With FTAs like these, who needs China?

Prime Minister Shinzo Abe of Japan with President Xi Jinping

Prime Minister Shinzo Abe of Japan with President Xi Jinping

Michael Sainsbury

While China persists with its counterproductive carrot-and-stick approach to trade, Australia should look to more manageable economic relationships in south-east Asia.

As the annual end-of-year orgy for global leaders ended in Brisbane yesterday, the opportunities that south-east Asia presents for Australia became ever clearer.

The G20 capped off 10 days of frantic jockeying. Landmark meetings on the “sidelines” — always the sidelines — of the Asia-Pacific Economic Cooperation area meeting in Beijing and the sequential summits of the Association of Southeast Asian Nations and the East Asia Summit in the Myanmar capital of Nay Pyi Taw preceded the security, news-free fest in Australia’s answer to Florida and Marbella.

Between the three meetings, Australian Prime Minister Tony Abbott will have rubbed shoulders with the leader of every country that matters even one hoot to Australia.

It was instructive and appropriate the government issued its two available guest invitations to New Zealand, our closest and most actually similar neighbour — brothers from different mothers, if you like — and Singapore, the nation that sits at the financial heart of ASEAN, which is due, at the end of next year, to begin establishing its ambitious Economic Community.

The two countries are the unsung heroes of Australian trade and investment. Singapore is Australia’s No. 5 trading partner and also No. 5 in total foreign investment, with a total of $56 million at the end of 2012, up 15% on the previous year. That number continues to rise. And New Zealand, taken for granted, has forever been a backbone of Australian trade.

Still, it was tough luck for Australia that the G20 came last (or maybe not, given Tony Abbott’s joyless, shirt-front-free whinge to world leaders in Brisbane). The big picture action happened in Beijing, kicking off with the reluctant, long-overdue sourpuss handshake between Chinese grand Poobah Xi Jinping and Japanese Prime Minister Shinzo Abe.

More seriously, China made a fresh push to derail, or at the very least seriously delay, the Unite States-led Trans-Pacific Partnership Agreement, with its Asia-Pacific Economic Co-operation summit free trade proposals. There are now at least four free trade deals in trial across the region. As noted by Crikey last week, the TPP, as a multilateral deal that includes the US and Japan but not China, is far more significant than the FTA with China.

Into the mix comes the ongoing Regional Co-operation Economic Frameworks. Confused? Wait! There’s more.

Australia already has three FTAs with ASEAN nations. The Thailand FTA will be 10 years old on January 1, but there’s a wrinkle there in that the negotiation regarding the services side of the agreement is still under seemingly permanent negotiation. Kevin Rudd signed an FTA with Malaysia in 2007, though there are still some parts yet to be explained by the Department of Foreign Affairs and Trade. And the Singapore FTA was inked in 2005.

Crikey understands that the trade focus, despite the hoo-ha, is now very much not just about the TPP but also the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA), still a work in progress.

Complex or what?

One of the problems is that the clear economic benefits of these things are largely unquantified — perhaps unquantifiable. They are benefits are measured, to quote the classic Australian film The Castle, by the “vibe of the thing”.

Still, the unmistakable impetus, the vibe if you like, is undeniable. The unspoken theme at all these uber-summits, at least in public, is the mounting competition for regional influence (read: dominance).

Really, forget about China’s adolescent aggression these past few years in the East China and South China Seas. For sure, there could be a nasty accident that blows up into an unnecessary brief hot war, but the real game is economic. And ASEAN is expected to stay in Myanmar after the summit, capturing many essential hearts and minds of the nation’s youth. Look and learn, Tony Abbott.

Then consider this. It’s no small irony that, like Germany’s dominance of Europe (and please, this is not judgemental, just an observation of fact) Japan has quietly but surely, to a significant extent, fulfilled much of its stated aim during World War II — the creation of the Greater East Asia Co-Prosperity Sphere — but with considered investment, not guns.

Japan has, through a mix of circumstance and design, done this in a way that has been not only digestible but acceptable to the countries where it is the dominant foreign investor. And let’s tot them up: Indonesia, Thailand and Malaysia — between them with about 400 million people — more than enough to keep lil’ ol’ Australian businesses busy for generations.

A key roadblock for China is its stated determination to right both real and imagined wrongs: let’s face it, a very 20th-century view of how to deal with one’s neighbours — but hey, the place lost several decades of growth due to a massive own goal. So look out for the woman scorned.

In contrast, Japan is a country that wreaked fear and havoc across the region only 70 years ago — long, long after China’s “humiliation” by colonial Europe — and yet has engaged with the rest of Asia in a non-aggressive, strategic and mutually beneficial way. Australia’s experience with Japanese investment in the 1980s, seen briefly at the time with alarm, has resulted in a massive win-win, to use the common jargon.

It’s worth looking at China’s outsized measures to buy friends, power and influence in the region. It has a US$50 billion Infrastructure Bank, multibillion-dollar deals with various ASEAN nations, and it is instigating fresh attempts to court the ASEAN host and undecided faux democracy Myanmar, which has actively sought to reduce China’s influence.

But ask yourself this simple question: whose fast train would you rather take your family on, China’s or Japan’s?

And one only has to look at Africa, into which China has been pouring in billion after billion for decades — and won very few real friends on the ground beyond the continent’s kleptocratic leaders — to see the paucity of lasting impact this will likely have.

While China continues to play its carrot-and-stick game, Australia should remain wary. With its population of just 23 million, the opportunities in places like Indonesia, Thailand, Malaysia, and increasingly Myanmar — and that is before even broaching the India opportunity — are far more digestible.

The fundamental biggest difference is that these countries, and their companies, are seeking the sort of expertise Australia can offer. They want to partner and learn. They are keen to engage using English — like it or not, China, English is the global language of business. Any company changing into China right now without deep and comprehensive Chinese language and culture skills is, frankly, a mug.

Of course there are still opportunities in China, but they are fading as international corporations become ever more frustrated.

Those that have been there for some time — and it’s easy enough to count major non-resources companies from Australia on just one hand — have at least a chance. But even China knows that the biggest opportunities are much closer to Australia.

Approached correctly, the ASEAN region is an oyster for a developed nation like Australia. But greedily trying to gulp down the biggest, albeit slightly whiffy, one on the plate could lead to us getting shucked.

Originally published by Crikey, crikey.com.au, 17 November 2014