Chapter 6 - Trade in manufactured goods
6.1
This chapter looks at Australia–China trade in
manufactured goods. In contrast to the trade relationship in agricultural products,
China's
economic strength is in the production and export of a wide range of cheap, high-quality
and increasingly high-tech manufactures. Forty per cent of China's
GDP is from exports of manufactures. This chapter considers the concerns of
Australian manufacturers competing with low cost, high volume Chinese imports. It
also examines the strategic opportunities for Australian manufacturing companies
both to export and to invest directly in China.
6.2
The chapter is divided into five parts:
-
the first looks at recent developments in China's
manufacturing sector, particularly the changing composition of its exports;
-
the second part gives an overview of
Australia–China trade in manufactured products;
-
the third part provides survey-based evidence of
Australian manufacturers' attitudes to China, and widely held perceptions of
China's unfair competitive advantage in manufacturing;
-
the fourth part presents survey-based evidence
on how Australian manufacturers have responded to China's export manufacturing
sector, and committee witnesses' views on the best strategy for Australian
manufacturers to capitalise on China's supply chains and growing consumer
demand; and
-
the chapter concludes with the committee's
options and recommendations for the Australian manufacturing sector to respond
to China's challenge.
Recent developments in China's
manufacturing sector
6.3
The story of China's
rise as an industrial power makes prominent reference to its economy's
manufacturing prowess. Cheap labour and imported manufacturing equipment have provided
the basis for a phenomenal export performance.
6.4
Table 6.1 shows that in the 20 years from 1980 to 2000,
exports from China
increased in value from $US18.1 billion to $US249.2 billion.[366] In the 2004 calendar year, the value
of China's
exports was $US593.4 billion.[367] The
table shows that in the decade since 1995, the value of China's
exports has increased by more than 400 per cent.
Table 6.1: China's
exports, 1980–2000
|
1980
|
1990
|
1995
|
2000
|
2004*
|
Total exports ($US 'billion)
|
18.1
|
62.1
|
148.8
|
249.2
|
593.4
|
Primary products (%)
|
53.4
|
25.6
|
14.4
|
10.2
|
6.5
|
Manufactured goods (%)
|
46.6
|
74.4
|
85.6
|
89.8
|
93.5
|
TCF (%)
|
22.9
|
24.9
|
28.6
|
24.9
|
14.6
|
Machinery
and electronics (%)
|
n.a.
|
17.9
|
29.5
|
42.3
|
55.7
|
Source: J. Wong and S. Chan, 'China's emergence
as a global manufacturing centre: Implications for ASEAN', Asia Pacific
Business Review, Vol. 9, No. 1, Autumn 2002, p. 83. * 2004 figures are based on
China Customs
data, http://english.china-customs.com/customs-statistic/
(accessed 7 September
2005).
6.5
The basis for this performance was a marked increase in
the volume of manufactured exports. In 1980, manufactured exports accounted for
47 per cent of all China's
exports: primary products accounted for 53 per cent. In 2000, manufactured
exports had increased their share of total Chinese exports to 90 per cent while
the share of agricultural exports had fallen to 10 per cent.[368]
6.6
Table 6.2 shows the composition of China's
exports for selected months between January 2002 and October 2004. The total
value of China's
exports more than doubled between these months. The ratio of manufactures to
primary product exports (as a percentage of total exports) for each of the four
months was in excess of 9 to 1. The value of manufactured exports increased
from around $US20 billion for January 2002 to over $US49 billion for October
2004. The value of primary products as a percentage of total exports fell
slightly from 8.2 per cent for January 2002 to 6.5 per cent for October 2004.
Table 6.2: China's
export performance for selected months ($US '000)
Commodity
|
Jan 2002
|
Oct 2002
|
Oct 2003
|
Oct 2004
|
Total
|
21,703,291
|
29,946,376
|
40,925,906
|
52,523,879
|
Primary
products
|
1,786,843
(8.2%)
|
2,480,600
(8.3%)
|
2,926,423
(7.2%)
|
3,437,572
(6.5%)
|
Manufactures
|
19,916,448
(91.8%)
|
27,465,776
(91.7%)
|
37,999,483
(92.8%)
|
49,086,306
(93.5%)
|
Chemicals
|
1,099,593
|
1,282,678
|
1,657,216
|
2,377,504
|
Machinery and transport equipment
|
7,904,931
|
11,889,336
|
18,192,336
|
23,750,262
|
Manufactured goods classified as raw materials
|
3,599,177
|
4,673,600
|
5,941,384
|
8,833,998
|
Source: General Administration of Customs, People's
Republic of China. Figures in
brackets denote proportion of primary products and manufactures which account
for total exports. http://www.iwep.org.cn
(accessed 7 September
2005).
The
changing composition of China's
manufactured exports
6.7
The surge in China's
manufactured exports has been driven by a significant shift in the composition
of these exports. Professor John
Wong and Ms
Sarah Chan,
from the National University of Singapore, explained that:
[B]efore 1995, traditional labour-intensive manufactures like
textiles, clothing and footwear (TCF) used to dominate China's
export structure. More recently, China's
manufactured exports experienced a radical change in composition, marked by the
rise of non-traditional items like machinery, electronics and other
high-technology products. Few economies have ever achieved such remarkable
export diversification within such a short span of time...rapidly gaining
comparative advantage in capital-intensive manufactures even before it begins
to lose comparative advantage in labour-intensive activities.[369]
6.8
In 1995, China's
TCF exports and machinery and electronics exports accounted for 28.6 per cent
and 29.5 per cent of total exports respectively. In 2000, the share of TCF exports
had fallen to 24.9 per cent while machinery and electronics exports had
increased to 42.3 per cent of total Chinese exports. China's
customs figures for the 2004 calendar year show that the proportion of TCF
exports had fallen to 14.6 per cent of the value of total Chinese exports. The
value of China's
machinery and electronics exports had increased to 55.7 per cent of total
exports (see Table 6.1).
6.9
Table 6.3 shows China's
major export manufactures for 2004. The highest value exports were of data processing
machines ($US60 billion), textile garments ($US50.1 billion) and footwear
($US15.2 billion). The highest year-on-year growth rates for 2004 exports were
for steel products (168 per cent), motor vehicles (82 per cent), radios (65 per
cent) and televisions (58 per cent).
