Australian Economic News

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Australian dollar dives below US86c
DANIEL PALMER BUSINESS SPECTATOR NOVEMBER 06, 2014 7:48AM

THE Australian dollar has endured one of its worst sessions this year as investors rallied around the US dollar on the back of midterm elections that saw the Republican Party lock up control of both houses of Congress.

At 7.20am (AEDT), the local unit was trading at US85.86c, down from US87.24c at the end of the local session yesterday.

Over the past 24 hours the currency has seen a high of US87.64c and low of US85.65c, with the 2c trading range one of the widest seen all year.

The falls led the Australian dollar to a four-year low, with levels below US86c last seen in July 2010.

Driving the weakness was optimism about the prospect for a pro-business policy agenda driven by the Republicans, with the development resulting in a surging greenback, rising stockmarket and a sharp retreat in the price of gold.

The US dollar was also strengthened by news of robust October private jobs growth, a positive sign ahead of this week’s official jobs report.

Adding to the Australian dollar weakness was news of another five-year low for key export iron ore, which is expected to weigh on the local economy.

BK Asset Management managing director Boris Schlossberg said all the major currencies fell against a rallying US dollar following the election results.

“Part of the reaction was simply a knee-jerk move as markets often assume that Republican rule will be more business-friendly and will help the US economy grow,” he said.

“However, the rally in the US dollar may be also a bet that the change in legislative leadership would expedite the policy actions of the US Federal Reserve towards interest rate normalisation.”

Mr Schlossberg said the Republicans are opposed to the Fed’s economic stimulus policies and there is likely to be increased pressure on Fed chair Janet Yellen to raise interest rates.

National Australia Bank global co-head of FX strategy Ray Attrill said the Australian dollar was one of the worst performing currencies overnight because of falling metals prices.

Gold hit a five-year low, iron ore prices continue to slide after China ordered a temporary shutdown of some of its steel mills and copper prices have hit their lowest levels in three weeks.

“For all the compelling fundamental reasons for the Australian dollar’s fall, we can’t ignore the fact that the simple break below the recent low of around 86.50 US cents provided the cue for fresh bouts of selling,” he said.

A focus for markets today will be the release of local employment figures for October.

Business Spectator, AAP

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Morgan Stanley warns on recession
JAMES GLYNN DOW JONES NOVEMBER 06, 2014 7:25AM

EconOMISTS don’t ever agree on much, but they certainly don’t agree on the prognosis for Australia’s economy.

A bump in retail sales data in September gave ballast to the argument that Australia is transitioning away from mining, a sector which is suffering amid weak commodity prices.

But less sanguine observers say the nation is far from making the switch away to a more locally driven economy. Count Morgan Stanley among the naysayers.

This week the bank poured a cold warning on any optimism, saying the country may be on track for its first recession in more than two decades — unless the government takes action.

Morgan Stanley revised lower its forecast for economic growth this year to 3.2 per cent from 3.4 per cent. In 2015, it now expects growth of only 1.9 per cent, down from an earlier forecast of 2.5 per cent. That compares with the current central bank forecast of around 3 per cent.

Some economists saw a rise in retail sales in September as signalling that record low interest rates, in place for over a year, are starting to help demand.

Optimists see a property boom in the eastern cities of Sydney and Melbourne as spurring demand, taking up some of the slack as the western-focused mining boom fades.

They also cite a falling Australian dollar, which helps commodity exporters, local manufacturers and retailers, as reason to take hope.

Morgan Stanley begs to differ.

“The economic transition in Australia from the resources boom to east coast recovery has stalled,” it said.

Morgan Stanley says most commentators are underplaying the impact of falling commodity prices on the economic outlook.

The price of iron ore, the country’s biggest export, has dropped 40 per cent this year, and coal also is sliding. An end to an investment boom in mining has thrown many Australians out of well-paid jobs.

The bank notes the Australian dollar’s fall hasn’t kept pace with the decline in commodity prices.

The currency will need to fall to around 76 cents to the US dollar, much lower than just under US90c now before it starts to support growth, Morgan Stanley said. It doesn’t expect that to happen until late 2015.

And if this wasn’t gloomy enough, the bank says weak wage growth and rising joblessness will keep a lid on household spending.

