VZCZCXRO5986
PP RUEHPT
DE RUEHBY #0792/01 2210116
ZNR UUUUU ZZH
P 080116Z AUG 08
FM AMEMBASSY CANBERRA
TO RUEHC/SECSTATE WASHDC PRIORITY 9961
INFO RUEHBJ/AMEMBASSY BEIJING 9121
RUEHUL/AMEMBASSY SEOUL 9516
RUEHKO/AMEMBASSY TOKYO 3148
RUEHBN/AMCONSUL MELBOURNE 5482
RUEHPT/AMCONSUL PERTH 3756
RUEHDN/AMCONSUL SYDNEY 3682
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 CANBERRA 000792 
 
SENSITIVE 
SIPDIS 
 
EAP/EP FOR HADDA 
 
E.O. 12958: N/A 
TAGS: ECON ETRD PREL AS
SUBJECT: EXPERTS DISCUSS AUSTRALIA-CHINA ECONOMIC 
RELATIONSHIP 
 
¶1.  (SBU) Summary:  The consensus among several of the 
leading Australian economic thinkers in Canberra is that the 
commodities boom will begin to cool off, but that Chinese and 
other developing market economic growth will continue to prop 
up Australian export strength over the long run.  Australians 
are concerned about the motives behind Chinese investment in 
the resources sector, but China is only the latest outsider 
to want to control a piece of the pie.  End Summary. 
 
¶2.  (SBU) At a lunch hosted by the Charge d'Affaires on July 
30, Dr. Steven Kennedy, Chief Macroeconomist Advisor from the 
Prime Minister's Office; Rio Tinto's Lyall Howard (nephew of 
former PM John Howard); Peter Downes, Principal 
Macroeconomist at the Center for International Economics; and 
John Hogan, the head of the Australian Bureau of Agriculture 
and Resource Economics (ABARE) Agriculture & Trade Branch 
discussed Australia's economic relationship with China, the 
PRC's dependency on Australian commodities and Australians' 
views on foreign direct investment in Australia. 
 
FTA: Services are Crucial 
-------------------------- 
 
¶3.  (SBU) Kennedy mentioned that Australian financial 
services firms remain very interested in expanding in China, 
and an Australia-China FTA should present itself as an 
opportunity to access the Chinese market.  However, all at 
the table agreed that China had fallen short so far on the 
level of reciprocity it was prepared to accept.  No one at 
the table saw any possibility of a quick breakthrough on 
services or other issues in the next round of negotiations. 
 
Commodity Prices To Cool Off, But Trend Up 
------------------------------------------ 
 
¶4. (SBU) Downes said his Centre's prediction was that 
Australian commodity prices in the short term would come back 
from record-breaking prices to a more modest level, probably 
around $40 per ton for iron ore, for example, by about 2013, 
compared with spot prices in China that have gone as high as 
$200 per ton this year.  However, given the inability of the 
government in China to restrain infrastructure investment, 
long-term demand would remain strong and push prices up. 
Both Kennedy and Howard agreed with Downes that commodity 
prices would contract soon, but trend higher over the long 
term.  Kennedy felt that the recent failure to reach an 
agreement in the Doha round would shake somewhat global 
business confidence and could further influence a downward 
commodity price shift.  Howard said that Rio would welcome 
the price fall as the drop in prices will sift out the 
"predatory" newcomers that have popped up in the sector and 
allow Rio to regain a larger share of the market.  Hogan 
stated that ABARE also forecasts a drop in prices but sees 
the long term growth of China, even with a slowing Chinese 
economy and higher inflation, as providing a reliable market 
for Australian commodities exports.  ABARE was growing more 
confident that agricultural commodities would form a greater 
share of Australian exports to China as global food price 
rises affected availability in the PRC, Hogan said. 
 
Views about Foreign Direct Investment 
------------------------------------- 
 
¶4. (SBU) Howard mentioned an independent study, commissioned 
by Rio Tinto, that analyzed Australians' attitudes towards 
foreign direct investment in Australia.  Howard reported that 
respondents aged 45 and older were suspicious of Chinese 
Qrespondents aged 45 and older were suspicious of Chinese 
investment in Australia and, while they believed that it was 
"OK for China to buy from Australia," wanted to know "why 
China felt it needed to own firms within Australia."  They 
had a relatively sophisticated view of the need for foreign 
investment, but feared the impact of broader foreign 
ownership on jobs and pension systems like the Superannuation 
Fund.  Somewhat unexpectedly, Howard said, respondents aged 
20-45 were indifferent or apathetic towards foreign direct 
investment.  The younger respondents showed a "discouraging" 
level of ignorance on the economy as a whole, Howard said. 
The lunch guests remarked that Australians still appeared to 
welcome investment from the "Anglosphere" (Canada, the U.K. 
and U.S.) but were more suspicious of investment by newly 
developing economies like China. 
 
 
CANBERRA 00000792  002 OF 002 
 
 
¶5. (SBU) Comment:  All of our interlocutors noted that 
Australians, although concerned that Chinese investors might 
not operate in a transparent, market-driven fashion, had been 
through a similar experience with Japanese and Korean 
investment.  General opinion was that Australia is 
well-placed to handle these issues, and that they will not 
develop into a source of significant tension with Beijing. 
End comment. 
 
MCCALLUM