Table 6.3: China's
major manufactured exports (2002, 2003, 2004, 2005)
|
Jan–Dec
2002
($US billion)
|
Jan–Dec
2003
($US billion)
|
Jan–Dec
2004 ($US billion)
|
Jan–Jun
2005
($US billion)
|
Data processing machines
|
20.1
|
41
|
60
|
33.5
|
Textile
garments
|
33.9
|
42.2
|
50.1
|
26
|
Footwear
|
11.1
|
13
|
15.2
|
8.8
|
Radios
|
5.3
|
7.4
|
14.2
|
8.2
|
Steel
products
|
2.2
|
3.1
|
8.4
|
7.3
|
Toys
|
5.6
|
6
|
6.4
|
2.5
|
Televisions
|
2.4
|
3.5
|
5.5
|
3.3
|
Electric
motors
|
2.2
|
2.4
|
2.9
|
1.6
|
Motor vehicles
|
.26
|
.43
|
.78
|
.74
|
Source: China Customs
Information Network, http://english.china-customs.com/customs-statistic/
(accessed 7 September
2005).
6.10
Table 6.1 shows that in 2004, China's
TCF exports accounted for only 15 per cent of total Chinese exports. Their
contribution to China's
overall export performance has more than halved since 1995.[370] Table 6.3 shows that the rate of
recent increase in TCF exports is moderate compared with the export boom in data
processing machines, steel products, televisions and motor vehicles. In the six
months from January to June 2005, the value of China's
steel product and motor vehicle exports was approaching the value of these
exports for the entire 2004 calendar year.[371]
The January to June 2005 value of TCF exports was roughly half their total 2004
value.
6.11
Still, Table 6.3 does show that the value of China's
TCF exports progressively increased over the period. The value of textile
exports for recent calendar year is significantly higher than for most
manufactures. The TCF sector remains crucial to China's
export performance and is the exemplar of China's
comparative advantage in low cost, low-tech production. To certain markets and
for certain items, the volume of China's TCF exports has increased exponentially
since the World Trade Organization's abolition of clothing import quotas on 1 January
2005.
The growth and impact of China's
machinery and electronics exports
6.12
China's rising comparative advantage in the production
and export of non-traditional manufactures, such as electronics, is attributable
to increased foreign direct investment (FDI) in Dongguan and Shenzhen in Guangdong
province and in Shanghai (see map on page xxxi).[372] Total FDI in China
has increased from $US44.2 billion in 2001 to $US54.9 billion in 2004.[373] In 2003, the volume of FDI in China
was comparable to inward investment in the US
economy ($US67 million).[374] A 2005
OECD paper on recent trends and developments in FDI noted:
Inward FDI into the Chinese economy keeps hitting new records...There
is little doubt that Hong Kong-based investors account for much of the direct
investment into the mainland, but it would be too simplistic to ascribe the
boom in Chinese FDI simply to 'round-tripping' of investment...[375]
6.13
Another explanation for China's
growing high-tech manufacturing sector is the large-scale import of components
from East Asian economies. From the 1980s to early 1990s, Japan
exported electronic components to the Republic
of South Korea and Hong
Kong for assembly into finished products. Since the mid-1990s, Japan,
the Republic of South
Korea and Taiwan
have produced components and shipped them to China
for assembly.[376] Unlike China's
TCF sector, its growing manufacturing prowess is built on labour-intensive
specialisation in regional production chains.[377]
6.14
Undoubtedly, China's
rise as a global manufacturing centre has impacted on regional East Asian
economies. Writing in 2000, Professor Wong
and Ms Chan
argued that the development of a high-tech Chinese manufacturing sector has:
...apparently resulted in most ASEAN economies experiencing a
severe hollowing-out of their industries. China's manufacturing prowess,
manifested in its ability to produce an unprecedented range of products, has
alarmed ASEAN countries whose markets are now swarming with China's high-quality
but inexpensive goods...China's economic resurgence underscores the need for
ASEAN to accelerate structural domestic reform and will compel ASEAN economies
to base their future economic growth on their true comparative advantage.[378]
6.15
However, in 2003, a DFAT report titled China's Industrial Rise: East Asia's
Challenge found that:
[O]nce trade flows associated with...integrated production chains
are factored in to analyses of regional net trade flows, no overall trend
emerges of Chinese exports encroaching on its neighbours' export markets.[379]
The report notes that many
economies in the region are changing their production mix to compete less
directly with China.
-
Singapore has moved out of labour intensive
sectors and is focussing on higher-technology exports, where it has a
comparative advantage. Half of Singapore's net exports compete with China's.
-
Japan has also been shifting its production from
labour intensive industries—such as assembled computers—and into products such
as video and digital cameras.[380] The
report estimates that only 18 per cent of Japan's net exports compete with
China's—the lowest of the major East Asian economies.
-
The Republic of South Korea competes with China
in roughly half of its export sectors 'but continues to expand exports of these
products regardless, at a similar rate as China'.[381] South Korea does benefit from the
export of high-technology components to China for assembly.
-
Indonesia competes with China in almost half of
its net export markets while almost two-thirds of Malaysia's net exports are in
competition with China's. However, the report found that both countries had
been able to increase their net exports in these sectors. Both countries' main
trading partner is the United States.
6.16
The DFAT report highlights the complementarity of the
China–Australia trading relationship. It therefore sees China's
growing capacity for assembling high-tech articles and processing raw materials
as an advantage for Australian exporters.[382]
Chapter 2 of this report made the same observation.
6.17
However, the 'big picture' trade relationship overlooks
the challenges facing import-competing Australian producers in certain
industries. An April 2004 ANZ Industry Brief explains that:
...the range of Chinese merchandise available on the local market
provides competition across a wide range of Australian manufacturing. Those
industries will be most adversely affected through price competition. The only
manufacturing sectors likely to be largely unaffected by the growth in imports
from China are those with relatively low import penetration rates...Those
industry sectors having the highest import penetration rates are most likely to
be significantly adversely affected...[383]
6.18
The next section looks at the trends and composition of
Australia–China trade in manufactured products, and identifies the Australian
manufacturing industries facing fiercest competition from Chinese imports.
Australia–China trade in manufactures
The deficit with China
in elaborately transformed manufactures (ETMs)
6.19
The most prominent feature of Australia–China trade in
manufactures is Australia's
large and growing deficit in elaborately transformed manufactures (ETMs). Put
simply, Australia's
imports of ETMs from China
far exceed its exports of ETMs to China.
In 2004, Australia
imported $A15.9 billion of ETMs from China
and exported $A1.0 billion of ETMs to China.[384]
6.20
The main reason for the growth in this deficit with China
is the recent surge in Australia's
imports of China's
ETMs. In 2004, ETM imports from China
increased 27.7 per cent on the previous calendar year: ETM imports from the US
fell 0.5 per cent and increased from Japan
by three per cent. In 2004, Australia's
exports of ETMs to China
increased four per cent on the previous calendar year: ETM exports to the US
rose 2 per cent and fell to Japan
by 11 per cent.[385]
6.21
It is Australia's
poor overall ETM exporting performance that is of most concern to the
manufacturing sector. In 2004, Australia's
trade deficit in ETMs widened to a record $86.3 billion, an increase of 9.5 per
cent on the previous financial year. ETM imports increased in value from $96.9
billion in 2003 to $105.1 billion in 2004.[386]
ETM exports increased slightly in value from $18.5 billion in 2003 to $18.8
billion in 2004.[387] The need and
opportunities for Australia
to increase its exports of these manufactures is considered later in the
chapter.
