Australias Export Market in China - Assignment Example

Australia’s Export Market in China Name Institution Executive Summary This report evaluates the opportunities that there are for Australia to exploit the massive and enticing China market. This is with particular reference to its vast crude oil deposits that are still largely unexploited. The report begins with a brief introduction that highlights where the world stands in the market liberalization and generally globalization. The report then analysis the destination market, in this case China. The focus is on existence of demand for crude oil and how the infrastructures have been laid down to support business. An evaluation of various attributes is made. Major areas of concern that have been discussed include international openness on trade policy, tax law and practice, adherence to the rule of law, fiscal and monetary administration, political stability as well as corruption levels. An in depth evaluation is made regarding the product’s competitive advantage in the destination market. The factors that would give the product – in this case crude oil, a competitive edge are well highlighted and explained. This has been done in light of aspects inherent in other producers of the same product. An assessment is made regarding China’s trade restrictions and tariff policy. The analysis points out at the advancements that the country has made in eliminating the trade barriers as well at pointing out at areas where the country has lagged behind in trade liberalization. Finally a forecast is made regarding how the trade would be beneficial to both countries and especially Australia. A trend analysis from past data has been applied to predict volume of trade that is likely to be witnessed in the future. A table of data is presented to exemplify trade interaction between the two countries. Introduction We are living in an age when the world is economy is geared towards market liberalization. Globalization is the typical business language of the twenty first century. State governments and private corporations are doing everything possible to capitalize on market openings created internationally by this new development. National governments are burning mid-night fuel either in an effort to revise their trade policies; sign a regional integration treaty; be a member of the world trade organization or do anything that will help the country gain business in the international arena. The result is the voluminous level of business activity we now witness. China Market Assessment China has in the recent decades drawn the attention of major economies and economic analysts thanks to its rapid economic growth. This state has to a large extent been propagated by the country’s huge population base that offers a big market for goods and services. The country is today acknowledged as one of the most significant economic and political heavy weights in the world. In fact, any economic analyst of the modern times would ignore the China’s influence to world economy at his/her peril. This is justifiable given the level of economic activity taking place in the country today, and the effect that has brought to the world economy (World Bank, 2006). Among the notable effects is unquestionably the energy demands that the country requires supporting the growth. In the years preceding the rise in petrol prices has among other factors been linked to the excess demand by China. Australia and China enjoy a remarkably sound trade relation over time. In this regard, Australia cannot let go of the opportunity to export its crude oil to this huge economy. It would be prudent on Australia’s side to take the advantage of the already established business relationship and the incidental high energy requirements in China to create new destination for its crude oil. The peculiarities that would go with that move cannot be slighted – China market offers both opportunities and threats and hence the drive to write this report (Qiang & Wei, 2005). China’s political landscape has been stable especially with the transformation of the system of government from the previous individually influenced approach to a law based system. The country enjoys a remarkably uninterrupted political environment. Its international policy of non-interference to other country’s political affairs is also a plus. Chances of drastic hangovers in the country’s political landscape are low. In fact, the country has managed to keep its calm even with revolutions and unrests in many of its neighbor countries (Qiang & Wei, 2005). Instead, the unique Asian country has embarked on extensive economic activity both locally and internationally. All these attributes point to a country that is viable for business engagement. What is to be treated at suspect is the country’s openness in international trade. The country’s perception has suffered greatly in the past years. For example in 2011, high profile fines were imposed on Walmart and Unilever, both multinational companies with operations in China. The grounds for the action according to the government were unauthorized increases in products by the companies as well as misconduct in labeling. However, analysts explained it as a calculated move by the government to tighten its stand on international trade regulations. The country has also performed poorly in corruption ratings by the transparency international falling at 46% in the year 2011. This was far below other comparable economies in the region and the world at large (ABS, 2012). China as a country is not doing bad in other attributes that facilitate a healthy business environment. Effectiveness in tax management and incentives has been rated at 51% by the year 2011. Adherence to the rule of law has also been rated at average. Fiscal and monetary administration which refers to assessment of public finance and regulations of monetary policy to promote stability were rated at 76.2% in the same period .All these offer compliment to trade and investment (ABS, 2012). Australia’s Crude Oil Competitive Power Australia’s oil and gas industry contributes 2.5% of the country’s gross domestic product. Annually, the country produces oil and gas both of worth $28 contributing 58% of the country’s primary energy. Since its discovery in 1960s the industry has been vital in supporting the economic growth and prosperity. Large-scale exploitation will see the figures above rising and being a major foreign income earner in the country. Moreover, the country’s advancement in technology will give it added advantage since it will continue mining activities without importing technology or personnel. This particular feature is not prevalent in many oil producing countries. This then implies that it will be cheaper for the