As the 10 member countries of the Association of Southeast Asian Nations (ASEAN) race toward their goal of a regional economic community by 2015, forging trade and strategic agreements and luring foreign investment along the way, a once-active regional player has quietly slipped from its earlier objectives.
Australia’s increasingly mixed fortunes in Southeast Asia can be summed up in two key developments: its growing reliance on China in trade and economic relations, and its response to a crucial government-sponsored report — the “Australia in the Asian Century White Paper” – about engaging with the region.
The long-awaited report, issued in October 2012, many months past its initial deadline, was based on hundreds of submissions from individuals and groups. But critics who followed the report’s progress say what promised to be a comprehensive blueprint to upgrade Australia’s role in Asia was steadily stripped of intellectual rigor, focus and detail.
The reshaping of the so-called “Asia white paper” by strategists under then-Prime Minister Julia Gillard saw the addition of domestic priorities, including the government’s controversial carbon tax and ambitious National Broadband Network project. The white paper contains little in the way of concrete proposals on how to expand the Australian presence in Asia or fund such lofty aims.
In the words of one government trade official, what was supposed to be a visionary framework for engaging economically and culturally with the region ended up sounding like its authors “had woken up one morning and discovered that 3 billion people were living on their doorstep.”
At least, say some Australian diplomats and business people, the white paper has sparked long overdue debate — in a country suddenly finding itself on the wrong side of a cultural and economic divide.
More significant, the white paper pandered to Australia’s recent obsession with China – and to a lesser extent with India – despite the more accessible and digestible markets immediately to its north in the shape of Southeast Asia.
Certainly, Australia’s commodities trade with East Asia has, since 2008, helped it avoid most of the fallout of the global financial crisis and (at least so far) the recession visited on every other comparable nation.
The country once accused by critics of “riding on the sheep’s back” — an allusion to its over-dependence on commodities exports for much of the 20th century — has more recently become dependent on its booming commodities trade with Asia. Australia’s iron ore exports to China topped $35 billion last year. And China, Japan, South Korea and India now take a combined 47.7% of all Australia’s exports. Those facts are the key to Australia’s obsession with China, which steadily replaced a similar preoccupation with Japan in the 1980s. They also highlight a growing problem for Australia, which is realizing too late that the nation has failed to diversify its offerings beyond mining, agriculture, education and tourism.
In 2012, China accounted for an astounding 30% of Australia’s exports. Not since it was a dominion of the British Empire has the country relied so heavily on one country to help drive its economy. Japan accounted for 25% of all Australian exports at the peak in the 1980s and is still Australia’s second-largest export market. But China now holds a strong lead.
Yet, despite the staggering volume of two-way trade between China and Australia — $135 billion and rising — the two countries have failed to finalize a free trade agreement (FTA), despite 15 rounds of talks since 2005, and Japan remains Australia’s key East Asian ally.
Meanwhile, the ASEAN member countries — Indonesia aside — have been all but ignored by Australian business and politicians for the past six years, a fact that shows in export and trade statistics.
Australian exports to ASEAN in 2012 — which collectively is the country’s fourth-largest trading partner — actually fell by 4.2% compared to the previous year. That drop came in a year when ASEAN economies notched up average annual GDP growth of 6.1%. Since 2008, ASEAN’s collective GDP has grown from $1.53 trillion in 2008 to $2.3 trillion last year.
Australia appears to be missing out on this surging growth to the benefit of other regions. Figures from the European Union show its trade with Asia, after slipping during the 2009 global meltdown, rebounded to grow at 35.7% in 2010 compared with the previous year, and by 12.0% in 2011. The EU is ASEAN’s second-largest trading partner after China, and accounts for around 11% of ASEAN trade. The figures highlight a stark fact: Australia’s relative influence is declining, even as its stated policy objectives are quite the opposite.
A major issue, according to senior Australian diplomats and businessmen in the region, is the paucity of even general knowledge about ASEAN (not to mention other parts of Asia) among Australians. At various investment conferences, Australian business leaders have looked bemused in discussions about ASEAN’s ambitious plan to launch its ASEAN Economic Community — a free trade and economic zone — by the end of 2015.
The 10 countries of ASEAN are among Australia’s closest neighbors — and Singapore, Thailand, Malaysia and Indonesia have ranked among the nation’s biggest investors in the past decade. Taiwan, often forgotten, can also be added to this list.
Of course, it’s a two-way street. Australia wants Asian nations to invest in its major industry sectors such as mining, agriculture, education and — the latest Australian government focus — tourism infrastructure. Mining aside, the record is poor. Right now, the Australian government is actively seeking a $500 million investment in tourism infrastructure for rapidly rising visitor numbers from Asia. China is now the biggest earner for the Australian tourism market, last year sending 685,000 visitors who spent an average $7,000 each, a higher average than other high-volume origins. Tourism Australia estimates Chinese visitors will soon total 1 million with annual spending exceeding A$10 billion (US$9.4 billion).
