Abbott makes his mark in China

By changing his stance on Chinese investment, the Prime Minister has shown he’s willing to eschew ideology in favour of pragmatism. His chances of clinching an FTA within a year are now much better.

Graph for Abbott makes his mark in China

Australian Prime Minister Tony Abbott, second from right, speaks to Chinese President Xi Jinping, right, before a meeting at the Great Hall of the People in Beijing Friday, April 11, 2014. (AP Photo/Parker Song, Pool)

Last Friday in China, with just a single statement, Prime Minister Tony Abbott, recalibrated Australia’s relationship with China by demonstrating a contemporary understanding of China. He has reset Australia’s policy stance, opening the way to finally concluding bilateral FTA negotiations.


In what seemed at first to be an off-the-cuff remark to a private meeting of senior business leaders from China and Australia at the Senior Business Leaders’ Forum (SBLF), Abbott said he understood that these days, China’s state-owned enterprises (SOEs) are mostly highly commercial businesses. He repeated the point for emphasis, adding as a light joke that they were probably more competitive than some of the Australian firms represented at the meeting. The next day, his comments were repeated in his keynote address to the Australia-China Business Week lunch.

The significance of this for the Chinese was less in the substance of his comments than in the symbolism. Abbott has now moved beyond his shaky start in managing relations with China. The training wheels are off.  

He was not only up to date but was also open to following a pragmatic approach in his dealings with China and would not let ideological differences impede the development of the relationship. And he has sent a strong message to the Foreign Investment Review Board (FIRB).

The statement also positions Australia ahead of many other countries, such as the USA, in acknowledging that SOEs are first and foremost commercial enterprises.

Abbott has also managed to pre-empt an inevitable debate in Cabinet when the issue of how to treat SOEs in the FTA comes up for decision.   

The chances of completing an FTA this year, which the Prime Minister has said he would like to see, are now that much better. Exactly what the negotiators will be authorised to offer China on foreign investment still remains to be seen. It is widely expected that for private-owned enterprises (POEs), China will be treated like Australia’s other FTA partners and have a $1 billion threshold. Investment in farms, however, will still have a $15 million threshold. This will be necessary to gain the support of the National Party for the FTA’s investment package.

The tricky part will be how to deal with SOEs. One option would be to remove SOE’s as a separate category and treat them just like private firms. This is most unlikely to happen as it would be too radical a break with existing policy. The other would be to set a threshold but one lower than for POEs. A threshold of around $300 million has been mentioned. Even if China’s negotiators grumble, as indeed they must that it is not enough, a threshold of this size would be welcomed by the Chinese. In fact, a lot of Chinese SOE investment would then enter Australia without having to go through FIRB review.

The setting of a threshold, if indeed this is what happens, will depend on the political judgement by the Government on the value to Australia of the entire FTA package. Investment screening by the FIRB for SOEs is one of the main bargaining chips Australia has in the FTA negotiations. Changing Australia’s foreign investment rules as part of the FTA is not a “concession” but rather using coin to get a better outcome for Australia, especially on sensitive agricultural products.

A lot of work remains to be done to conclude the FTA, but much has already been completed. As Abbott himself noted wryly in his remarks to the SBLF, Premier Li Keqiang had told him that there had been 19 rounds of negotiations and the next one should be the last. Political momentum has clearly now built up behind concluding the FTA.

For China, an FTA with Australia has become a political prize. China is not part of the Trans-Pacific Partnership (TPP) and is watching closely negotiations on the US-EU Trans Atlantic Free Trade Agreement (TAFTA). Recent Australian FTA agreements with Japan and South Korea have left China looking flat-footed. An agreement with Australia will give China a sense of being ‘back in the game’.

Having concluded an FTA while in Tokyo and signed off on one in Seoul, during his visit to China, Abbott has brought the FTA within reach. The visit to China was successful, however, not just for pushing the FTA along, but for the strong messages of engagement and commitment to a long-term, close relationship based on common interests.   

In his keynote speech at the Boao Forum’s Opening Plenary Session, Abbott emphasised friendship and mutual trust as the basis of the relationship. High-level meetings and the time both President Xi and Premier Li spent with Abbott clearly show that they responded well to Abbott’s personal touch and his style of diplomacy.