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John Brumby Speech at the report launch: From the People's Money to a Global Currency

20 September 2016

It’s a pleasure to launch:

'From the People’s Money to a global currency—a practical introduction to conducting cross-border trade and investment with China.’

This is the result of a collaboration between:

  • The Australia China Business Council;
  • The Commonwealth Bank of Australia;
  • PwC;
  • And Austrade.

The inclusion of the RMB in the IMF’s Special Drawing Rights basket of currencies is the latest chapter in the China story—and Australia is fortunate to be playing a part in that story.

Australia and China today

China now accounts for nearly 25 per cent of our two way trade, which is nearly double that with Japan, our next biggest trading partner.

And the amazing story of China’s growth continues:

The absolute size of the Chinese economy has doubled in the last ten years, which means that a percentage point of growth now represents more than double what it did then. 

In 2006, when China’s growth rate was at its highest at 12.6 per cent, US$460 billion of nominal growth was added to its economy. 

Last year, when growth had fallen to a ‘low’ of 6.7 per cent, US$552 billion was added.

ACBC recently released a report, in partnership with ShineWing and the Australian Centre for Financial Studies at Monash University, called ‘The Long Boom: What China’s Rebalancing Means for Australia’s Future.’

It showed that over the next ten years, under a relatively conservative scenario for Chinese growth:

  • Tourism employment in Australia could increase by more than 50 per cent (65,545 total growth in tourism jobs);
  • More than 100,000 new jobs could be created in financial services;
  • More than 200,000 in education and training;
  • Almost half a million in healthcare and social assistance;
  • And 177,000 new jobs could be created in the construction sector by 2026 thanks to a growing need for new hotels and tourism infrastructure, new educational facilities, and more.

The RMB

Other countries can tell a similar story—all of which means that the RMB will become even more important to Australia and the world.

The RMB has undergone a journey alongside China as a whole over the last four decades:

  • From 1978, when the RMB was limited to domestic use and businesses outside China were restricted to using foreign exchange certificates;
  • To 2005 when China began promoting the RMB in the wider world;
  • To 2009 when the People’s Bank launched an RMB trade settlement pilot scheme;
  • To 2012 when all cross-border merchandise and services trades could be settled in RMB;
  • To 2015, when the RMB passed the Japanese Yen to become the fourth most used payments currency;
  • And finally to October 1 this year, when the RMB will join the US dollar, the Euro, the Yen and the Pound Sterling in the SDR basket.

As Christine Lagarde has said:

This is ‘a recognition of the progress Chinese authorities have made in the past years in reforming China’s monetary and financial systems.’

The report

So as China continues to grow—creating a new economy the size of New Zealand’s every 90 to 100 days;

And as the rise of the middle class in China means consumption rises faster every year than GDP;

This report is for any business that wants to capitalise on these opportunities by using the RMB—whether for cross-border trade, investment, or liquidity management.

It’s a very practical report — focused on the ‘how’ of trade and investment with China.

I’d like to thank the Commonwealth Bank of Australia, PwC and Austrade for partnering with the Australia China Business Council in this important report.

I’d also like to thank the China Council for Promotion of International Trade for their support.

At a time when the international trading environment is changing rapidly, it’s very important that we have a balanced and positive conversation in Australia about our engagement with China.

Australia is hugely sensitive to changes in China’s growth profile—we’re in the top 20 countries worldwide when ranked by export exposure to China.  The last nation we were exposed to in this way was the UK in the 1950s.

There are some potential challenges and threats to our capacity to take advantage of the continued rise of China and the shift to consumption:

  • Higher FIRB application fees
  • Higher state stamp duties and land taxes on foreign investors
  • Policy uncertainty re FDI
  • Lending restrictions by Australian banks on offshore buyers
  • ATO requirements on withholding tax for foreign sellers

In a sluggish world economy, coupled with increased global competition for FDI, tourists and students, we need to be mindful that policy uncertainty, regulatory barriers and increased taxes and charges will inevitably mean less investment, fewer projects and lower levels of tourists and students than would otherwise be the case.

So the potential benefits are very large—but it will require business and government to work together to tell a positive story about what the continued growth of China can mean for Australia.

This report is a great example of that kind of collaboration.

I’d particularly like to acknowledge Sangeeta Venkatesan, Head of Renminbi and China Solutions, Institutional Banking and Markets, CBA.

Sangeeta, please stand.

Sangeeta was the creator of this excellent report, and if you have specific questions about it I would invite you to approach her later in the day.

Finally, I want to thank you all for coming.

I’d now like to introduce Kelly Bayer Rosmarin, Group Executive, Institutional Banking and Markets, at the Commonwealth Bank of Australia, to talk more about the importance of the internationalisation of the RMB.