Morgan Stanley thinks unemployment will drift toward 7 per cent over the coming year, up from a current 12-year high of 6.2 per cent, making it one of the few commentators to expect things to worsen. The government will release employment data for October on Thursday.

So what should the government do?

The bank urges more rate cuts, from the current record low of 2.5 per cent, and an end to belt-tightening by a government that’s worried about growing public debt.

Morgan Stanley says there’s a 50 per cent chance the central bank will need to further cut rates, despite Governor Glenn Stevens’ public statements that monetary policy has done all it can do.

The current market consensus is for a lengthy period of stable rates followed by increases starting late next year. Still, other observers, including JP Morgan Chase, say the central bank may have to further lower rates.

Mr Stevens has warned that lower rates risk overheating the property market. He’s called on businesses, instead, to start lifting the economy by investing more aggressively.

Meanwhile, Treasurer Joe Hockey has committed the government to new taxes and big spending cuts that politically would be difficult to reverse.

“The last Australian recession was back in 1991,” Morgan Stanley’s economists say. “Avoiding one at this juncture requires a change in policy settings to offer more stimulus. The risk we see is that conditions almost certainly need to deteriorate before this will occur.”

Australia has taken extraordinary steps in the past to boost growth. Over the 1980s and 1990s at various times the country floated its currency, dropped trade barriers, reformed its wage-fixing system, allowed in foreign banks, and granted its central bank independence.

Those radical changes, combined with rising Asian demand for the nation’s resources, helped drive up productivity and create a recession-free period since 1991.

Morgan Stanley says the benefits of those reforms are now looking “exhausted.” The bank called for more government spending on infrastructure to lift growth.

Dow Jones

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Economy fragile amid housing bubble fears: IG Markets’ chief
THE AUSTRALIAN NOVEMBER 06, 2014 12:00AM

Glenda Korporaal

Editor, The Deal
Sydney

IG Markets global CEO Tim Howkins says he is ‘nervous’ the property bubble could burst and warns that ‘if it does burst, things can be quite messy’. Picture: Britta Campion Source: News Corp Australia

IG Markets global chief executive,Tim Howkins has expressed concern that the Australian economy has become “quite fragile” with increasing investor concern about potential bubbles in the housing markets of Sydney and Melbourne.

In an interview with The Australian during a visit to Australia, the London-based Howkins also warned that there was the potential for an “accident waiting to happen” if the government did not tighten up regulations on contracts for difference (CFD) operators.

IG Markets is Australia’s largest issuer of over-the-counter CFD products with some 40 per cent of the market.

“It feels as if the economy here is quite fragile,” Mr Howkins said.

“You have clearly got something of a property bubble, particularly in Sydney and Melbourne. That is just making people a little bit more cautious at the moment.”

“You can definitely see it both in the recruitment of new clients and in the activity levels of our existing clients.”

Mr Howkins said he was “nervous” that the property bubble in Australia could burst.

“The nature of bubbles is that they have to burst and, if it does burst, things can be quite messy.”

Listed on the London Stock Exchange, IG Markets operates in 17 countries around the world. It makes 10 to 15 per cent of its annual $700 million in revenues from its Australian-based clients, trading contracts for difference and foreign exchange on its platform.

Mr Howkins also expressed concern at the situation in Australia where CFD operators were effectively allowed to access their clients’ money for proprietary trading.

IG and other large players in the market are worried that a return to high volatility in world markets could see some smaller operators pull money out of the accounts of their Australian clients and give the broader industry a bad name.

“The rules here say you (a CFD provider) have to segregate client’s money, but then you can use it for your own purposes for hedging, which completely destroys the whole purpose of client money segregation,” he said.

“The provider can, and some of them do, use that money to hedge. It means that in the event of a default by the provider, the client’s money is at risk.

He said Australia was the only market in the world where this practice was allowed to happen. Britain had tightened up its controls six years ago in the wake of the global financial crisis. “This has the potential to be an accident waiting to happen,” he said.

Mr Howkins said the Australian Securities & Investments Commission also supported a tightening up of the regulation but it had been difficult to progress the issue in government circles. He said IG Markets would open a stockbroking business in Australia next year for its local clients following the recent establishment of a broking business in Britain.