Australia's imports from China
6.22
Table 6.4 shows that in the eleven years from 1994 to 2004,
the value of Australia's
imports of Chinese manufactured products increased from $A3,191 million to
$A17,084 million. In 1994, imported manufactures from China
accounted for 5.4 per cent of all Australian imported manufactures. China
ranked fifth behind the US
(23.2 per cent), Japan
(20 per cent), Germany
(6.7 per cent) and the United Kingdom
(6.4 per cent). In 2004, imported manufactures from China
accounted for 14.6 per cent of all imported manufactures, second only to the US
(16.3 per cent).[388]
Table 6.4: Australia's
imports of manufactured products by principal markets
|
1994
|
1995
|
1996
|
1997
|
1998
|
1999
|
2000
|
2001
|
2002
|
2003
|
2004
|
US
|
13,699
|
15,345
|
16,738
|
16,856
|
19,255
|
19,210
|
29,749
|
19,749
|
21,617
|
19,157
|
19,093
|
China
|
3,191
|
3,665
|
3,891
|
4,515
|
5,545
|
6,319
|
8,615
|
9,828
|
12,046
|
13,387
|
17,084
|
Japan
|
11,804
|
11,629
|
9,916
|
11,171
|
12,988
|
13,296
|
14,817
|
14,639
|
15,201
|
15,805
|
16,326
|
Source: Department
of Foreign Affairs and Trade, Exports of Primary and Manufactured Products
2004, June 2005, Table 29. http://www.dfat.gov.au/publications/stats-pubs/pmp_2004_analysis.pdf
(accessed 21 September
2005).
6.23
Table 6.5 shows that in the China–Australia bilateral
trade relationship, China's
competitive advantage lies in manufacturing. Between 2001 and 2004, Australia's
top 10 merchandise imports from China
were all manufactures. Recall that Table 5.2 showed that China's
top 10 merchandise imports from Australia
between 2001 and 2004 were either minerals or agricultural products.
Table 6.5: Australia's
top 10 manufactured imports from China
($US million)
|
2001
|
2002
|
2003
|
2004
|
ADP machines
|
303
|
476
|
735
|
1,273
|
Videos, cameras
|
67
|
104
|
250
|
501
|
Women's suits
|
191
|
212
|
272
|
324
|
Office machines
|
100
|
169
|
229
|
298
|
Toys
|
177
|
205
|
246
|
297
|
TV/videos
|
47
|
74
|
122
|
280
|
Footwear
|
141
|
183
|
210
|
265
|
Travel goods
|
144
|
157
|
191
|
252
|
Furniture
|
69
|
102
|
156
|
245
|
T-shirts
|
119
|
123
|
163
|
219
|
Source: 'Australia–China Free Trade
Agreement Joint Feasibility Study', Department of Foreign Affairs and Trade, Canberra, and Ministry
of Commerce, Beijing, March 2005,
p. 14. Note: Ranking is based on 2004 outcomes.
6.24
The other feature of Table 6.5 is the extent of Australia's
recent import increases of China's
traditional and non-traditional manufactures. Between 2001 and 2004, Australian
imports of China-made women's suits, T-shirts and footwear increased by 70 per
cent, 84 per cent and 88 per cent and respectively. The growth in Australian
imports from China's
emerging machinery and electronics industries is even steeper. Imports of China-made
video cameras increased by 748 per cent, televisions and videos by 596 per cent
and ADP machines by 420 per cent. These figures support the earlier observation
of the continuing export significance of China's
TCF sector, in the context of a rapidly developing and export-oriented high-tech
manufacturing sector.
Australia's exports to China
6.25
Table 6.6 shows Australian export values for selected
ETMs. Among Australia's
largest exports of ETMs are passenger cars, professional and scientific
instruments, car parts, office machines and telecommunications equipment. In
2004, passenger cars accounted for 12.6 per cent of Australia's
ETM exports, televisions and radios accounted for 7.8 per cent and TCF exports
for only 1.2 per cent.
6.26
China
is Australia's
third-largest export market for ETMs with 4.6 per cent of total exports, behind
New Zealand (21.9
per cent) and the US
(14.5 per cent). In 1995, China
was Australia's
12th largest export market for ETMs with 2.8 of total ETM exports.[389]
Table 6.6: Australia's
ETM (elaborately transformed manufactures) exports
|
2001
($Am) |
2002
($Am) |
2003
($Am) |
2004
($Am) |
Passenger
cars* |
2,966,506 |
2,810,296 |
2,600,935 |
2,366,147 |
Professional
& scientific instruments |
1,207,945 |
1,072,934 |
938,531 |
1,134,229 |
Car
parts |
971,123 |
1,018,384 |
920,798 |
725,655 |
Office
machines |
586,615 |
439,005 |
304,526 |
323,627 |
Telecommunications
equipment |
536,750 |
336,445 |
375,948 |
443,159 |
TV's, radios |
174,952 |
129,081 |
150,118 |
145,113 |
Apparel and clothing |
283,855 |
241,379 |
239,764 |
196,021 |
Footwear |
39,093 |
34,052 |
24,910 |
23,338 |
Total exports of ETMs |
20,832,193 |
19,543,677 |
18,462,049 |
18,747,027 |
Total exports of ETMs to China |
778 (3%) |
908 (3.5%) |
1,049 (4.5%) |
1,110 (4.6%) |
* unassembled, assembled new and
assembled second-hand
Australia's
car and TCF industries
6.27
Over the past two decades, the challenge of restructuring
and opening up Australia's
manufacturing sector has tended to focus on two industries: cars and TCF. China's
entry into the WTO, its rising competitiveness in high-tech production and
continuing reductions in Australia's
tariffs has intensified import-competition for these local industries. Still, Australia's
car and TCF industries also stand to benefit from export opportunities in China.
6.28
Table 6.7 compares Australian exports of auto
components to China
with China's
imports of these products to Australia.
It shows a ten-fold (1,000 per cent) increase in Australian auto product
exports to China
between 2000 and 2003. China
increased its exports of these products to Australia
by 41 per cent during this period.