Even so, Australia can boast strong diplomatic relations with many of the ASEAN countries ? particularly in some long-standing regional security and defense links, including with Vietnam, despite fighting alongside U.S. forces there in the bloody conflict of the 1960s-70s. The fact that Canberra has maintained a reasonable diplomatic profile in the region is significant given that Australia now has one of the lowest spending levels among Western nations on its diplomatic corps. Yet, this has not translated into parallel strengths in business and politics.
In recent years, Australia’s recently-defeated Labor government largely ignored the country’s neighbors. For instance, for the last decade no Australian leader has visited Thailand, ASEAN’s second-largest economy, one of Australia’s top tourist destinations and home to an increasingly sophisticated manufacturing sector that would appear custom-built for Australia’s own flagging manufacturers. Yet, Australia — along with Singapore — has one of only two FTAs with countries in the region. On the other hand, Australia has made a concerted push in the past 18 months with Myanmar, featuring a string of prime ministerial and cabinet-level visits and generous aid allocations.
The bottom line is that Australian business is losing ground rapidly to major European nations such as Italy, France, Germany and the U.K. — and even small countries like the Netherlands, Switzerland, Finland and the Scandinavian nations. Most embarrassingly, according to diplomats and trade officials in the region, Australia is seen even by its own envoys in the region as falling behind its far smaller neighbor, New Zealand.
In this light it’s worth a brief examination of the sectors where Australia appears to be falling short. The first example is that SingTel, the state-owned Singapore Telecommunications Ltd., owns Australia’s telecom firm SingTel Optus Pty Ltd. and has also made strategic investments in a range of mobile companies in huge growth markets such as Indonesia, the Philippines, Thailand and India. SingTel’s coverage in the world’s biggest telecommunications growth sector is now 500 million people, second only to China’s slow moving, insular behemoth China Mobile Ltd., according to company reports.
Certainly, Telstra Corporation Ltd. has rebuilt its regional enterprise business, which raked in $1.7 billion during the 2012-2013 Australian fiscal year ended June 30. But strategically, it has missed the boat, with no stakes in one of the region’s fastest growing businesses, mobile communications. Last year, the number of users connected to mobile phone networks in China surpassed 700 million, for an overall total of 2.6 billion mobile phones in the Asia-Pacific region, according to industry figures.
In supermarkets, the U.K.’s Tesco and France’s Carrefour pop up across the region rather than Australia’s Coles or Woolworths, and in banking it’s still only Australia and New Zealand Banking Group (ANZ) — and to a far lesser extent Commonwealth Bank of Australia, which has an Indonesian retail banking business — that has any significant retail banking presence. ANZ has a significant presence in Vietnam, Hong Kong, Taiwan, Singapore, Cambodia and Malaysia as well as a nascent string of retail outlets in China.
Perhaps with this overwhelming evidence in mind, the recently elected conservative government has already stepped up its engagement with ASEAN. Prime Minister Tony Abbott’s first offshore trip was to Indonesia on Sept. 29-30 and was widely hailed as a success ? partly because he calmed anxiety about a workable policy on seaborne refugees who use Indonesia as a jumping-off point, a problem that had been very much of his own making. He also brought a business delegation of 20 senior company executives and board members as part of the new policy direction linking diplomacy, trade, investment and aid. He promised to take similar delegations with him on all major offshore trips.
Trade and Investment Minister Andrew Robb, who has substantial commercial experience in Asia, joined Abbott, as did Foreign Minister Julie Bishop, who also spent two days in Singapore, Australia’s closest defense ally in the region and its fourth-largest source of FDI after the U.S., the U.K. and Japan. Of the top 10 investors in Australia, three economies in Asia — Japan, Singapore and Hong Kong ? have investments totaling approximately $211 billion. As a whole, Asian investment in Australia in 2011 was about $300 billion, double the level in 2001, according to the white paper. Meanwhile, outward Australian investment in the region is a miniscule percentage of Australia’s total outward foreign investment in Asia: only 4% of the total is in ASEAN — a complete mismatch with exports, according to the Business Council of Australia.
This was the trigger for the new government’s decision to recast its old trade department as “Trade and Investment.” Premiers and senior ministers from Australia’s six states and two territories have also been flocking to ASEAN in the past six months; they too have been overly obsessed with the increasingly difficult Chinese market.
So for now, while Australian state and national governments — and tourists — are deeply engaged with the region, it remains to be seen whether the new political team in Canberra can drag its business community beyond the handful of blue chip corporations such as No. 3 bank ANZ, construction firm Leighton Holdings Ltd., steelmaker BlueScope Steel Ltd., and logistics groups Toll Holdings Ltd. and Linfox Pty Ltd. into the region.
Asia, with its generally underdeveloped political and legal systems — and myriad cultural differences — spooks many listed and midsize Australian companies and many of its entrepreneurs. It’s time they woke up to a once-in-a-lifetime opportunity on their doorstep or risk being left, as former Singapore Prime Minister Lee Kwan Yew so put it several decades ago, as “the poor white trash of Asia.”
This article was originally published in the Nikkei Asian Review, 9 October 2013