“The area here where we feel we can compete very effectively will be dealing in international stocks,” he said. “That is always something we have been very strong on. We can leverage our existing ability to offer CFDs on those international stocks and trade them with a very user friendly platform and turn it into a conventional cash equity platform.”

Mr Howkins sad IG would offer the international stockbroking service across all platforms including mobile phones.

He said the introduction of competition in the Australian share trading market, with the establishment of ASX competitor Chi-X was “a thoroughly good thing”. He said it was “good for liquidity, good for price discovery and good for the consumer”.

IG was using both exchanges in Australia to “try to find the best price for our clients and then execute (the trade) on the best possible venue from a cost point of view”.

“It means that we, and therefore our clients, can get better prices and it reduces our operating costs that we have to pass into our clients.”

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A price on retirement, as male dropouts saving grace
THE AUSTRALIAN NOVEMBER 07, 2014 12:00AM

David Uren

Economics Editor
Canberra


Hard work on the jobs frontMel Wyeth - Semi Retired Yarn

UNEMPLOYMENT has held at close to a 12-year high of 6.2 per cent and would be climbing even higher but for the growing numbers of men opting out of the workforce altogether.

The number of jobs across Australia is growing at only half the rate of the adult population, according to the Australian Bureau of Statistics, forcing more people to decide whether to actively hunt for jobs or take a temporary or ­permanent break from working.

Westpac senior economist Justin Smirk said that were it not for people dropping out of the search for work, the jobless rate would now be 7.2 per cent.

Since the start of last year, the share of the population of adult men either working or looking for work has fallen by a full percentage point — equivalent to about 100,000 men — while women’s participation rate has been stable.

“Women’s participation is holding up because an older group of women are coming through who have more education and a greater attachment to the workforce than their predecessors. Their retirement pattern is ­becoming more like that of men,” Mr Smirk said.

However, growing numbers of baby boomer men are retiring, ­including some who would have intended retiring six years ago but lost savings they were counting on during the global financial crisis.

Mr Smirk said many men made redundant from full-time work were opting out of the workforce or looking just for part-time work.

Former architect Mel Wyeth said many retirees felt they still had a lot to give and did not want to be “written off” just yet.

“Like many of my friends, I am not ready to potter around yet … I miss the action and interaction of business and colleagues,” said the 74-year-old from Taringa in Brisbane’s southwest.

Retirement can now last for 20 years and most Australians are relying on government pensions as their main source of ­income — which was not enough for a “comfortable” lifestyle, he said.

The conundrum prompted Mr Wyeth and his wife, Heidi, to use their spare time to create a website, “Retirees Working 4 Retirees”.

The site allows those who have been laid off or have given up work to use their skills for self-employment by creating an hourly rate for their services.

“The retiree can work when he likes and for as long as he likes, free from the burden of regular hours … and earn themselves some money,” he said.

The number of men actively looking for full-time work has not changed in the past 12 months while the number of unemployed women seeking full-time positions has risen 8 per cent.

The labour-market slowdown is most evident among part-time workers, where there is much greater churning of roles. The number of unemployed looking for part-time work has jumped 30 per cent in the past 12 months.

The influence of public-sector cuts is starting to show through in the ACT job numbers, which had always been the lowest in Australia, at less than 4 per cent, but which have leapt in the last four months to 5.4 per cent.

The October labour-force survey shows that NSW and Western Australia are still performing better than the rest of the country, with jobless rates of 5.8 per cent and 5.1 per cent. Jobless rates for Victoria, Queensland and South Australia are all between 6.6 per cent and 6.8 per cent. Tasmania has the worst labour market with a jobless rate of 7.2 per cent.

Additional reporting: Gina Rushton

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Mining comes off the boil, regional Queensland feels a jobs chill
ANDREW FRASER THE AUSTRALIAN NOVEMBER 08, 2014 12:00AM

Eric Webb, of Calibre Aviation in Emerald, says ‘it’s the toughest time in the 20 years that I’ve been running this business’. Picture: Lyndon Mechielsen. Source: News Corp Australia

ALMOST 10 per cent of the workforce in parts of regional Queensland is without a job as the slowdown in the resources sector hits not just mining, but also those industries associated with ­exploration and supplies.