Table 6.7: Australia–China trade in auto products
|
2000
($Am) |
2001
($Am) |
2002
($Am) |
2003
($Am) |
Australia's auto product exports to China |
5,263 |
14,204 |
16,793 |
56,478 |
Australia's auto product imports from China |
173,794 |
197,938 |
166,328 |
246,529 |
Sources: Federation of Automotive
Products Manufacturers, Submission to DFAT's 'Australia–China Free Trade
Agreement Joint Feasibility Study' June 2004, p. 10.
6.29
The main reason for the growing market for auto
products in China
is the sharp increase in domestic consumer demand for vehicles. China's
car exports are low. In 1995, China
sold 1.43 million cars: in 2002, it sold 3.26 million.[390] Imports of car products from
countries like Australia
have been crucial to the rapid recent growth in China's
car production capacity. In 2005, China
was ranked the world's fourth largest car producer, behind the US,
Japan and Germany.
In 2004, it produced 5.1 million cars compared with Germany's
5.5 million. In March 2005, Mr Zhu
Yanfeng, the General Manager of China First
Automobile Group, announced that 2005 production would increase to 6 million
units, making China
the world's third largest car manufacturer.[391]
In September 2005, the Economist
argued that 'within a few years China
will replace Japan
as the second-largest national [car] market after America'.[392] It is further projected that by
2020, China
will overtake the US
as the world's largest-selling car market.[393]
6.30
The Department of Industry, Tourism and
Resources (DITR) noted that 'China
has designated the automotive sector as a pillar of the national economy'. It
added:
Currently there is limited auto trade between the two countries
[Australia and China].
China does not
rank in the top 20 as either an import source or export destination for
vehicles. This may change in the medium term, as an expected over-capacity in
vehicle production may lead to Australia
becoming an export destination for passenger vehicles.[394]
6.31
Although Australia
has benefited from China's
demand for car components, it faces increasing competition from China's
growing production capacity in these components. There is also greater
competition from cheap car component imports. In the first nine months of 2005,
the Australian automotive sector lost 3300 jobs and half a dozen major components-supply
contracts.[395]
6.32
The Australian Financial Review has argued
that China's car components industry still has some way to go to meet foreign
manufacturers' demands:
Half a dozen contracts lost is simply not evidence that we are
seeing a major shift of the industry to low-cost countries such as China.
Though China is
a formidable competitor, its automotive components sector is generally not yet
capable of producing at the levels of quality and price that the manufacturers
demand.[396]
6.33
However, the federal government has identified China
as a major challenge for the Australian car components industry. In September
2005, the Industry Minister, the Hon. Ian
McFarlane, MP, argued that Australia's
big four car producers—Ford, Holden, Mitsubishi and Toyota—had
an obligation to use Australian-made components in return for the generous
taxpayer subsidies they have received. He argued that the government believed
the industry was 'pretty well set' with the release of the 10 year car plan in
2003:
But the new issue is China,
and we can't afford to lose contracts in local cars to overseas components and
that's what the emphasis is at the moment, the turn that around. It's quite a
task.[397]
6.34
Table 6.8 shows a comparison of Australia's
TCF exports to China
and TCF imports from China.
Notably, Australian TCF exports to China
have increased since 2002–03. In 2004–05, Australian TCF exports to China
were valued at $A40.8 million, an increase of 28.4 per cent on 2002–03. China's
TCF imports to Australia
grew by only 13.7 per cent over the same period.
Table 6.8: Australia–China trade in TCF products
|
2002–03
($Am) |
2003–04
($Am) |
2004–05
($Am) |
Australia's TCF exports to China |
31,809 |
37,051 |
40,844 |
Australia's TCF imports from China |
3,686,552 |
3,613,061 |
4,192,262 |
L. Caddy, Council of Textile and Fashion
Industries of Australia Limited, 15
September 2005.
6.35
Still, in 2004–05, the value of Australia's
TCF imports from China
was nearly 103 times that of Australian TCF exports to China.
Clearly, the Australian TCF sector faces immense competition from low-cost,
high quality Chinese imports. Although successive federal governments have
assisted the local industry to restructure, they have also reduced levels of
tariff protection. DITR told the committee that since Australia
abolished its TCF quotas in 1993:
there has been a relatively free trade environment between Australia
and China for
textiles and clothing. In recent years Chinese clothing and knits have
accounted for around a third of all clothing and knits consumed in Australia,
whilst imported Chinese textiles are around one-quarter of all textiles
imported into Australia.
The drop in Australia's
textile and clothing tariffs in January this year [2005] is expected to
facilitate further trade with China.[398]
Table 6.9: Australian TCF tariffs, 2005–2015 (Current government policy)
|
1 Jan 2005 |
1 Jan 2010 |
1 Jan 2015 |
Clothing and
some finished textiles |
17.5% |
10% |
5% |
Woven fabrics,
carpets and footwear |
10% |
5% |
5% |
Sleeping bags,
table linen |
7.5% |
5% |
5% |
Textiles, yarns |
5% |
5% |
5% |
Council of
Textile and Fashion Industries of Australia, Submission
to the Department of Foreign Affairs and Trade 2004, p. 6, http://www.dfat.gov.au/geo/china/fta/submissions/cfta_submission_4ma18.pdf
(accessed 12 October
2005).
6.36
Table 6.9 shows that current federal government policy
will cut Australia's
TCF tariffs to five per cent by 2015. However, the committee notes that
non-tariff barriers in China
pose a considerable problem for Australian TCF exporters. A survey by the
Council of Textile and Fashion Industries of Australia (TFIA) identified
several non-tariff barriers of concern to Australian TCF producers in dealing
with China.
These include:
-
a lack of transparency in pricing;
-
a lack of intellectual property protection;
-
a myriad of officials, agencies and rules
required to gain access to the Chinese market, and difficulty in obtaining the
correct licence to sell;
-
a high number of sellers in China requiring
intense promotional activity;
-
the requirement that foreign companies must open
at least two commercial offices in Beijing and Shanghai;
-
the disallowance of second-hand machinery used
in China, thereby increasing costs for foreign companies; and
-
frequent late payments from export debtors.[399]
6.37
Chapter 12 notes the attitude of Australia's
TCF sector to a free trade agreement (FTA) with China
and the committee's view on the appropriate rate of tariff reduction within
this agreement. The last part of this chapter looks at the form that federal
government assistance for the TCF industry might take. The following section
notes that Australian TCF companies' attitude to expanding trade ties with China
is quite positive, despite the China's
low-cost imports and non-tariff barriers.
Attitudes of Australian manufacturers to China
6.38
In August 2004, the Australian Industry Group (AiG) published
a research report titled 'Australian Manufacturing and China'.
The report was based on a survey of 848 Australian manufacturers, asking their
opinion of the impact and opportunities that China
presented to their industry. Table 6.10 shows some of the key findings.
