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Transcript of doorstop interview: Beijing, China: 13 July 2012: seventh visit to China as Treasurer; 40th anniversary of Australian-Chinese relations; Chinese economy and GDP growth; Productivity Commission; Ray Hadley

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THE HON WAYNE SWAN MP Deputy Prime Minister Treasurer

Doorstop Beijing, China

13 July 2012


SUBJECTS: Seventh Visit to China as Treasurer; 40th Anniversary of Australian-Chinese Relations; Chinese Economy and GDP Growth; Productivity Commission; Ray Hadley

TREASURER: This is my seventh visit as Treasurer to China. I’ve had very warm and friendly meetings through this trip. Most particularly, I’ve just come from meeting with the Chairman of the NDRC and yesterday I had a meeting with the Vice Premier and I’m about

to go to lunch with the Governor of the People’s Bank.

I’ll start by making the observation that over the period of my seven visits to China that has spanned the worst global meltdown since the Great Depression, amidst all of those challenges of the global economy, both the Australian and Chinese economies have stood out as beacons of economic strength. So when it comes to discussions with many of my Chinese friends, I think it’s pretty fair to say that we’ve been through the thick and thin together during the global recession. But this visit is of course a much happier occasion. I think it is a time to reflect on the stunning achievements of both of our countries over the past four decades. Of course it’s a time to get cracking and roll up our sleeves to maximise the opportunities of the next four decades. And what this does mean is that for our part in Australia we have to have the courage and the foresight that was shown by Prime Minister Whitlam forty years ago.

What we have to do is to put in place the necessary reforms for Australia to maximise the opportunities of the Asian Century. So we can ensure that this is the Australian Century in Asia, where we’re not a passenger but we are fully engaged in our region. What that means from our point of view is continuing strong investment in skills, education and training, tending to the infrastructure needs of our country through things like investment in super-fast broadband. That does mean putting a price on carbon pollution and it does mean continuing fundamental tax reforms such as the MRRT. We’ve also worked very well together through the G20 and given the challenges in the global economy we will continue to work together to ensure we get the necessary reforms in the global economy that mean we can all grow together sustainably.

So it’s a pleasure to be here, here in China. I always enjoy the hospitality of our Chinese hosts. It's also a pleasure to be here at the epicentre of global growth. Given the challenges in the European economy, there is a substantial movement of economic power in the global economy from west to east. It will be are here in the Asia Pacific that the economy, the global economy is driven substantially by growth in countries like China, but more broadly across the region, and of course in Australia.

Over to you for any questions.

JOURNALIST: Mr Swan, the GDP figure out this morning for China is its lowest in three years. Do you get the feeling that, does that put pressure on Australia’s budget forecast and do you get a feeling that there is any sort of stimulus required in China to kick things

back along again?

TREASURER: Let’s have a reality check here. 7.6 per cent is very solid growth, very solid growth indeed. In fact, China’s authorities over a period of time have deliberately slowed their economy to deal with some of the economic challenges that they have been confronting. But by any means, by any measure, this is a very solid figure. So for people to go away and make conclusions about the implications of this figure as being in some way adverse to the Australian economy is the wrong conclusion to draw.

JOURNALIST: At your meeting at the NDRC did you get any indication or feelings from the Chairman that they were quickening infrastructure investment, rolling out programs and power stations and things like that faster than they anticipated?

TREASURER: No. In fact, the discussion I had with the Chairman of the NDRC was a very positive discussion. He made the points to me that I’ve just made to you. A very solid figure, and one that is in part a consequence of structural reform in the Chinese economy put in place by the authorities.

JOURNALIST: (inaudible)

TREASURER: We’ve already made some very substantial progress and in terms of direct convertibility from the Australian dollar to the RMB. We haven’t quite got to the point of cutting out through the US dollar in terms of onshore transactions. But I had some positive

discussions while I’ve been here. But we’ve already made a lot of progress.

JOURNALIST: Can you elaborate a little bit, some of the discussions you’ve had on that. You know is there any sense when it might happen?

TREASURER: Well for example this morning I’ve been talking to business people here in Beijing, part our delegation. They made the point to me very strongly that they would like to see direct convertibility at some stage. I’ve made the point to them that we are

certainly engaging in a discussion with the Chinese authorities about this matter. As I said yesterday it’s too early for us to draw any conclusions that the final stage will be dropping into place anytime soon.

JOURNALIST: Treasurer after we’ve seen the years of double digit growth in China, is this seven to eight per cent growth, is this the new normal for China do you think?

TREASURER: Well the Chinese themselves have said that in their current five year plan they’re aiming for seven per cent growth. This is 7.6 and [authorities have] made these points about deliberate slowing of the economy in the context of some very powerful and significant structural reforms they are putting in place in their economy, to make sure that growth rates of seven and eight per cent are sustainable for the long term. They are shifting the emphasis of their economy away from export-led investment and reliance, to domestic consumption. And as they do that and as the Chinese economy continues to grow, then it will need to grow at a slightly lower rate than it has done, say over the last decade. And that goes to the very core of their own forecasts about which they are very serious about achieving.

JOURNALIST: You talked about needing the courage and foresight of Gough Whitlam over the next 40 years after the last 40 years. What would you categorise as the biggest challenges for the Australia-China relationship in those coming decades?

TREASURER: Well if you look at just how far we’ve come in 40 years, you’d have to say we’ve put in place both in China and Australia a framework that is extraordinarily effective. As the Chinese economy reorientates towards domestic consumption, what we will see is a major reorientation in terms of trade and investment relations between China [and Australia]. With the growth of the middle class in China, their demand for goods and service, but particularly services, will expand dramatically and that provides enormous opportunities for Australian business to be selling all sorts of services to the Chinese and for the Chinese to be engaging more broadly in our economy.

