Free trade agreement back on the table with China – good news for SMEs

Trade Minister Richard Marles will travel to China early next week to discuss a possible free trade agreement, signalling future opportunities for SMEs.

The move follows Kevin Rudd’s re-appointment as Prime Minister, since earlier this year free trade talks were abandoned in favour of a potential agriculture-only deal.

A free trade agreement with China has been in the works for close to nine years and a spokesperson for Marles confirmed to SmartCompany this morning he is planning to engage in talks next week.

In April, former trade minister Craig Emerson told the Global Food Forum in Melbourne a free trade deal was “just beyond both countries”.

A change in leadership and a fresh pledge from both countries to renew talks has put a possible agreement back on the table, which would allow imports and exports to enter each country without paying duties.

Shortly after being re-appointed as Prime Minister, Rudd spoke with Chinese President Xi Jingping about the importance of trade relations between the countries and the leaders agreed to “create a better environment of mutual investment for the enterprises of the two countries”, according to a statement from China’s foreign ministry.

The renewed talks are likely to see concessions made about Chinese investment access in Australia, which is a contentious issue.

Currently, companies and individuals from China investing in Australia have to be subject to FIRB approval for amounts over $248 million, but the Chinese government wants this threshold to be increased, possibly to $1 billion which applies to United States and New Zealand companies.

University of New South Wales economics professor Tim Harcourt told SmartCompany a free trade deal would make trading with China easier for SMEs.

“Small and medium-sized enterprises are now more likely to go to China and south-east Asia than anywhere else in the North Atlantic.

“Opportunities exist particularly in regards to the urbanisation in China, which is opening up opportunities for architects and construction and services firms. I was just in China… and there were a lot of Brisbane and Adelaide-based architects coming and speaking to us about how they’d secured contracts,” he says.

Peter Mace from the Australian Institute of Export previously told SmartCompany there are a number of specific sectors where Australian SMEs will perform well in China, including baby products and wine.

“There are good opportunities to build up the marketshare of the wine industry in China. While many winemakers have been struggling in the European and UK markets, the Chinese are keen on good labels.

“With the one-child policy in China, they can afford to spend a lot more money on their children,” Mace says.

Research conducted in 2012 by research firm RFi of 500 Australian SMEs found 34% of them already trade with China.

Harcourt says a free trade agreement would also benefit agricultural companies, as China “knows it can’t feed itself”.

“It has so many people in the rural parts of China who are still poor. The free trade agreement will provide more opportunities for Australian companies to go into areas of China and build up their ability in this respect,” he says.

Harcourt says free trade agreements are “a marathon, not a sprint” but momentum has been gathering on both sides, which could make a deal possible.

“China and Australia have new leadership on both sides and China is also having some economic difficulties at the moment and the new leadership wants to open up the economy,” he says.

Harcourt says his tip for businesses thinking about trading with China is to use government resources.

“There are now 15 offices in China with Austrade and the embassy. Business to business is very much done through the government, your potential business partner in China will be using the government, so why wouldn’t you.

“Businesses can also do it within Australia by using Austrade here and this way you know you’re getting a good partner,” he says.

Harcourt says SMEs need to screen potential business partners before entering into any relationships.

“There are plenty of people on China who think they’re good businessmen, but make sure you conduct a screening process.

“There is a bit of a myth about China that small businesses end up losing their shirt (lose money), but they end up losing their pants in America. In English-speaking countries they often don’t do their due diligence,” he says.