Table 6.10: Australian manufacturers' attitudes to China
|
China as a
potential export market |
China as a
competitive threat in the domestic market |
China as a
source of low cost inputs |
China as a
destination for foreign investment |
Industry
average |
19.7 |
54.8 |
43.9 |
15.7 |
Variation from industry average by sector |
|
Food
and beverages |
7.3 |
-30.5 |
-8.8 |
3.3 |
Textiles |
22.2 |
29.5 |
15.5 |
10.1 |
Clothing
and footwear |
1.1 |
33.6 |
14.5 |
0.3 |
Wood,
furniture |
1.2 |
6.5 |
-3.0 |
-4.3 |
Paper |
-9.5 |
-8.8 |
-13.9 |
-1.7 |
Chemicals |
10.5 |
-15.2 |
-1.6 |
.02 |
Construction
materials |
-8.3 |
1.7 |
-9.1 |
-7.0 |
Basic
metals |
6.1 |
20.6 |
11.9 |
-2.3 |
Fabricated
metals |
-7.5 |
1.5 |
-1.1 |
3.0 |
Transport
equipment |
-9.6 |
0.2 |
6.8 |
-2.4 |
Machinery |
0.9 |
-1.7 |
2.1 |
1.3 |
Miscellaneous manuf.'s |
2.1 |
2.8 |
-3.5 |
-2.9 |
Source: Australian Industry Group,
Australian Manufacturing and China—Opportunities
and Challenges, p. 22.
6.39
The AiG surmised that 'China's
influence among the 12 key industry sectors is not even, largely reflecting
varying trade exposures'.[400] The most
obvious feature of the data is the far greater proportion of firms across all
manufacturing industry sectors that view China
as a threat, rather than an export or investment opportunity. An average of
only 19.7 per cent of respondents viewed China
as a potential export market, and only 15.7 per cent as a destination for
foreign investment. In contrast, an average of 54.8 per cent of respondents
believed China
is a competitive threat in the domestic market, while 43.9 per cent viewed China
as a source of low cost inputs.
6.40
Interestingly, Table 6.10 shows that firms in the
textile industry were most positive about China
as an export market (41.9 per cent), as a destination for foreign investment
(25.8 per cent), and as a source of low cost inputs (59.4 per cent). Recent
export data supports this optimism. From 2003–04 to 2004–05, Australian textile
exports to China
increased by 14.6 per cent.[401]
Australian exports of woven textile fabrics increased 484 per cent over this
period.[402]
6.41
However, textile firms also recorded highest agreement
that China
poses a competitive threat in the domestic market (85 per cent). The contrast
is the response of firms in the food and beverages sector (24 per cent). A
January 2005 ANZ Industry Brief concluded from the survey that:
The most significant adverse impact of China
trade for local manufacturers relates to the effect of China
on competition in the domestic market. The main sectors affected are textiles
(especially carpets and other finished products), clothing and footwear; basic metals
(basic steel products) and wood, wood products and furniture...Overwhelmingly,
the impact on local selling prices was to depress prices.[403]
Fair and unfair advantages
6.42
The committee received submissions and heard from a
range of witnesses on the reasons for, and the appropriate Australian response to,
China's competitive
advantage in manufacturing. As this chapter has mentioned, the strength of China's
manufacturing sector reflects the high level of foreign direct investment in China,
the import of leading manufacturing technologies, China's
ability to tap into regional production chains and the productivity of its
labour force.
6.43
However, the committee also notes widespread concern
that China's
exceptional export manufacturing performance has been based on unfair
advantages. These include: a low-wage and in some cases an exploitative labour
market; the absence of enforceable intellectual property rights; and 'dumping'
of below cost-price excess production on export markets. These issues are
significant not only in the context of the challenges facing Australia's
manufacturing sector, but to the broader economic and political relationship.
For this reason they are flagged below and considered in greater depth in
chapters 14 and 18.
6.44
Clearly, the huge supply of labour in China
puts natural downward pressure on wage levels. Average per hourly wages across
all sectors are estimated at $US0.80.[404]
In the textile industry, labour costs represent 5 to 10 per cent of total
manufacturing costs in China,
but between 30 and 55 per cent in the US.[405] However, there is also evidence that
China's low
wages and high levels of manufacturing productivity are based on systemic
abuses of workers' rights. There is a ban on the formation of trade unions and
strikes have led to imprisonment. Workers have few if any entitlements by way
of overtime payments, superannuation payments or occupational health and safety
provisions. Even wages are often unpaid. In the state-regulated construction
sector, the value of unpaid wages has recently exceeded $US40 billion annually.[406]
6.45
The committee acknowledges the concerns of many within
the Australian manufacturing sector and the Australian union movement that poor
labour standards underpin China's
competitiveness. It is important that the international community continue to
pressure China
to conform to the standards of the International Labour Organization (see
recommendation 20). These standards have sufficient breadth to enable China
to pursue its own labour laws. The committee also believes that foreign-run
enterprises operating in China
have an important role to play in implementing corporate codes of conduct and
pressuring others to adopt minimum labour standards (see recommendation 21).
6.46
Chapter 4 discussed the issue of intellectual property
rights. It noted that counterfeiting in China
remains extensive, despite China's
obligations to implement the WTO's Trade-Related Aspects of Intellectual
Property Rights (TRIPS) Agreement. Regulators' efforts to curb piracy and
counterfeiting activity in China
have proved grossly inadequate given the strength of consumer demand for status
goods and a consumer culture more interested in good value than authenticity.
6.47
Perhaps the most significant trend in counterfeiting manufactured
goods in China
is in the automotive industry. For example, Honda has identified 11 Chinese car
makers building copies of the Honda CR–V, some even selling purchase kits to
install CR–V badges.[407] Red Flag,
which once supplied limousines for the elite of the Communist Party, has
recently released a limousine with 'strong styling similarities' to the Rolls–Royce
Phantom.[408]
Great Wall Motors produces low-cost utility vehicles and sports utility
vehicles (SUVs) which look 'remarkably like more expensive vehicles from Toyota
and Nissan'.[409] There have also been
claims that small imported vehicles submitted to the Chinese authorities for
certification have come back showing signs of disassembly. Chapter 11 on the
proposed Australia–China FTA reiterates the committee's concern that China
improve its enforcement of intellectual property rights (see recommendation 13).
6.48
The issue of 'dumping' is discussed in Chapter 11 with
reference to the proposed Australia–China FTA. The term—'dumping'—refers to the
export sale of a product at a price below that offered for the sale of a like
product in the exporting country.[410] The
WTO's Anti-Dumping Agreement—based on Article 6 of the GATT—allows countries to
take action against dumping where it is shown to have caused material injury to
domestic producers.[411] In the decade
from 1994–95 to 2003–04, Australian industry has initiated 18 anti-dumping
actions against imports from China.[412] The corresponding number for the
period 1984–85 to 1993–94 was 26.
