China FTA: everybody’s a winner?

In a great diplomatic success, Australia and China yesterday agreed to a landmark free-trade agreement (FTA) after ten years of negotiations, with President Xi Jinping crowning the celebrations by addressing Australia’s parliament.

In a great diplomatic success, Australia and China yesterday agreed to a landmark free-trade agreement (FTA) after ten years of negotiations, with President Xi Jinping crowning the celebrations by addressing Australia’s parliament.

Under the deal, 85% of all Australia’s exports to China will be tariff-free, rising to 93% within four years and 95% within a decade. With China being Australia’s biggest trading partner – there was $150bn trade between the two nations in 2013, more than double our trade with Japan, the next biggest – who will be the big beneficiaries of this deal? And are there any losers?

Australia’s wineries such as Treasury Wine Estates (ASX: TWE) are one of the biggest winners, with the current high tariffs of 14-30% eliminated within four years. Along with potential further falls in the Australian dollar, this could help ease the current wine glut and increase prices.

With China’s population rapidly aging the likes of Japara Healthcare (ASX: JHC) and Regis Healthcare (ASX: REG) can consider owning and operating aged-care facilities in China. Private hospital operators including Ramsay Health Care (ASX: RHC) and Healthscope (ASX: HSO) also now have the option of expanding in the Middle Kingdom.

Services industries also stand to benefit, with opportunities for insurers such as Suncorp Group (ASX: SUN), fund managers such as Platinum Investment Management (ASX: PTM) and legal firms to set up shop in China.

Losers

While the dairy industry has won a more level playing field with New Zealand – whose dairy exports have increased six-fold to $3bn since a similar agreement was signed seven years ago – Australia’s sugar cane, rice, cotton and wheat growers haven’t gained greater access to the Chinese market. This will be revisited in three years’ time but with many poor sugar cane farmers in China, Australian sugar cane farmers shouldn’t hold their breath.

You can also expect to see more migrant workers in Australia, potentially increasing competition for jobs and placing pressure on high Australian wages. China will be allowed to import more temporary Chinese workers to help complete large projects, like Gina Rinehart’s $10bn Roy Hill mine expansion. While the politicians are busy telling you that employment opportunities could increase if China invests more in Australia (because of cheaper labour costs), the Chinese probably have bigger concerns before investing in multi-year projects, such as commodity prices and currency rates.

While the FTA isn’t perfect and there are losers as well as winners, it’s a big step in the right direction.

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