The growing relationship between WA and China warrants a mature approach from both sides.
PREMIER Colin Barnett returned from his trip to China last week with a feather in his cap.
After two days of meetings in Beijing, he signed a memorandum of understanding with China’s National Development and Reform Commission, covering bilateral trade and investment cooperation.
It was the first time this body has signed an agreement of this kind with a provincial or state government.
On its own, this agreement does not necessarily mean a lot, but in the context of growing trade and investment links between Western Australia and China, it signals a big opportunity.
Mr Barnett pointed out that 80 per cent of China’s investment in Australia is in WA.
Similarly, 73 per cent of Australia’s exports to China come from WA.
Looking at the relationship from a WA perspective, China is the state’s largest export market and likely to grow even more important as that country continues its rapid expansion.
As Commonwealth Treasury secretary Martin Parkinson highlighted in his recent Shann Memorial lecture (see facing page), China is now the second largest economy in the world and is expected to surpass the US by 2020.
So for parochial reasons, and for broader global reasons, China is a big part of our future.
WA’s ability to manage the relationship could have a large bearing on the state’s growth prospects.
The connection between WA and China is strongest in the mining sector, with China being our largest customer and a large investor in iron ore projects.
Prime examples are Sinosteel’s acquisition of local company Midwest Corporation and Ansteel’s backing of, and partnership with, Gindalbie Metals in the Karara iron ore project.
CITIC Pacific is another big investor, and Asia Iron is planning a large iron ore development
These Chinese entities have varied ownership structures, though formal ownership is not always revealing in a country with blurred lines between state-controlled and private investment.
The country has a thriving private sector, yet the continued operation of bodies like the National Development and Reform Commission, and the recent unveiling of its 12th five-year plan, shows the influence of central decision-makers.
The NDRC oversees restructuring of China’s economy, formulates economic policy, including China’s approach to key overseas investment markets, and approves major infrastructure projects.
It reports directly to China’s highest executive body, the State Council of the People’s Republic of China.
That makes the establishment of a China-Western Australia Investment Facilitation Working Group particularly interesting.
This body will bring WA and Chinese officials together each year to discuss issues such as: “Local content policies, identifying key growth sectors and opportunities for joint development initiatives and opportunities to establish alliances between Chinese and WA businesses”.
If two Western countries signed this kind of agreement it would fairly readily be dismissed as a mere diplomatic gesture.
But with China it’s likely to mean much more, to the point where the WA government, now and in the future, needs to be careful it doesn’t get drawn into an overly centralised, controlling mindset.
Mr Barnett has previously shown a tendency to get involved, to a surprisingly deep level, in matters that a pro-market premier would normally leave to the private sector.
Let’s remember that the Oakajee port and railway project was originally a purely private sector development, until Mr Barnett decided that the government should invest in the port infrastructure.
Some degree of central planning and oversight is prudent and necessary.
That is why the business lobby in WA has been calling for years for the completion of a state infrastructure strategy, to help guide development.
Ultimately, though, the private sector needs to retain the capacity to make its own investment decisions, based on commercial evaluation, and that should include dealings with Chinese entities.
The balance between strategic (or diplomatic) interests and commercial goals is likely to be tested by negotiations over the Oakajee project.
This is the pointy end of the relationship with China, which is keen to be involved in the infrastructure development to support its mining projects in the Mid West.
It will be fascinating to see how effectively the WA government, the Chinese government and private investors can work together to revive the stalled development.