Today, Australian headlines are filled with joyous expectations following the memorandum-of-understanding signatures that were documented yesterday in Canberra by Prime Minister Tony Abbott and President Xi Jinping.
Although analysts, such as prominent Chinese academic Dr He Fan, have discussed the event in terms of a beginning, the expectations have been broadcast in an impressive manner. Last year, the trade between the two nations was worth US$130 billion, and Monday's free trade agreement is worth an additional $1.8 billion, annually, to Australia, as 95% of its exports will eventually be allowed into China on a duty-free basis. Abbott explained that the deal represented the end of a "10-year journey," and the Australian leader can add the achievement to the free trade agreements that he has also signed with Japan and South Korea this year.
According to HSBC chief economist Paul Bloxham, the agreement "should help support a dining boom as the mining boom comes to its end," as China, currently responsible for one out of every three dollars that Australia earns from exports, moves onto supporting Australia's other sectors after the dwindling of the country's considerable mining industry. The University of New South Wales' Laurie Pearcey is particularly concerned with the Australian service sector, which is currently just under 70% of GDP, and exclaimed in the Conversation this morning: " This deal provides Australia with the best market access provided to a foreign country by China on services."
As for China, which has also made significant free trade progress with South Korea, President Xi is in the process of supporting a rising middle class, reforming the financial system and managing an insurance boom-the Australian agreement also adds to his vision of free trade in the Asia-Pacific region, which continues to compete with that of the U.S.
Pearcey highlighted the benefits for Australia's education and finance sectors, as the former will have direct access to the world's largest source of full-fee-paying international students, while firms applying for financial services licenses and seeking to trade directly in renminbi will experience a streamlined system. The Australian agricultural sector is also expected to reap significant rewards, as dairy farmers and winemakers will no longer face tariff barriers.
However, not everyone is entirely convinced, as AMP Capital chief economist Shane Oliver has warned against exaggerated benefits, while JP Morgan chief economist Stephen Walters spoke of "extremely positive" results, but added that the benefits will emerge over a four-to-ten-year period. As Monday's agreement will be reviewed after three years, Abbott will be looking for clear signs in 2017.