6.49
However, China's
capacity to export at below cost remains of concern to Australian
manufacturers. In May 2005, following months of negotiations with the AiG and
Australian manufacturers, the federal government amended the Customs Manual to
allow Australian officials to investigate the effect of foreign governments'
influence on the price of any goods coming into Australia
from China, to
determine whether they have been dumped.[413]
Chapter 11 explains the context for manufacturers' lobbying on this issue.
Responding to China's
manufacturing sector
6.50
The August 2004 AiG survey reported that nearly 90 per
cent of Australian firms affected by China in either customer or supplier
markets 'have formally implemented some change to company strategy'.[414] The main responses to its survey of
companies' strategic responses to China
were:
-
accelerate the pursuit of production
efficiencies (38.9 per cent);
-
import more from Chinese suppliers (31.5 per
cent);
-
accelerate the adoption of new technologies (30
per cent);
-
move up the supply chain (23 per cent);
-
decrease domestic productive capacity (20.5 per
cent);
-
increase domestic productive capacity (17.5 per
cent);
-
move down the supply chain (16.9 per cent); and
-
relocate to China (4.2 per cent).[415]
6.51
The AiG noted that 39.9 per cent of firms have moved
either up or down their supply chain. This indicates that 'firms are seeking to
lessen direct competition through greater differentiation of products and
services'.[416] Within the TCF sector,
the two most common responses were 'import more from China'
and 'decrease domestic capacity'. TCF firms were also most likely to opt for a
strategy relocating productive capacity offshore. Most other industry sectors
nominated 'accelerate pursuit of production efficiencies' and 'accelerate
adoption of new technologies' as their leading strategies.[417]
6.52
There are notable examples of Australian
manufacturers' success in China.
Some multi-national companies have used
Australian manufacturers as a base to serve China and the Asia–Pacific. McLanahan Corporation,
the American equipment manufacturer, is using Australian manufacturers for its
export of crushing and sizing machines to China. Apart from cheaper shipping costs, McLanahan
cites the benefits of Australia's various fabrication facilities and its
high quality manufacturing capacity.[418]
6.53
In other cases, Australian companies have
themselves established a manufacturing niche in China
as part of a wider Asian presence. For example, BlueScope Steel, formerly BHP
Steel, has established over the past decade a prominent foothold in China
for coated and painted steel and prefabricated buildings.[419] Notably, the company opted to use a
country manager for China
rather than multiple managers for the various production lines.
6.54
In 2005,
Smorgon Steel announced plans to spend up to $60 million to buy a mid-range
business in the scrap metal industry in China. This decision is part of a strategy to
reduce the company's reliance on steelmaking and capitalise on the scrap
generated by China's rapidly expanding manufacturing sector.[420]
6.55
There
have also been examples of small manufacturers supplying the China market through advanced and highly
specialised technology. For example, the Sydney-based Bishop Technology Group
exports rack and pinion power-steering machines to car steering plants in China. The Group has succeeded by ensuring its
intellectual property '...offers them [buyers] something they can't get from
anyone else...'.[421] The committee notes
that in September 2005, the federal government announced a new $108 million
round of grants aimed at increasing expenditure on research and development
among the main car makers in Australia.[422]
Successful bidders are given 45 cents for every dollar spent on R&D.
6.56
Several expert witnesses commented to the committee
about the need for Australian manufacturing industries to refine continually
their 'China
strategy'. There can be no doubt that the
intensity of competition from China can only be expected to increase. On this
matter a January 2005 ANZ Industry Brief concluded:
...the outlook for
Australian manufacturing to this increased competition rests on the response of
local manufacturers' to stem further erosion of market share and profitability.
Manufacturers are expected to adopt a positive approach, rather than try to
preclude this competition through calls for the erection of trade barriers.
Nonetheless, some form of assistance is likely to be sought...[423]
6.57
Dr Robert
Davis, Director of the Trade and
International Affairs Branch of ACCI, emphasised the need for a value-added
approach. Dr Davis
identified:
...a view amongst
Australian manufacturers that they do have to move up the simply transformed
manufactures route...the more innovative and astute of them
moved up the chain so that Australian apparel manufacturing and textiles
now is no longer just $3 T-shirts at the market stuff; it is Australian
designed Australian motifs and it is moving right up the value-add chain...I
think Australian manufacturing is exiting the areas where China
is the most competitive, and that is a logical move. The future will be that we
will focus more on higher intellectual property component manufacturing, where
there is still that reticence to divest to China...[T]here is a tendency to allow the
generation 4 level technology into China while the Australian manufacturers are at
generation 7. I think Australian manufacturing will go into niche products. We
will never be making eight billion biros a year, but we will move into the
higher value-add, more technologically advanced area.[424]
6.58
This argument
is common in the developed world. The capacity of rich economies to maintain
their competitive advantage rests on a flexible, value-added economy, a highly
educated labour force, and leading technology and infrastructure.[425]
6.59
However,
the committee heard from several witnesses that China's development challenges this assumption. For
example, Mr William Apple, an Industry
and Investment Policy Adviser with the Australian Council of Trade Unions
(ACTU), emphasised that China's
growing competitive advantage is not confined to the labour intensive TCF
sector. He argued that China
had very successfully brought its many overseas educated engineers back to work
for multi-national companies. The combination of high levels of foreign
investment in China,
a large returning supply of foreign-educated engineers, and the support of
cheap semi-skilled labour was enabling China
to move rapidly up the value-added chain.[426]
6.60
Mr Edward
Murphy, an International Committee
Member of the ACTU, elaborated on this point for the committee:
Every year there are 550,000 engineering graduates from the
Chinese higher education system. Sony used to virtually dominate the mobile
phone battery sector as a global supplier. There is a Chinese company, I think
it is called BMD, which has taken around 40 per cent of the market share for
that particular product. This is the way BMD did it: it acquired one of the
industrial robots used in Japan to make the mobile phone batteries, took it to
China, disassembled it, worked out how it worked and substituted human labour
for the robots. BMD also had five times as many engineers in its factory as
Sony had in its factory in Japan. So you have low-cost labour—in part due to
economic circumstances and in part due to the absence of proper labour
standards—combining with a significant supply of highly skilled, tertiary
educated labour to produce a technologically sophisticated product. It is the
combination that is important in the case of China. It is not simply low-cost,
relatively unskilled labour in TCF type areas where China’s competitive
advantage is important. It is a lot broader.[427]
6.61
Mr Doug
Cameron, the National Secretary of the
Australian Manufacturing Workers' Union (AMWU), told the committee that trade
with China
exposed the fundamental need for Australia
to develop an industry policy for manufacturing. He argued:
We currently have a national trade deficit in manufacturing of
$83 billion. We have a deficit in elaborately transformed manufactures of $75.4
billion. We have structural problems in the economy. As I understand it, if you
look at some of the arguments put forward by the employers this morning, we are
importing low-value-added goods from China.
