes as well, talking broadly,” Barnett told InDaily.
However, she said the idea of South Australia becoming the “food bowl” of Asia was an unlikely one.
Instead, we should be positioning ourselves as a producer of high quality, clean, safe foods.
“Many people have said we will become the food bowl of Asia, but that simply won’t be the case because we don’t have the volume. We need to push for the higher end of the market with our clean, safe, high end produce – it’s a message that resonates in China.
“One thing that’s happening incredibly quickly in China is boutique shopping centres servicing expats and wealthy Chinese looking for trusted products.”
Trade and investment minister Martin Hamilton-Smith also believes we can make strides in agricultural exports.
However, he sounded a word of warning about manufacturing.
“I think the international market place is telling us that we can’t produce mass quantities of things like clothing and footwear and, as we’ve found now, motor vehicles that can be more efficiently produced overseas,” he told ABC 891’s breakfast program. “But what we can produce is robotics, medical devices, instrumentation and high value added manufacture.”
When asked if the agreement would accelerate the decline of the automotive components industry, he said: “I don’t think so but I would take advice on that because the automotive supply industry is facing many challenges as we know”.
“I doubt if it will help an industry which is leaving Australia but there will be opportunities remaining in niche automotive spaces and you’re seeing that actually with motorcycle parts where we produce parts for Harley Davidson. You’re seeing that in a raft of other areas where automotive manufacturers are diversifying in into specialist areas so I think where you’ve got a niche you’ll succeed, but where you’re competing with ‘me too’ products manufactured overseas in low-cost jurisdictions it’ll be difficult.”
– additional reporting by Mary Taylor and AAP
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