It was revealed during the week that Queensland has, on a seasonally adjusted basis, the highest unemployment rate of any state in Australia, with 7 per cent unemployment last month — higher than even Tasmania.

Regional breakdowns of employment levels will be available in the next few weeks, but an analysis of the September levels of unemployment in regional Queensland shows that communities with a large number of fly-in, fly-out workers or people providing ­mining-support services are the ones most affected.

Given last month saw an ­increase in overall ­unemployment in the state, the September figures for regional Queensland are likely to be conservative.

But they show that Townsville — the Australian city with the ­second largest number of fly-in, fly-out workers, after Perth — has an unemployment rate of 9.6 per cent while the Wide Bay region, which has large fly-in, fly-out communities at Hervey Bay and Bargara near Bundaberg, has an unemployment rate of 9.8 per cent.

Townsville has traditionally had the most stable economy in regional Queensland because the city has a large number of people on the public payroll, a strong military presence, James Cook University, and research institutions such as the Great Barrier Reef Marine Park Authority and the Australian Institute of Marine ­Science.

The Queensland coastal city that has most benefited from the mining boom in recent years — Mackay — has a rapidly rising ­unemployment rate, increasing from 3.2 per cent in July to 5.9 per cent in August and 8 per cent in Sept­ember.

In the coalfields, about 200km inland from the central Queensland coast, business has slowed dramatically from the heights of two years ago, and the slide has quickened in recent months as mines have closed or cut staff.

At Emerald in central Queensland, charter helicopter operator Eric Webb, of Calibre Aviation, has struggled to find work for his fleet of eight aircraft over the past few months, forcing him to mothball as many as six of the helicopters.

“It’s pretty grim at the moment — there’s hardly any work about. It’s the toughest time in the 20 years that I’ve been running this business,” he said.

“A few years ago, we were running investors out to the mines, geologists doing surveys, sometimes some heavy lifting out at the mines, but there’s been less and less work all year and now all of that work has dried up.”

He used to have six pilots on staff and five contract pilots, but now relies on two.

“It’s the same with all the businesses around town,” he said.

Townsville-based economist Colin Dwyer said the mining ­industry had “fallen off a cliff” in recent months, and this had hit ­regional communities such as Townsville and Hervey Bay particularly hard.

“A lot of these communities have benefited a lot from the mining boom and been very prosperous, but the real problem is that they haven’t been able to capitalise on that in the long term,” Mr Dwyer said.

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Greenback poised for sharp rise as US economy shines
THE AUSTRALIAN NOVEMBER 10, 2014 12:00AM

David Uren

Economics Editor
Canberra
US dollar
US dollar Source: TheAustralian

THE US dollar is set for a massive rise that will parallel those that occurred in the late 90s and early 80s and will dwarf all other influences on the Australian currency.

Strong employment growth in October brought the US jobless rate down to 5.8 per cent, according to payroll data released on Friday night, and analysts are now predicting the US Federal Reserve will be worrying about lack of spare capacity in the economy by the first half of 2015.

The strong contrast between the fortunes of the US and that of Europe and Japan, both of which are struggling to keep their economies out of recession, has already resulted in a 9 per cent rise in the US dollar on a trade-weighted basis since July.

The US currency is now up by 20 per cent since the low point in May 2011. However, in the 1990s the US dollar climbed 40 per cent while in the early 1980s the ascent from trough to peak reached 60 per cent. The divergence in economic outlook between the US and the rest of the world is greater now than it was then.

The Reserve Bank is fretting about the impact of Japan’s quantitative easing program on the Australian dollar, which it suggests will result in large capital flows into Australia.

“Such flows could hold the Australian dollar at a higher level than real economic fundamentals would imply,” the bank commented in its monetary policy statement, released on Friday.

Even if these flows do eventuate, which is far from certain, they will not stop the Australian dollar from falling further as the US dollar continues its rise against ­all-comers.