If you look at our submission, you will see that the major imports from China are high-value-added elaborately transformed
manufactures—goods like sound and video recorders, telecommunications
equipment, computers, televisions and computer parts; anything but
low-value-added components. We need an industry policy in this country to be
able to compete globally. The approach of the federal government at the moment
to simply rely on the market to determine the future of our manufacturing
industry is not an appropriate way to go.[428]
6.62
The AMWU's submission to the committee argued that
Australian policy makers have not yet realised that 'Chinese manufacturing
represents a significant threat to Australia's
manufacturing industries at all levels'.[429]
The submission noted that the maintenance of high value-added manufacturing industries
is important for the maintenance of a high standard of living. The AMWU claimed
that:
...in 2003 prices for every plasma television Australia imported,
Australia had to export in the vicinity of 150 tonnes of iron ore. If Australia
is to maintain and improve its standard of living, a trade and industry policy
built on the 19th and early 20th century view of
Australia as an agricultural and mineral supplier for the rest of the world is
clearly neither economically nor environmentally viable.[430]
6.63
Similarly, Mr Martin
Feil, a past director of the Industries
Assistance Commission, referred to a 'China
paradox':
[T]he more we trade with China
the more we will undermine the economic foundations of Australian society. We
will basically export natural resources and raw materials to China
and import manufactured goods from China.
We add virtually no value to natural resources and raw material exports other
than extraction and some logistics services. Imports of manufactured goods
embody a great deal of value added in the manufacturing process.[431]
6.64
Mr Feil
argued that employment growth in Australia
depends on value-adding exports and manufacturing products that substitute for
imports. Trade with China
limits these opportunities. He claimed that the 'winners' from trade with China
will spend on Chinese imports, and further deplete Australia's
manufacturing industry. Accordingly, Mr Feil
wondered how those 'who lack the education, experience and aptitude to be
gainfully engaged in the services industry' will find work.[432]
6.65
More optimistically, others argued that Australian
manufacturing can survive through securing strategic export niches in Asia.
Mr Tim Harcourt,
a senior economist with Austrade, told the committee that Australia
has been 'quite successful in niche manufacturing'. He argued that '...the issue
is really: have we got capacity and does it relate to things such as the scale
of plant, appropriate infrastructure, labour issues and so on? Certainly the
demand is there'.[433] Mr
Apple of the ACTU told the committee that Australia
needed a more aggressive approach to exporting ETMs to China's
supply chains in East Asia. Although aggregate export
figures suggest that China
has been a lucrative market for Australia's
ETM exporters (Table 6.6), Australia's
share of China's
ETM imports has fallen 'quite sharply'.[434]
The reason, he argued, was that Australia
has failed to tap into the East Asian supply chain that services China's
production. Australian exports of ETM's to East Asia
have not increased since the mid-1990s.[435]
6.66
Others preferred to emphasise the opportunities for
Australian companies to invest directly in manufacturing in China.
In this context, a 2004 Business Issues Paper from the Australian Chamber of
Commerce (AustCham) Beijing argued
the need for reform of non-tariff or 'beyond the border' measures facing Australia's
export manufacturers.[436] AustCham recommended
that the Chinese government:
-
remove VAT on imported goods;
-
make operating hours at inbound ports more
flexible to coincide with inbound shipments;
-
eliminate import duties on all capital equipment
used in production; and
-
ban all provincial protectionism (see
recommendation 5).[437]
The committee view on prospects and options for
Australian manufacturing
6.67
The
committee believes that the Australian manufacturing sector can meet the
challenge posed by growing and freer trade with China. It rejects the notion that continued trade
with China will render Australia nothing more than 'a quarry, a farm and a
nice place to visit'.[438] The sector
currently employs nearly 1.1 million Australians and is the largest spender on
research and development.[439] Although
its contribution to total production has declined over the past two decades,
the sector's share of exports has doubled.[440]
6.68
The
tariff reductions of the past twenty have exposed Australian manufacturing to
international competition and demonstrated that, in most cases, these
industries can respond and adapt. It is true that the volume, range and quality
of China's export manufactures will force many Australian
companies to restructure or phase-down production.[441] On cost alone, Australian
manufacturers will struggle to compete with China.
Their key opportunities are in using
advanced technologies to encourage inward investment and to find a niche in
overseas supply chains.
6.69
Leaving
the merit of an FTA to one side, the committee believes that the schedule of
progressive tariff reductions in manufacturing should continue. Direct
subsidies are expensive and would not alter the long-term competitiveness of
the Australian sector.[442] The strong
international pressure that Australian manufacturers now face does not
invalidate the Australian government's decision to open manufacturing to global
competition. However, the committee does stress the importance of
continuing government promotion and targeted assistance for the local
manufacturing sector.
Policy recommendations
6.70
The committee
did not explore fully the options that Australia should adopt to meet the challenge posed by
the likely influx of cheaper manufactured goods into Australia from China. Many academics and organisations have
varying viewpoints and suggestions on how the Australian government and the
manufacturing sector should respond to these continuing pressures.
A national manufacturing policy:
R&D and skills development
6.71
There is
a strong body of opinion calling for the Australian government to have an
overarching national policy on manufacturing to address China's challenge.[443] This was recommended by both the Australia–China
Business Council (ACBC) and the AMWU in their submissions to the committee. The
committee supports this proposal. It believes that two key pillars of a
national manufacturing policy must be to fund and coordinate research and
development in value-added technologies, and to support skills development in
technical education.
6.72
Increasingly, Australian manufacturers will need to
focus on innovation, rather than mass production. In 1996, the Howard
Government cut the R&D tax concession from 150 to 125 per cent. The 1996
level of R&D expenditure was only exceeded in 2003–04, when Australian
businesses spent $A7.2 billion.[444]
Still, Australia's
R&D spending remains less than one per cent of GDP (0.89 per cent) and on
this basis, ranks 15th among OECD nations.[445] The manufacturing sector accounted
for 46 per cent of the 2003–04 spend. In the year from 2002–03 to 2003–04,
R&D spending increased on motor vehicles and parts from $631 million to
$721 million, and on TCF products from $237 million to $260 million.[446] Some specific options that might be
considered include increasing the R&D tax concession and reducing the upper
limit—currently $50 million—on company turnover in order to qualify for the Commercial Ready Program.[447]
Recommendation 5
6.73
The committee recommends that as part of a national
strategy to promote innovation and value-adding in manufacturing, the
Australian government must develop a wider range of incentives for CSIRO, the universities,
private sector research centres and manufacturing companies to collaborate and
invest in R&D.