country to produce its oil compared to its rivals in the industry. What this means is that Australia will be able to offer more competitive prices in the international market (ABS, 2012). On the political scene, Australia’s position has greatly been neutral. It will henceforth be able to do business with majority of countries in the world. In the grand scheme of things, many western countries would presume Australia as a strategic alternative source of oil since it appears friendlier to deal with compared to many oil producing countries of the Arab world. The simplicity that subsists in business start-up in Australia will spur the growth in the entire energy industry. It will be easy for both local and foreign investors to enter the industry. Statistics show that on average, it takes only two days to start a business in Australia. This is a high efficiency level compared to many countries of the world and in the Asia Pacific region. For instance, in Indonesia, which is a Northern Neighbour to Australia, it takes an entrepreneur 151 days to start a business (Grainger, 2009). These varying figures underline how Australia has advanced in business law and policy. Australia will definitely benefit from the sound business relation with China when marketing its crude oil. Existence of a number of trade pacts and agreements will facilitate this and it will be difficult for other players to supersede it in negotiating such a business deal (Grainger, 2009). Australia has more than fifty known sedimentary basins for crude oil and other related energy minerals and the search for more is ongoing. Most of the county’s mineral resources have less than half a century history of exploration and mining and this means that prospects for more deposits are still high (ABS, 2012). China with its extremely high energy demands cannot blink at such an opportunity. Maintenance of China’s huge industrial growth is largely dependent on ample supply of energy and energy resources. Indeed it is supply for energy that will spur it to the next level of economic redefinition. China’s Foreign Trade Policy Trade barriers can be noted as one of the major impediments to business between the two countries. Historically, China is a highly conservative and has not been quick to comply with international proposals for free trade and market liberalization. However, the trend is changing though gradually. For instance, china successfully applied for membership to the World Trade Organization (WTO) in 2001 and this was seen as a major milestone towards opening channels for multilateral trade arrangements (Clarke, 2010). Comparatively, though the country still has protection policies than many nations of its stature. China has continued with protection policies in some strategic industries even after membership to the WTO. Some of the protected sectors include agriculture, petroleum products, machinery and certain manufactured commodities. Pundits argue that China still needs to do a lot more to enforce the protocol of accessions and the WTO agreement by extensive review of its regulations and abolishment of some protectionist measures. It is worth noting the advancements that the country has made in trying to revise its tariffs. The country was able to reach its benchmark of lowering tariffs on over seven thousand items by year 2010. For example tariffs on automobiles were down to 25% in 2005 from ranges of 80-100% by the time of signing the agreement (ABS, 2012). Tariffs aside, China has continued to employ other mechanisms to regulate foreign trade and particularly imports. Such majorly include those that have been rated as ‘tariff under WTO rules’. An example is the tariff rate quotas that have been imposed on motor vehicles (Grainger, 2009). China continues to promise abolishment of other restrictions that are not in line with the WTO guidelines on importation. Such include elimination of foreign exchange control by the government, import licensing and imposition of import quotas (ABS, 2012). However, it is worth noting that procedures of getting to business remain bureaucratic and challenging for foreigners. Forecast of Trade Volume and Trade Value There are high growth prospects for the Australia’s export market in China going by the trend analysis. Over the last few decades trade between the two countries has been on the rise particularly in reference to Australia’s export to China. In the period between years 2010 and 2011, total growth of export trade to China grew by an unprecedented 17.2% (ABS, 2012). China still habours the largest population on earth with estimated more than a fifth of the world’s population living on its soil. The size and rate of population growth is eminent of the potential the country enjoys and this represents market for goods and services. Establishing trade ties with China therefore implies sourcing business for today and the future. It is safe therefore, to predict increased demand for energy and power in the country both in the immediate future and in the long-run. There is preponderance of evidence based on past data that China’s imports from Australia are likely to continue going up. Crude oil will definitely be one of them given the country’s desire to continue expanding economically. The table below summarizes Australia’s export activity to China. Australia’s Export Summary to China (ABS, 2012) % Growth Rank Commodity 2008-09 2009-10 2010-11 2010-11 Total (b) 284,571 253,762 297,545 17.3 1 Iron ore & concentrates 34,239 35,075 58,388 66.5 2 Coal 54,712 36,447 43,856 20.3 3 Education-related travel services 16,725 17,995 15,753 -12.5 4 Gold (b) 17,508 14,300 14,254 -0.3 5 Personal travel (excl education) services 11,665 12,115 11,939 -1.5 6 Crude petroleum 8,255 8,955 11,090 23.8 7 Natural gas 10,079 7,789 10,286 32.1 8 Wheat 4,936 3,636 5,492 51.0 9 Aluminium ores & conc (incl alumina) 6,096 5,042 5,281 4.7 10 Copper ores & concentrates 3,621 4,529 5,125 13.2 References ABS, catalogue, (2012). www.dfat.gov.au/publication/tgs/FY2011-goods-services-top25- exports. Retrieved 12th September 2012. Clarke, J. (2010). WTO. European Union opening statement. Trade Policy Review of China 31 May. Geneva. Grainger, A. (2009). Customs and Trade Facilitation: From Concepts to Implementation. World Customs Journal, 2(1): 17-30. Manning, C. (2005). Regulation of international workers in ASEAN: Working Paper, Australian National University, Canberra. Qiang Z. & Wei Li., 2005, Thoughts on the Overall Strategy of China’s Regional Economic Cooperation (Chinese Acad. on Int’l Trade & Econ. Cooperation, Ministry of Commerce), http://www.mofcom.gov.cn/ aarticle/s/200511/20051100834747.html (P.R.C. retrieved 12th September 2012. World Bank. (2006b). Doing Business 2006, Washington, DC. Read More