The Reserve Bank argues that the 5 per cent fall in the Australian dollar on a trade-weighted basis since July is not enough, given the 30 per cent fall in iron ore prices since then. Although the currency has risen by almost 9 per cent against the US dollar since the beginning of July, it has barely moved against the euro and has actually risen by about 2.5 per cent against the yen since then.

The expansion of Japan’s quantitative easing program involves the injection of ¥80 trillion (almost $800 billion) over a year and is nearly as large as the US Federal Reserve’s program at its peak, despite the US economy being nearly three times the size of Japan’s. Japan also announced a big shift in the portfolio allocation of the government pension fund, which will also depress the yen.

However, the ANZ’s head of global research, Richard Yetsenga, notes that on the day these announcements were made, the gold price fell. The market was not behaving as if a flood of liquidity out of Japan would inflate other assets. It was concluding that a weakened Japan meant a stronger US dollar and all non-US dollar assets fell.

Yetsenga says that in currency markets, the US dollar is the gorilla for which all others make way. Easing by central banks in Japan or Europe will only influence global markets at the margin. This partly reflects the US dollar’s continuing role as the world’s reserve currency. It is on one side of 87 per cent of all currency trades, according to the Bank for International Settlements foreign exchange survey. The US dollar is by far the biggest international exposure for virtually all non-US investors, with foreign holdings of US securities now approaching $US15 trillion. Yetsenga says the excess liquidity in world markets influenced by Japan’s moves and, prospectively, those of Europe should keep bond markets well behaved and may support equities. But the US dollar’s strength will be reflected in a continuing fall in the Australian dollar, which he says could easily drop below US80c. In the 1980s surge in the US dollar, the Australian currency dropped below US60c while in 2001 it reached an all-time low of US47.7c.

There are many differences this time around, among them the quantitative easing strategies of central banks in Japan and Europe and the rock-bottom rates worldwide. However, common to both periods were rising US rates and falling commodity prices.

A strong currency invariably hurts exporters and the US is no different. There were reports over the weekend of pressure for the US to introduce exchange rate management into the free trade agreement being negotiated with Japan, Australia and other members of what is to be called the Trans Pacific Partnership. US manufacturing is concerned about losing competitiveness against Japan.

However, domestic demand is such a dominant factor in the US economy that a strong currency does not have such a contractionary influence and has traditionally been associated with firm growth. The US’s new-found energy self-sufficiency is an added source of strength this time around.

The rise in the US dollar will, however, cause pain in China, with the yuan still linked. Against the Australian dollar, the yuan has risen a bit further than the US dollar since mid-year.

So far, China’s exports have been holding up, but this could change as the US dollar’s appreciation continues. The Chinese authorities could widen the allowable band of daily movement to allow the yuan to fall.

Although China’s economy is still growing much faster than most other economies in the region, it is slowing, and the state of its property market is the cause of increasing global concern. The Australian dollar has often been seen by global investors as a proxy for investing in China. With markets increasingly keen to sell China and buy the US dollar, the resilience of the Australian dollar’s, which has troubled the Reserve Bank, is likely to give way.

RBS Asia-Pacific strategist Richard Gibbs doubts that the Japanese easing will bring a flood of funds into the Australian dollar. When the Bank of Japan first started its quantitative easing program in late 2013, there was a flow of funds back into Japan as Japanese investors repatriated foreign investments to buy Japanese equity and property. Gibbs says the big foreign trade then was selling the yen while buying Japanese equities, and the same trade is occurring now.

With Australia’s terms of trade continuing to weaken, he says it is possible that US rates will rise to the same level as Australia’s, as occurred in the 1990s.

It is hard to see what can stop the rise of the US dollar, short of a sharp fall in US activity or a robust recovery in Europe and Japan along with a revitalisation of China’s economy.

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RBA ups mortgage-backed securities to $25bn
AAP NOVEMBER 11, 2014 3:45PM

The amount of home loan-backed securities held by the Reserve Bank has increased 25 fold to help banks settle day-to-day transactions.

The central bank now holds $25 billion worth of the securities, known as residential mortgage-backed securities (RMBS), compared to $1 billion a year ago.

The RMBS market nearly collapsed during the 2008 global financial crisis, but a senior RBA official says the RMBS market has recovered.