6.74
The committee is also concerned that Australia
has the workforce to complement this focus on a high-tech, value-added manufacturing
sector. It is important that the manufacturing and technical education sectors
continue to collaborate to ensure the supply and flexibility of the skills
base.
Recommendation 6
6.75
The committee recommends that the Australian government
follow through with recent initiatives to improve the manufacturing skills
base, particularly the creation of independent technical schools and a
streamlined national system of apprenticeships.
A coordinated export manufacturing focus
6.76
This
chapter has argued it is important that Australian manufacturing companies are
able to tap into supply chains in China and East Asia. Ultimately, the onus is on company
directors to formulate the appropriate strategy. However, the federal and state
governments also have an important role to facilitate these opportunities.
6.77
The committee acknowledges the high-quality of
existing arrangements for assisting Australian businesses in China.
Several witnesses praised Austrade, the consul generals and the Australian
Chambers of Commerce in Beijing and
Shanghai for their assistance in
establishing Australian businesses in China.
For example, Mr Duncan
Calder of the Western Australian branch of
the ACBC noted that these organisations are 'extraordinarily helpful in terms
of acting as an interface between the local community and the Australians going
up there [China]'.[448] Austrade has recently established
several offices in large regional cities such as Ningbo,
Xi'an, Chendu, Nanjing
and Qingdao.[449] In 2005, the number of Australian
companies it assisted in China
was more than double the corresponding number for 2002.[450] It is important that these networks
continue to develop to assist large and small to medium sized manufacturing
enterprises establish an export market or investment base in China.
Recommendation 7
6.78
The committee recommends that Australian government
agencies strengthen the coordination of efforts to promote Australian exports
to, and investment in, China
and East Asia. To this end, it is important that
Austrade continues to establish offices outside of Shanghai
and Beijing, and to develop further
the avenues for consultation between large and small Australian manufacturers
operating in China.
6.79
The
committee does not believe that better labour standards and enforcement of
intellectual property rights in China will enable Australian manufacturers to
compete with China on cost. This chapter has made the point that China's vast supply of labour will continue to
ensure that its wage levels remain low. Even if China's wages increased sufficiently to make some
of its factories uncompetitive, capital will simply shift to other low-cost
countries in the region.
6.80
However, the committee does believe it is
important that Australia
and the international community continue to exert pressure on China
to improve its standards of labour and intellectual property rights (see
recommendations 13 and 20).
Assisting the TCF industry—the
importance of industry plans
6.81
The committee supports the Australian government's
approach of phasing out tariffs for the TCF sector. The FTA currently being
negotiated may accelerate the rate of tariff reduction, although there is
strong resistance from within the TCF (see chapter 12). The committee notes
that Australia's
FTAs with the US
and Thailand
reduced the level of tariff protection for clothing by only five percentage
points to 12.5 per cent.[451]
6.82
Regardless of the extent and rate of tariff reduction,
it is essential that there are programs in place that promote TCF exports and
assist local manufacturers to adapt to import competition. It was noted earlier
that the most common strategy of Australian TCF firms has been to use low-cost
inputs from China
and to scale down production. This focus on cost containment may partially reflect
the sector's strong support for China
as an export market and as a destination for foreign investment (Table 6.10). From
this perspective, the failure to phase out tariffs on China's
TCF imports will keep Australian businesses' input costs unnecessarily high.
6.83
The TCF industry is a good example of how the Commonwealth
government can target assistance packages. In November 2003, the government
announced a $747 million TCF Industry Assistance package to commence on 1 July 2005 until 30 June 2015. The funding details were
announced in April 2005 as part of the Post-2005 Strategic Investment Program (SIP).[452] The SIP scheme is complemented by an increase in funding for various
other TCF programs and schemes:
-
$50
million for the TCF Structural Adjustment Program: the program assists TCF
firms, workers and communities to restructure or leave the sector[453];
-
$50
million for the TCF Product Diversification Scheme: the scheme enables
participants to earn duty credits to assist Australian manufacturers to
internationalise their sourcing[454];
-
$27
million to extend the Expanded Overseas Assembly Provisions (EOAP) Scheme: the
scheme enables participants to assemble particular TCF goods overseas,
reimporting them for local sale with duty payable only on overseas added value[455];
-
$25
million for the TCF Small Business Program: the program provides grants for
small TCF firms undertaking design or production of TCF products[456]; and
-
$20
million for TCF Supply Chain Program, which commences in 2010.[457]
6.84
The object of these schemes is to 'foster the
development of Australian TCF manufacturing activity so that it is viable and
internationally competitive'.[458] In
terms of meeting the challenges that China
poses, the committee sees particular merit in schemes that connect the
Australian manufacturing sector to opportunities abroad. The Overseas Assembly Provisions Scheme—the forerunner of the
EOAP—commenced in 1993, the same year that Australia abolished quotas on TCF imports. Originally
planned for three years, the 1995 budget extended the scheme until 2000. The expanded
scheme commenced in 1999 and was extended in 2003 until June 2010. The committee
supports this extension and would welcome an analysis of the extent to which
Australian TCF firms use the scheme to source from China and other East Asian markets.
Conclusion
6.85
China's
dynamic export-oriented manufacturing sector has provided the basis for its
high growth rates of the past decade. The sector has earned China
the reputation of being 'born global', in contrast to the mercantile model of
other Asian economies.[459] It has
transformed over the past decade to include the manufacture of high-tech electronics,
often completing a regional production chain. China's
ability to attract high levels of foreign direct investment and develop a
highly skilled workforce has enabled this transition to occur at unprecedented
speed. Combined with the low-cost, high-volume production of traditional
labour-intensive manufactures such as textiles, China's
manufacturing sector has been a significant source of competition, innovation
and tension in the world economy.
6.86
Australian manufacturers are certainly not alone in facing
the challenges that China
poses. The package of assistance for the Australian manufacturing sector must
be continually refined in light of developments in China.
First, a national policy on manufacturing is needed to promote research and
development and address the shortages in basic engineering and technical skills.
Second, Austrade and other supporting agencies must continue to monitor
carefully the opportunities for manufacturing investment in China
and East Asia. Austrade also has an important role
promoting discussion among Australian manufacturers in China
and urging Chinese authorities to improve regulatory consistency. Third, direct
government assistance programs must continue to assist certain domestic
industries to diversify, shift or phase out production.
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