POSTED on 05 March 2015 by Sam Wu

The Internationalisation of the RMB, and Implications for Australia

Australia appears well poised to benefit from the monumental economic transformation that is the internationalisation of the RMB. To consider this, it is worth looking at a snapshot of our trade relationship. China is currently Australia’s most important trade partner. As the PRC pushes its agenda to settle trade in RMB, it could be expected that Australia settles much of its imports in RMB until a normalisation occurs in years to come. This will allow Australia to build up its pile of RMB for future purchases of PRC imports and investments. As more trades are settled directly between Australia and China in RMB and the AUD, the exchange rate used should become more representative of a market value. The elimination of third party currency exposure means less costly currency risk management costs, thereby lowering transaction costs. This is an important component in advancing the recently ratified China Australia Free Trade Agreement. Australia’s primary, education and tourism export industries will be better placed by being able to invoice directly in RMB rather than an intermediary currency, as is often the case at the moment. Financial flows between the countries are also worth noting. China’s historical foreign direct investment into Australia has […]

Australia appears well poised to benefit from the monumental economic transformation that is the internationalisation of the RMB. To consider this, it is worth looking at a snapshot of our trade relationship. China is currently Australia’s most important trade partner. As the PRC pushes its agenda to settle trade in RMB, it could be expected that Australia settles much of its imports in RMB until a normalisation occurs in years to come. This will allow Australia to build up its pile of RMB for future purchases of PRC imports and investments. As more trades are settled directly between Australia and China in RMB and the AUD, the exchange rate used should become more representative of a market value. The elimination of third party currency exposure means less costly currency risk management costs, thereby lowering transaction costs. This is an important component in advancing the recently ratified China Australia Free Trade Agreement. Australia’s primary, education and tourism export industries will be better placed by being able to invoice directly in RMB rather than an intermediary currency, as is often the case at the moment. Financial flows between the countries are also worth noting. China’s historical foreign direct investment into Australia has […]

POSTED on 22 February 2015 by Adrian Wong

Challenges for Chinese Reunification

The sovereignty dispute between the Republic of China on Taiwan and the People’s Republic of China on the mainland is the by far the largest of its kind from the 20th century to remain unresolved. For decades, the status quo has remained stable. The PRC has lacked the naval capability to attack Taiwan [i], and the ROC has failed to garner Western support for efforts to retake the mainland out of concerns for nuclear escalation[ii]. In more recent times, however, the qualitative military and diplomatic advantages that Taiwan has held to offset its disparate population and geographic size have begun to erode. The island has lost much of its diplomatic influence [iii] to the sheer economic weight of the mainland, whose military capabilities are rapidly developing [iv]. Thus the balance of power has shifted in favour of the PRC. Under the common, overlooked assumption that the sole barrier to reunification is Taiwan’s willingness to do so, one might expect to see some dramatic geopolitical events which have not occurred. One explanation for this is that analysts and historians have underexplored the plethora of issues which the mainland faces, often regarded as unwavering for eventual control over Taiwan. The process of […]

The sovereignty dispute between the Republic of China on Taiwan and the People’s Republic of China on the mainland is the by far the largest of its kind from the 20th century to remain unresolved. For decades, the status quo has remained stable. The PRC has lacked the naval capability to attack Taiwan [i], and the ROC has failed to garner Western support for efforts to retake the mainland out of concerns for nuclear escalation[ii]. In more recent times, however, the qualitative military and diplomatic advantages that Taiwan has held to offset its disparate population and geographic size have begun to erode. The island has lost much of its diplomatic influence [iii] to the sheer economic weight of the mainland, whose military capabilities are rapidly developing [iv]. Thus the balance of power has shifted in favour of the PRC. Under the common, overlooked assumption that the sole barrier to reunification is Taiwan’s willingness to do so, one might expect to see some dramatic geopolitical events which have not occurred. One explanation for this is that analysts and historians have underexplored the plethora of issues which the mainland faces, often regarded as unwavering for eventual control over Taiwan. The process of […]

POSTED on 05 November 2014 by Greg Mikkelsen

Free Trade Agreement with China: more about diplomacy than economics

The Free Trade Agreement with China has been a long time in the making. With the first round of negotiations taking place in May 2005, the two countries have now held 21 rounds of negotiations, spanning over nearly decade. In this time, Australia has signed free trade agreements with the Republic of Korea and Japan, while New Zealand successfully signed a free trade agreement with China in 2008, with negotiations lasting just three years. So now the political pressure is really on for Australia and China to get their act together and seal the deal. Prime Minister Tony Abbott boldly set an end of year deadline for the completion of the agreement with China, however, whilst this may have achieved the desired effect of expediting an outcome, it has also added a great deal of political pressure on the Abbott government to make good its bold assertions. This pressure may put Australia at a disadvantage at the negotiating table, as China has not bound itself by the same kind of time limitations. Having said this, China does have its own political pressures, not least of which is the desire to not lag behind its East Asian neighbours, Korea and Japan, […]