"Issuance started to pick up in late 2012, reached a post-crisis high in 2013, and has remained high since then," the head of the RBA's domestic markets department, Chris Aylmer, told a conference on Tuesday.

"This mainly reflects the strong performance of Australian residential mortgages and the high quality of the collateral pools which are primarily fully documented prime mortgages."

Mr Aylmer said while Australia's market had recovered, the RMBS markets in both the US and Europe remain subdued.

The RBA has increased the number of RMBS it holds because of a change late last year in the way the banks settle their transactions with each other, now on the same day.

This has created the need for a large pool of cash in the interbank cash market.

The banks have raised this cash by selling RMBS and other securities to the RBA, typically under a repurchase agreement which reverses the transaction after a predetermined time.

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Consumer sentiment still in doldrums
AAP NOVEMBER 12, 2014 10:40AM

CONSUMERS haven’t been this depressed since the global financial crisis.

The number of people who feel pessimistic about the economy has outweighed the optimists for nine straight months, according to the latest Westpac/Melbourne Institute consumer sentiment survey.

That marks the longest run of pessimists outweighing optimists since the global financial crisis and before that, the 1990s recession, Westpac chief economist Bill Evans said today.

Confidence did pick up in November, rising 1.9 per cent from October, but the result was still disappointing, Mr Evans said.

The consumer sentiment index remained almost 4 per cent lower than it was before headlines about the federal government’s tough budget began to emerge earlier in 2014, Mr Evans said.

And that doesn’t bode well for the upcoming Christmas season. “The November consumer sentiment index is watched closely as a lead indicator for prospects for the Christmas selling season,” Mr Evans said.

“In that regard, the 0.8 per cent fall in the component `good time to buy a major household item’ is disappointing, particularly given that this component is now down by 13 per cent over the last year.” In further “disturbing” news, many people plan to spend less on Christmas gifts this year, Mr Evans said.

When asked whether they would spend less on gifts this year compared with last year, 38 per cent of people said “less”, 50 per cent said “same” and 12 per cent said “more”.

The result was the worst since 2008, when the global financial crisis hit, Mr Evans said, a marked deterioration from the past five years.

Meanwhile, house price expectations remained 14.3 per cent lower than a year ago.

Mr Evans said most of the fall had occurred since September, which is when the Reserve Bank began issuing warnings about a possible housing bubble, and flagging regulations to curb property investor activity.

“Up until then, expectations were fairly solid but over the last two months the index seems to have established a base which is down by around 10 per cent since September,” he said.

On a positive note, survey respondents were more upbeat about the outlook for the economy, probably due to recent increases in share markets, positive global economic news and the stability in the Australian dollar, Mr Evans said.

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Nation too backward to make food bowl a reality: McGauchie
THE AUSTRALIAN NOVEMBER 14, 2014 12:00AM

Ean Higgins

Reporter
Sydney
PLANS to make Australia the food bowl of Asia will fail unless governments take hard decisions to address trade protectionism, decrepit transport infrastructure and declining investment in research, agribusiness leader ­Donald McGauchie has warned.

In a blistering speech to the F20 Global Food Security conference in Sydney yesterday, Mr McGauchie also criticised the coastal shipping industry as being a sheltered workshop of archaic industrial protection, making it often cheaper to ship product to the US or China than from one side of Australia to the other.

He said Australians needed to “get over the irrational fear of foreign investment” and clinch a free-trade agreement with China — “the holy grail of all FTAs” — even if it meant providing the Chinese easier access to invest in Australia.

Mr McGauchie also queried government-funded drought relief, saying that it did nothing to achieve the broader objectives of increasing agricultural produc­tivity and exports. Mr McGauchie is one of the country’s most influential figures in agriculture and business, being a farmer himself, a former head of the National Farmers Federation, the chairman of major agribusiness concerns including Australian Agricultural Company Ltd, a former chairman of Telstra and a former director of the Reserve Bank.

Rather than prop up farmers who could not survive a drought, he said, it would be more efficient to “let small farms be rolled into larger, more efficient farms”.

“We have to take tough decisions if we are going to succeed”, Mr McGauchie said. “I don’t believe we can afford another decade of inaction and excuses.”