So I see the investment relationship between the two countries as broadening out. We will see more Chinese investment outside of resources in Australia and we’ll see more Australian investment in China, particularly in the services sector. Let’s just take where tourism is at the moment between Australia and China, something like 500,000 Chinese now come to Australia every year. A very sharp increase over a short period of time. But also we’ve seen a sharp increase in Australian tourism to China, where it has also increased dramatically. And all of that has occurred given the headwinds, if you like, of the higher dollar. So that is just one indicator of how our trade and investment relationship will over time broaden out. But it’s not just a question of China. The reason we’ve put in place the Asian Century White Paper is to bring down a blueprint which will govern policy formulation, not just in terms of our engagement with China, but more broadly in the region. As I said yesterday, the focal point of that will be on the people to people contact. Because it's the people to people contact over time that will assist in building not just the business relationships, but the relationships that are required in this region to grow sustainably and peacefully.

JOURNALIST: Is Australia at all worried about the role of real estate in the Chinese economy? Because a lot of economists here think it's a crucial driver to the Chinese economy and yet that it’s built on a house of cards according to some analysts that there’s

whole towns full of empty flats that are driven by unreal demand and this is a big threat to the economy.

TREASURER: This is for the Chinese authorities to respond to but they have publicly acknowledged that they've had some challenges in the past in the property sector. That's part of the rebalancing that's going on and part of their objective through their new five year plan.

JOURNALIST: (inaudible)

TREASURER: My response to that is there’s an enormous amount of trust and mutual respect. I’m on my seventh visit to China and I’ve been Treasurer less than five years. My predecessor I think only came to China twice and only for international conferences, not for specific visits to deepen or broaden the relationship. If you look at the number of Ministers that have visited China or are currently visiting China I think under our government the numbers now are something like 48.

From our point of view, there has been a very strong engagement and a very strong engagement from the Chinese side. Very senior leaders have regularly come up to Australia, and indeed most recently we had the Party Secretary from Guangdong in Australia. So I think at that political level the engagement has been very substantial and that is before you get to the very detailed engagement that I for example have had with my counterparts at almost every G20 meeting and the degree of discussion that goes on at the political level through the G20 as well. The really big change for our region has been the advent of the G20 which really for the first time has given the developing world a seat at a global economic decision making body - the G20. Now you have China sitting alongside South Korea and Indonesia with India and Australia and the developed world. That's a very important development, and it recognises in many ways the shift of economic weight from west to east.

Our engagement with China is not just about the economic outcome, I think it reflects the reality that in our region in the years ahead we will supply an increasing proportion of global growth. And as we go about doing that, it puts a real premium on policymakers in Australia and China and right across the region to engage, because we will have to supply much more global growth in the future given the long and painful adjustment you’re seeing in


JOURNALIST: (inaudible)

TREASURER: I’m off to the People’s Bank for lunch and then tonight we’ve got a gala dinner to celebrate 40 years of diplomatic engagement and I think Madam Chen will be representing the Chinese Government at dinner tonight.

JOURNALIST: Mr Swan you talked a lot about the G20 and how significant that has been for Australia and the developing world. Do you acknowledge that that was one of Kevin Rudd’s great achievements as Prime Minister was to bring that body together? One of his foreign policy achievements?

TREASURER: I certainly do. On numerous occasions I’ve said it was a great achievement for Australia and it was an achievement of Kevin Rudd’s. It was something he and I worked on assiduously for a long period of time.

JOURNALIST: Productivity Commissioner Gary Banks has said that Fair Work laws should be included in the review of productivity in Australia. Do you have any sense as to whether IR laws are a barrier to improving productivity in Australia right now?

TREASURER: Well I haven’t seen the full remarks by Mr Banks but I’d say from a perspective of the Gillard Labor Government, fairness and decency at work goes to the very core of our policy purpose.

JOURNALIST: The row with Ray Hadley has flared up again this morning. Calling you a bully and a liar, says there’s documents showing the school hospitality scheme was going to be axed. Did you jump the gun on referring him to ACMA?

TREASURER: No, the fact is that Mr Hadley’s very good at giving it, but not very good at taking it.

JOURNALIST: One last question, in your meetings yesterday with the Vice Premier was the issue of US troops or Huawei raised? If so how did you respond to that?

TREASURER: I don't go into discussions that I have with Ministers. I can talk in the broad - we have had the warmest possible meetings we could have, and I think that reflects the fact that the relationship is in really good nick.

JOURNALIST: Just one other thing about the Chinese economy. You’re saying the hope is, I know the Chinse Government says this, that there’ll be more domestic demand to make up for lost export revenue etc. But to what extent do you think China needs to reform the structure of the economy?

TREASURER: That’s the whole point. They are refocussing their whole economic outlook away from an export-linked model and onto a consumption driven model. And if you look at the figures today I think you can see pretty healthy consumption increases in the figures, and pretty healthy domestic investment, that's precisely what they’re doing in recognition of being in the long-term overall dependent on export-orientated strategy. But

also recognising that as they grow and become wealthier, it’s much more important to spread that wealth around the community and to make sure that more Chinese people are lifted out of poverty whilst growth remains sustainable. That's precisely what they’ve been seeking to do. Now of course they will be impacted upon by events in Europe as is the rest of the global economy. But there is a fundamental restructuring going on in the Chinese economy at the moment.

Thank you.