July 14 (Bloomberg) -- Australia’s efforts to strike a free-trade deal this year with China, its biggest economic partner, aren’t being jeopardized by new security and commerce agreements with Japan, according to Trade Minister Andrew Robb.
Japan and Australia last week signed accords on defense technology transfers and tariff reductions, as Shinzo Abe made the first formal visit to Australia by a Japanese premier since 2002. Australian Prime Minister Tony Abbott, who has said that trade should be a focus of this year’s Group of 20 summit, is also pursuing a deal with China while balancing diplomatic ties with both nations amid an ongoing dispute over a group of uninhabited islets in the East China Sea.
Discussions with a Chinese counterpart in recent days had offered no evidence that the deals with Japan have “had any impact on our relationship,” Robb said yesterday in an interview with Sky News television. “I saw no sense of concern about the last week.”
Australia has been pursuing these agreements as it ramps up exports of raw materials even as China, the world’s second-largest economy, shows signs of slowing and increased supply weighs on commodity prices. As the effects of the nation’s mining investment boom taper off, Australia is looking to other parts of the economy to sustain an expansion that has kept it out of recession for more than two decades.
Abbott’s government has concluded deals this year with both Japan and South Korea, which together with China buy more of Australia’s iron ore, coal and other exports than the rest of its customers combined.
Abe, who said he’d discussed with Abbott attempts by China to “change the status quo” in the region, has faced criticism from China’s President Xi Jinping over a reinterpretation of his country’s pacifist constitution. Abbott was chided in China’s media over comments made during Abe’s visit in which he described “the sense of honor” of Japanese soldiers during World War II.
An agreement with China has become a greater economic imperative as the nation has increased trade with Australia by 77 percent since 2009, and it’s the biggest consumer of iron ore, Australia’s most valuable export. Two-way trade between the nations in 2013 reached A$150 billion ($141 billion), more than double the value of Australia’s partnership with Japan.
While Chinese economic growth is slowing, there will still be scope for countries such as Australia to gain from trade with the world’s most populous nation, Reserve Bank of Australia Governor Glenn Stevens said in an interview published July 12 on The Australian newspaper’s website.
“It’s just we have to be sufficiently adaptable to see those opportunities and go and take advantage of them,” Stevens was quoted as saying. “They don’t just drop in our lap.”
China’s gross domestic product is predicted to expand by just 7.4 percent in 2014, according to a Bloomberg News survey of economists. That compares with 7.7 percent last year and 10.4 percent in 2010.
“Most people who are looking for potential problems for us I think will be more likely to think about China than the U.S., at least over the next 12 months,” said Stevens. “I happen to think China’s probably okay too.”
Australia may need to replace 2 percent to 3 percent of GDP with non-mining sources of growth over five to six years, according to economist and RBA board member John Edwards.
The Chinese slowdown has combined with an increase in supply to push down prices of commodities such as iron ore. The steelmaking material has slipped 28 percent this year to $96.90 a dry metric ton, according to The Steel Index, which measures the spot price of 62 percent ore in the Chinese port of Tianjin.
Australia’s commodities boom helped to buoy the nation’s currency, and while it is now below its peak, it has remained above 90 U.S. cents since March even as resources prices have dropped. At 93.92 U.S. cents, the Australian dollar is 23 percent above its average since exchange-controls were scrapped in 1983.
Efforts to stimulate non-mining areas of the economy with record-low interest rates are being impeded by Australia’s elevated currency, according to RBA chief Stevens.
It is difficult to see how most standard metrics would “have the Aussie dollar quite this high,” Stevens said in his interview with The Australian newspaper.
Tensions over trade with China increased after Australia’s previous Labor government, ousted in a September election, cited national interest concerns in its refusal to allow Huawei Technologies Co., China’s largest phone-equipment maker, work on Australia’s A$30 billion broadband infrastructure project.
Abbott, who completed Australia’s free-trade deal with South Korea in April, said in March he’s seeking to finalize an accord with China this year.
“We have still got quite a lot of negotiation to go, but I think we have settled on a framework that means we can achieve it in the time frame,” Robb said. “We are on the case, and are still on track to conclude something significant by the end of the year.”
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