The conference heard earlier in the day from a senior executive of the Dutch agricultural finance group Rabobank, Berry Marttin, who said the world faced a global food crisis unless it worked out how to double agricultural production by 2050, by which time two billion more people would be on the planet, largely from Asia and largely in the new middle class.

“Food is so basic and people will do almost anything to survive,” Mr Marttin said.

Australia had by far the world’s highest arable land per capita, and though this had declined by a third since 1971, it remained perfectly positioned to cash in on a projected massive increase in demand in Asia for high-quality food.

Mr McGauchie echoed this view, saying Australia was “at the doorstep of one of the greatest opportunities ever seen”.

But he added that the nation suffered from “the erroneous belief that we will become the food bowl of Asia by default”.

To double production within 20 years, he said, the nation would have “to get our house in order”.

He said deteriorating infrastructure was making it harder to get produce to market, saying “our road and rail network is little better than third-world”.

Mr McGauchie said that while 20 years ago he used to transport the overwhelming part of his own farm’s produce to Geelong by rail, because of a decline in rail infrastructure he now had to transport most of it by road.

“The rail infrastructure has not been kept up for 50 years and now can’t be relied on,” he said.

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Services exports to boom under FTA
THE AUSTRALIAN NOVEMBER 17, 2014 12:00AM

Sid Maher

National Affairs Editor
Canberra
Services exports ready to boom
China’s President Xi Jinping and wife Peng Liyuan in Brisbane. Picture: Chris Hyde Source: AFP

AUSTRALIAN hotel, tourism, health and aged care companies will win the right to invest directly in Chinese operations under the free trade deal to be clinched today in Canberra.

The Australian has learned that the $6.9 billion in services exports to China are expected to expand, with tourism and hotel operators granted the ability to control, renovate and operate wholly owned Australian hotels and restaurants in China.

The healthcare and aged care industry will gain significant new potential opportunities with ­wholly owned Australian private hospitals and aged care facilities able to open up in China.

The FTA will cut tariffs of up to 50 per cent on Australia’s manufactured exports to China.

The four-year tariff phase-outs include pharmaceutical and health products, which produce $559 million in exports and face tariffs of 5-10 per cent; car engines worth $102m in exports and facing tariffs of 10 per cent; plastics, with exports of $96m and tariffs of 4 to 14 per cent; and diamond exports worth $45m, which face tariffs of 3 to 8 per cent.

Under the deal, the third negotiated this year by Trade Minister Andrew Robb, legal firms will gain their “best ever’’ access to the Chinese market.

As long as they establish operations in the Shanghai free-trade zone, they will be able to provide legal services to clients anywhere in China.

Transport operators will also be allowed to conduct business in China from the Shanghai free trade zone, as will Australian ship suppliers.

Banks and financial services companies will gain new commercial opportunities with streamlined and more transparent approval processes and the application time to trade in Chinese currency will be reduced from three years to one year.

Software firms, real estate businesses, environmental firms and printing and packaging firms will gain increased access to the Australian market.

Architectural and urban planning qualifications will be mutually recognised.

The education sector, which earns $4bn in exports from China, will also receive a boost.

Under the deal, China has agreed to increase from 77 to 105 the number of Australian institutions that are promoted to Chinese students. Discussions will continue on increasing that number.

With the deal expected to involve tariff cuts on Chinese imports into Australia, Australian Industry Group chief executive Innes Willox said manufacturers had “mixed feelings’’ about the pending free trade agreement.

“Many are hopeful that an FTA will help them meet their export and investment ambitions by making the large Chinese market more accessible and less of a risk to their intellectual property.

“Others are looking forward to boosting the competitiveness of domestic manufacturing by allowing them to source cheaper inputs from China.

“However, many also are nervous about the serious risks of a sudden loss of competitiveness and greater exposure to unfair competition in the domestic market,’’ Mr Willox said.

He called for greater efforts to help small and medium enterprises to access FTAs.

Mr Willox said manufacturers wanted adequate transition arrangements for tariff cuts.

They wanted adequate anti-dumping protections against unfair competition; progress on removing non-tariff barriers to trade with China; protection for Australian intellectual property; and ensuring full and fair opportunities for local suppliers to participate in domestic projects.