Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 92

FTA trifecta opens Asian export opportunities

Exports are increasingly skewed towards Australia’s three largest trading partners, making the Free Trade Agreements (FTA) with these countries vital for further growth. China, Japan and Korea bought more than half Australia’s $320 billion of goods and services exports in 2013, an increase of 300% on a decade earlier (see Chart 1). Exports to other overseas markets have not kept pace.

Pre-eminent North Asian markets

Our economic fortunes now depend on these countries more than ever. Yet in China, which buys almost a third of Australia’s exports, the 'new normal' of slower growth has arrived. Authorities are aiming to stabilise real GDP growth at around 7.5% in 2014 – the slowest pace since 1999. This gradual economic slowdown is set to continue in the longer term reflecting efforts to rebalance the economy towards a more sustainable and consumption-driven model of growth. In Japan, GDP growth is forecast to stagnate at around 1%, while in Korea a modest economic acceleration is expected over the forecast period (Chart 2).

Strong export performance dominated by resources

Australia’s resource exports totalled $178 billion last financial year – a 320% increase since 10 years earlier. In particular, minerals exports to China have increased almost 20-fold over the last 10 years, fuelled by China’s rapid industrialisation and urbanisation. Over the same period manufactures have stalled and service and rural export growth has been anaemic (Chart 3).

But the mining boom has now ended. Mining investment growth peaked in mid-2012 and turned negative in the second half of 2013. Net mining investment (equal to real investment by the mining sector less the RBA’s estimate of the imported component of mining investment) is now a drag on the Australian economy (Chart 4).

Strong export volumes are expected to continue. Rebalancing in China will not mean that its consumption of commodities will peak any time soon. That is unlikely to occur until the country’s per capita income doubles from current levels. Rather, commodity consumption (globally and for China) is predicted to continue to rise, but to shift gradually toward high-grade foods and metals as well as cleaner primary energy fuels. (Higher-grade commodities are associated with the consumption-led phase of growth where higher incomes drive demand for higher-quality goods, namely consumer durables which use more tin, aluminium and zinc.)

‘Trifecta of trade’ will help Australia diversify and rebalance

The landmark China-Australia Free Trade Agreement (ChAFTA) announced last month completes the government’s ‘trifecta of trade’ with Australia’s three largest export markets. Similar trade agreements were secured with Japan and South Korea earlier this year.

These trade deals will boost Australia’s export competitiveness and promote diversification of exports, by delivering unprecedented access to North Asia’s burgeoning agricultural and services markets. For instance, ChAFTA allows for 85% of Australian goods exports to enter China tariff-free upon entry into force, rising to 93% in four years and 95% on full implementation. The government stresses that ChAFTA also secures ‘the best ever market access provided to a foreign country by China on services’. This will assist Australia to rebalance growth towards non-resources – an important economic cushion as the mining boom ends.

Despite gradual economic slowdown, strong Chinese demand for Australian exports is expected to continue, facilitated by trade policies but driven by internal demographics. China’s middle class is expected to expand by 400 million people over the decade to 2022 fuelled by rapid urbanisation. China aims to lift the proportion of its population living in cities to 60% by 2020 (Chart 5) – this equates to moving 100 million rural Chinese to towns and cities – a project of unprecedented scale.

Due to all this the IMF expects that, on average, per capita incomes will rise 35% over the next five years. But importantly, the share of China’s population considered ‘upper middle class’ or ‘affluent’ will increase from 30% to 80% over the decade to 2022 (Chart 6). These households spend less than 50% of their income on necessities and display distinctive consumer behaviour – they are sophisticated and seasoned shoppers, able and willing to pay a premium for quality and discretionary goods. As such, Chinese private consumption is expected to grow healthily – by 10% a year over the decade to 2022.

In particular, China is expected to account for almost half of a 75% increase in world food demand between 2007 and 2050. While resource constraints will curtail Australia’s ability to become a ‘food bowl of Asia’, there may be a competitive position for Australia as the ‘delicatessen of Asia’. Already Australian businesses are winning sales in niche premium markets by trading on the clean and green image of the ‘Made in Australia’ label. Indeed, Australia's agricultural exports to China have almost tripled over last the five years to a record $8.7 billion. China is now our most important agricultural export market. But there remains significant scope for expansion.

ChAFTA will reinforce export momentum and give Australia’s exports an advantage over competitors from the US, Canada and EU. It also places Australia on equal terms with competitors from countries like New Zealand and Chile that have already negotiated trade deals with China. For instance, Australian beef exports to China are currently taxed almost 19%, while comparable exports from New Zealand enter the Chinese market almost duty-free. ChAFTA will counter this advantage over coming years, and provide Australia the same terms offered to any other country that signs an FTA with China in the future.

Supporting the ambitions of Australia’s optimistic export sector

Australia’s exporters are ambitiously targeting new opportunities in the Chinese market. The Australian International Business Survey, commissioned by the Export Council of Australia with the support of Austrade and Efic, found that 80% of agricultural respondents planned to expand overseas in the next two years. At 34%, China was overwhelmingly the most popular new target market.

This is despite three quarters of respondents saying that China is more difficult to do business in than Australia. Evidently the payoff is worth the challenge. The ‘trifecta of trade’ will improve market access and help Australian exporters realise the full potential of North Asia.

 

Cassandra Winzenried is a Senior Economist for Efic, a specialist finance provider for Australian export companies.

 

RELATED ARTICLES

10 trends reshaping the future of emerging markets

Just how reliant on China are we?

Red wine and our green reputation in China

banner

Most viewed in recent weeks

Pros and cons of Labor's home batteries scheme

Labor has announced a $2.3 billion Cheaper Home Batteries Program, aimed at slashing the cost of home batteries. The goal is to turbocharge battery uptake, though practical difficulties may prevent that happening.

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

4 ways to take advantage of the market turmoil

Every crisis throws up opportunities. Here are ideas to capitalise on this one, including ‘overbalancing’ your portfolio in stocks, buying heavily discounted LICs, and cherry picking bombed out sectors like oil and gas.

An enlightened dividend path

While many chase high yields, true investment power lies in companies that steadily grow dividends. This strategy, rooted in patience and discipline, quietly compounds wealth and anchors investors through market turbulence.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Latest Updates

Property

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

Strategy

CBA, AUSTRAC and our Orwellian privacy laws

Imagine receiving an email from your bank demanding to know if you keep cash at home and threatening to freeze your accounts if you don't respond in seven days. This happened to me and it raises disturbing questions. 

SMSF strategies

The ultimate superannuation EOFY checklist 2025

Here is a checklist of 27 important issues you should address before June 30 to ensure your SMSF or other super fund are in order and that you are making the most of the strategies available.

Shares

Why 'boring' Big Four banks remain attractive

Despite a brief correction last month, Australian bank share prices have continued their impressive run. Recent results show the banks remain in good shape though some are faring better than others. 

Investment strategies

Ophir on Trump, constant improvement, and Life360

In this interview, Ophir’s Andrew Mitchell outlines how he’s handled recent Trump-fuelled volatility, his three key criteria for picking stocks, and why he thinks Life360 is set for much bigger things.

Investment strategies

Investor warns of danger in Big Super’s pet asset class

Dan Rasmussen says the capital pouring into private assets outstrips the opportunity set and the economic substance of most companies being bought and lent to. The true test will come when inflows turn to outflows.

Economy

Government investment is remarkably effective

A new study challenges the notion that Government spending is wasteful - public investment can yield major long-term economic gains, often outperforming private investment in driving GDP growth.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.