Australia's Prime Minister Julia Gillard has appointed a high-level advisory panel to prepare a White Paper to help Australia navigate the Asian Century.

It would however be equally important for Australia to prepare for the possibility of Asia not achieving its Century.  What would Australia do then?

The Asianisation of Australia

As Gillard said, "the shift of economic and strategic weight to Asia has never been more profound for Australia’s interests than it is now".

Asia is now decidely Australia's biggest trading partner.  In 2009, it exported 19 per cent of its goods and services ($48 billion), to China, followed by Japan (16 per cent, $40 billion), India (7 per cent, $18 billion), and Korea (7 per cent, $17 billion).  The US is now only Australia's fifth biggest export destination (6 per cent, $15 billion).  Some eight of Australia's top 10 exports are resources, namely, iron ore, coal, gold, crude petroluem, natural gas, aluminium ores, copper and aluminium. 

China was also Australia's largest source of imports in 2009, accounting for almost 15 per cent in 2009 ($37 billion), followed by the US (13 per cent, valued at $32 billion), Japan (7 per cent, $19 billion), Singapore (6 per cent, $15 billion) and Thailand (5 per cent, $14 billion).

While the stock of foreign direct investment in Australia is dominated by the traditional partners of US, UK, and Japan, the fast mover over the past decade has been China whose stock of FDI in Australia has jumped from $3 billion in 2001 to $17 billion in 2009.

A growing share of Australia's foreign born residents are also of Asian origin.  Today, more than one-quarter or 6 milion Australian residents are foreign born, with traditional source countries, the UK (1.2 million) and New Zealand (544,000) topping the list.  But five of the top 10 source countries are Asian -- China (380,000), India (341,000), Vietnam (211,000), Phillipines (177,000), and Malaysia (136,000).

So Gillard is on very firm ground in bringing together leaders from business, academia and government to explore the opportunities and challenges the Asian Century poses for Australia.

Optimising the Asianisation of the Australian economy

It is a good thing that Gillard has asked former Treasury Secretary Dr Ken Henry to lead the task force -- because the most important policy proposal that he could make to the government is a repeat of his "Henry tax review" recommendation for resource super profits tax.

There is quite rightly lots of talk about creating a sovereign wealth fund for Australia's future.  And this should be financed by a resource super profits tax. 

It is simply scandalous that mining companies pay the Government peanuts for digging up and selling resources that constitionally belong to Australian citizens.

But there are many other things that are also necessary for optimising the benefits of Australia's resources boom.  We need much stricter environmental regulations, and above all enforcement of those regulations, to prevent the rape of Australia's nature.

Australia's sleepy old banks need to be more dynamic in providing finance for mining exploration and development.  Australia's education and training systems need to provide the skills that our labour market needs.  More generally, the economy will need to become more flexible to facilitate the massive structural changes provoked by the Asian-led resources boom.

This is just a short list of some of the domestic policies necessary for optimising the benefits of an Asian Century.  There are also an array of international initiatives, such as a free trade and investment in the Asia-Pacific. 

Risks of an Asian Century

The Asian Development Bank recently published its "Asia 2050" study which presented an Asian Century scenario as a goal or aspiration.  But it also emphasised that this scenario was not "pre-ordained" and that there were very real risks of emerging Asia falling into a "middle income trap".  We should not forget that Japan, Asia's most developed country, has been in a "middle-high income trap" for the past two decades.

But the risks are much greater than this.  Asia is made up of a dynamic giant in the form of China, a sluggish giant in Japan, a dynamic India which is still puny in comparison, and the unstable and corrupt group in South East Asia. 

In other words, the main momentum for a real Asian century will come from China.  And it is here that the risks are greatest.  China's development is on a comprehensively unsustainable path. 

China can no longer continue to rely on exports and investment (especially infrastructure investment) to sustain growth.  But despite claims in its new 5-year plan that it will switch to more domestic demand driven growth, it is not doing so, as reflected in its refusal to let the RMB exchange rate rise.  One of the big problems is the lobbying power of the large state-owned enterprises with close links to the Chinese Communist Party.

China's development is also becoming socially unsustainable in light of: the yawning gap between rich and poor;  and social protests against land grabs, unpaid wages, human rights abuses and so on.

China's politics are becoming more and more nervous as seen in: the panicked reaction to the recent high-speed train crash: the jailing of Nobel Prize winner Liu Xiaobo and placing artist Ai Wei Wei under house arrest; and its attempted controls over the Internet.

And popular discontent with corruption could well bring down the Communist Party, as often emphasised by Chinese President HU Jintao, such as in his speech on the occasion of the 90th Anniversary of Communist Party: "The growth of the Party over the past 90 years shows that cracking hard on and effectively preventing corruption is crucial in gaining popular support for the Party and ensuring its very survival ... The Party is soberly aware of the gravity and danger of corruption that have emerged under the conditions of the Party being long in power ... If not effectively curbed, corruption will cost the Party the trust and support of the people."

Concluding Comments

Australian Prime Minister Gillard's White Paper will consider a vast array of issues like: the current and likely future course of economic, political and strategic change in Asia: the domestic economic and social opportunities and challenges of the Asian Century for Australia; opportunities for a significant deepening of our engagement with Asia across the board, including in the economy, science and technology collaboration, clean energy, education, business-to-business and people-to-people links and culture; the political and strategic implications of the Asian Century for Australia; and the role of effective  economic and political regional and global cooperation.

But perhaps the most important issue that this White Paper should address is the risk of the Asian Century being disrupted, and how Australia would cope with this, now that we have basically put all of our eggs in the Asian basket.

References:

Australia in the Asian Century White Paper Advisory Panel, Prime Minister of Australia, Media Release 

http://www.pm.gov.au/press-office/australia-asian-century-white-paper-advisory-panel

Australia in the Asian Century, Prime Minister of Australia, Media Release

http://www.pm.gov.au/press-office/australia-asian-century

SPEECH AT A MEETING COMMEMORATING THE 90TH ANNIVERSARY OF THE FOUNDING OF THE COMMUNIST PARTY OF CHINA, July 1, 2011.  Chinese President, Hu Jintao

http://www.chinadaily.com.cn/china/cpc2011/2011-07/01/content_12818048.htm