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Banks to thrive on China trade deal

The Australian, Canberra

Banks to thrive on China trade deal

By Scott Murdoch, China Correspondent

20 July 2013

The Australian financial services sector could be a major beneficiary if the Labor government is able to finalise the long-awaited free trade agreement with China.

Analysts in Beijing believe China would be willing to allow Australian banks and securities firms greater access to the lucrative Chinese financial market.

Under the current rules, the domestic banks can only hold a minority stake in joint ventures with Chinese institutions.

The Commonwealth Bank and ANZ both hold shares in small Chinese banks, while each of the Australian majors have branches in China.

Trade Minister Richard Marles is due to arrive in Beijing shortly for the next round of talks on the FTA, which has been under negotiation for almost eight years.

There have been at least 17 rounds of official discussions but no final deal.

China Academy of Social Science researcher Gao Cheng said China would most likely use the financial services market as a key bargaining tool in its discussions with Australia.
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China has advocated that Australia lift the investment threshold on Chinese firms requiring Foreign Investment Review Board approval from $264,000 to $1 million, which would be in line with most other countries.

"In response to Australia making the concession to lift the threshold, China may open its services sector, including financial services and securities, to Australia to help ease some of Australia’s concerns," Ms Gao said.

"China has always been cautious about introducing foreign investment into those sectors which are considered conservative, but China could have its own motives.

"After years of development, the financial services sector has become more mature with more players in the industry and the sector is ready for more co-operation and competition."

China reaffirmed its commitment to the FTA this week as the Ministry of Commerce said it was hopeful a deal could be struck.

Kevin Rudd said he would make reaching a final agreement a priority for his government after he regained the primeministership late last month.

China is now Australia’s largest trading partner, with trade between the two nations worth up to $140 billion a year.

"An FTA between China and Australia is no doubt beneficial to both countries and it would help China maintain better relations with Australia," Ms Gao said.

However, Ministry of Commerce researcher Mei Xinyu said the lengthy negotiations meant Australia had missed the full benefits of an FTA.

"The obstacle to the deal is not on the Chinese side, China has confidence in the competitiveness of its industries," Mr Mei said. "It is Australia that has had excessive considerations.

"Australia has missed the best time to reach an agreement. It should have been done four or five years ago, when commodity prices were higher."

HSBC’s head of commercial banking, James Hogan, said Australian businesses were well placed to capitalise on growth in China’s services sector.

"Commodities is going to remain a key export for Australia but China’s average salary is expected to grow sevenfold in the next two decades and that is going to create significant opportunities in areas like services," Mr Hogan said.

"The signing of an FTA with China will ensure that Australia is better placed to capture those opportunities and give Australian importers and exporters, particularly those outside the mining industry, a greater competitive advantage."