The Free Trade Agreement with China has been a long time in the making. With the first round of negotiations taking place in May 2005, the two countries have now held 21 rounds of negotiations, spanning over nearly decade. In this time, Australia has signed free trade agreements with the Republic of Korea and Japan, while New Zealand successfully signed a free trade agreement with China in 2008, with negotiations lasting just three years. So now the political pressure is really on for Australia and China to get their act together and seal the deal. Prime Minister Tony Abbott boldly set an end of year deadline for the completion of the agreement with China, however, whilst this may have achieved the desired effect of expediting an outcome, it has also added a great deal of political pressure on the Abbott government to make good its bold assertions. This pressure may put Australia at a disadvantage at the negotiating table, as China has not bound itself by the same kind of time limitations. Having said this, China does have its own political pressures, not least of which is the desire to not lag behind its East Asian neighbours, Korea and Japan, […]

POSTED on 30 October 2014 by Kerry Brown

Dan Rosen’s China study hits the mark

In `China’s Economic Overhaul and its Global Implications’ – the comprehensive study of the Communist Party of China’s Third Plenum Decision of late 2013 just issued by the Asia Society Policy Institute – author Dan Rosen starts one of his concluding chapters with the statement: `Seldom has such a large economy running at high speed required such a profound overhaul in a compressed period of time.’ There is only one word in this sentence to take issue with. `Seldom’ should really be replaced by `Never.’ After all, the preceding 130 pages give ample evidence for the uniqueness in terms of scale and speed of what China’s current leaders are trying to do. These are people in a hurry. There can be no other government in the world now that would dare put out what in effect amounts to a manifesto for the next seven years which has 60 undertakings. That equates to 60 hostages to fortune. Can they really do what they are promising to in this extraordinarily ambitious statement of intent? Rosen makes clear at the start of the study that he is not presenting some exceptionalist account of China’s developmental template, and he gives short shrift to the […]

In `China’s Economic Overhaul and its Global Implications’ – the comprehensive study of the Communist Party of China’s Third Plenum Decision of late 2013 just issued by the Asia Society Policy Institute – author Dan Rosen starts one of his concluding chapters with the statement: `Seldom has such a large economy running at high speed required such a profound overhaul in a compressed period of time.’ There is only one word in this sentence to take issue with. `Seldom’ should really be replaced by `Never.’ After all, the preceding 130 pages give ample evidence for the uniqueness in terms of scale and speed of what China’s current leaders are trying to do. These are people in a hurry. There can be no other government in the world now that would dare put out what in effect amounts to a manifesto for the next seven years which has 60 undertakings. That equates to 60 hostages to fortune. Can they really do what they are promising to in this extraordinarily ambitious statement of intent? Rosen makes clear at the start of the study that he is not presenting some exceptionalist account of China’s developmental template, and he gives short shrift to the […]

POSTED on 24 October 2014 by Greg Mikkelsen

Gough Whitlam’s FIVE greatest contributions to Australia-China relations – by Greg Mikkelsen, 3mandarins

1. Advocacy for diplomatic relations with communist China Gough whitlam was one of the early few to openly advocate for recognition of communist China. On August 12 1954 he famously said “It is about time that, like the United Kingdom and France, we recognised the communist government of China”. This was a bold step for Whitlam as it did not represent his party’s policy at the time. However, a year later, after much debate, recognition of the People’s Republic of China (PRC) was adopted as part of the Labor Party’s Policy. Whitlam’s motivation for advocating diplomatic relations with China was to end the containment and hostility towards China, which he saw as a principal cause of conflict and suffering in the Asian region, in particular the Vietnam War. 2. 1971 Labor Delegation to China As the opposition leader of the time, Whitlam’s visit to China ‘transformed his image from that of an opposition leader to a statesman-to-be’. Although openly criticised by the then Prime Minister McMahon for endangering Australia-US relations, Whitlam proved to be in tune with world sentiments towards China as it was later announced that President Nixon would visit China the next year. Whitlam’s achievements were praised by […]

1. Advocacy for diplomatic relations with communist China Gough whitlam was one of the early few to openly advocate for recognition of communist China. On August 12 1954 he famously said “It is about time that, like the United Kingdom and France, we recognised the communist government of China”. This was a bold step for Whitlam as it did not represent his party’s policy at the time. However, a year later, after much debate, recognition of the People’s Republic of China (PRC) was adopted as part of the Labor Party’s Policy. Whitlam’s motivation for advocating diplomatic relations with China was to end the containment and hostility towards China, which he saw as a principal cause of conflict and suffering in the Asian region, in particular the Vietnam War. 2. 1971 Labor Delegation to China As the opposition leader of the time, Whitlam’s visit to China ‘transformed his image from that of an opposition leader to a statesman-to-be’. Although openly criticised by the then Prime Minister McMahon for endangering Australia-US relations, Whitlam proved to be in tune with world sentiments towards China as it was later announced that President Nixon would visit China the next year. Whitlam’s achievements were praised by […]

Chinese Tea Set