IAN Macfarlane is not only the watchdog of the financial status in Australia and inflationary trends, but he has his own views about the future of the country and the economic development in Asia.
So when the Governor of the Reserve Bank of Australia speaks his mind, the business community listens attentively and note what he says.
He acknowledges that he does not know how the recent trades within Asia will develop in the global economy that does not stand still.
“The story of the rise of China seems likely to have some way yet to run,” he told a group of business people at the 10th annual Sir Edward “Weary” Dunlop Asialink lecture in Sydney last week.
But he has no doubt that the rise in importance of China and its impact on Australia will turn out to be the “end of the story for Asia because the next chapter will probably contain a greater role for India.”
Macfarlane believes that India’s population is growing at twice the rate of China’s and is now looking to the Asian region in its trade policy.
Recently, it concluded a free trade agreement with Asean, which also has completed similar pacts with China and Japan.
“If India emerges as a second Asian engine of growth, Australia will face new opportunities and challenges,” says Macfarlane.
“But we are well placed to respond to its increasing demands for imports of food, materials and intermediate goods.”
He calls on the Australian business people to ensure that they have the flexibility to respond to this additional source of growth.
His message is clear. Don’t lose sight of the fact that Asia is still important to Australia’s economic future, as some people seem to have forgotten.
China will assume an increasingly important role just as Japan did in the 1960s and 1970s. But India will probably be the next giant in the economic sense as China is currently.
Macfarlane, who takes a fresh look at Asia’s place in the world economy, particularly its place in Australia’s economic future, believes there is great apprehension about China’s rising dominance.
Understandably, countries that compete with China as exporters of manufactures and recipients of direct foreign investment feel they will be overwhelmed.
He thinks that most Australians welcome the growing importance of China, partly because they do not see Beijing as a competitor in low-tech high-volume manufacturing.
They see China as a “complementary economy.” It would have been different if Australia had maintained the old heavily-protected manufacturing sector in the first half of the post-war period.
This complementary standing, he points out, does not mean that Australia has to see itself as only a provider of resource-based products from our mines and farms.
Manufactured exports to China, while still small, will grow strongly with plenty of scope for the further expansion of high value-added manufacturing and service exports.
He describes as “remarkable” the growth in international intra-industry trade – two countries both exporting to each other within the same type of product, especially in manufacturing.
He says no one should be surprised to find that over the past 20 years, Asia’s share of world output has been rising noticeably or the fact that the share of the developed OECD countries has fallen.
While much of the rise is due to China, its exclusion for comparative purpose still shows that the rest of Asia’s share is up from 7.8% to 12.2% over the past two decades.
Over the same period, only two OECD countries – Australia and the United States – have increased their share of world output.
The general conclusion, as Macfarlane points out, is that Asia has been and still remains the world’s fastest growing region and that Australia has done well compared with other high-income developed OECD countries.
He poses four questions to the Australian business community:
Has Australia become over-reliant on Asia? Alternatively, has Australia kept up its share of Asian imports? Has the closeness of Australia trade linkage been mirrored in the capital markets? Is Australia well-placed to adapt to future changes in patterns of growth?
Not surprisingly, based on Macfarlane’s figures, Australia’s exports to Asia seem to have remained static in recent years. Its present level of 55% has not risen to its peak of 59% before the Asian financial crisis in 1996-97.
In fact, Australia’s exports to China, while clearly increasing, are still quite low compared with the total imports in Asia.
The intra-Asian trade, particularly between China and its neighbours, has grown more quickly than trade between Asia and the rest of the world.
This is a general shift in the trade patterns of developing economies, which are now predominantly exporters of manufactured goods.
The export figure of manufactures from developing economies in Asia has jumped dramatically from 25% in 1980 to more than 90%.
“The question for Australia then is whether our exports to Asia are growing as fast as those of other countries into Asia?” says Macfarlane.
“It is difficult to answer this with precision in large part because of gaps and inconsistencies in data. But the approximate calculations we have made suggest that our exports are keeping up.”
He points out, too, that Australia’s performance has been particularly strong in the exports of food, fuels and crude materials.
To sum up, he believes that Australia has been doing reasonably well. Its patterns of international trade are strongly integrated into Asia.
Apart from what he describes as “a small downward adjustment due to the probably temporary effects of the Asian crisis,” the trend is stable.
“There appears to be a lot of upside potential in the trading relationship with China, given our low market share in that country,” he concludes.