Fu Ying, Canberra 2006-5-24

Thank you Mr. Brian Redican (the Chair),

Mme. Catherine Baldwin (Chief Executive, CEDA)

Distinguished guests,

Ladies and gentlemen,

Thank you for inviting me to speak here.

Two weeks ago, Australia had its budget week. I attended some of the functions and was impressed by the big benefit people were getting from the unprecedented revenue increase.

I was also struck by the frequent mentioning of China in many of the discussions and some people even asked me if I could see the shadow of China in the background.

I have no intention to claim any credit and I totally agree that the huge profit is the result of the hard work of the Australian people, the excellent management of the government, and may be to some extent the tough attitude of the iron negotiators.

Given the close relations of our economies, healthy economic growth of China is not only important to China but also to Australia, and to a big extent, to the world as well.

In my speech today, I will mainly talk about China and its development and the relations with Australia.

The world sees in China a rising power. We see ourselves as a big developing country.

There are undoubtedly impressive figures about China's growth.

From 1978 to 2005, China's GDP grew at a speed of 9.6% , from 147 billion US$ to 2.2 trillion, 15 times higher. The ranking in the world rose from No. 15 to No. 4.

External trade grew by 16%, from 20.6 billion US$ to 1422 billion, increased by over 70 times and is now ranking the 3rd in the world.

By the end of last year, there are 530 000 foreign investment companies in China, totaling 620 billion US$.

However, there is another side of the coin.

China is at very early stage of industrialization and is confronted with many difficulties and constrains.

China's per capita GDP ranking in the world is No. 112, only 1700 US$, less than most Australian's earn in a month. Many in this room earn more than that in a week.

Two thirds of the 1.3 billion people in China are in the rural area with very low living standard. Over 20 million people live under the poverty line of 1$ a day.

It is a major challenge for China to address the disparity between the urban and rural development, while not slowing down the urban growth.

A series of measures have been taken, the most significant being the waiver of agricultural tax.

In China's long history of thousands of years, it was the farmers who supported the central kingdoms and later the successive governments through paying taxes.

Now for the first time in China, the farmers are paying no more tax. Its significance can't be over stated. It's an important policy effort to share the benefit of reform with the largest group of Chinese population. It's also an indication of China tilting from agrarian-based economy towards industry-based economy. It will unleash new vigor in rural development.

This year marks the start of the 11th Five-Year Guidelines adopted at the National People's Congress in March. It gives a clear indication of where the economy is heading for.

Let me give you an outline of its 9 major targets.

The first is to maintain stable macro economic growth. The target of GDP growth is 7.5%. The per capita GDP is expected to double. 45 million new jobs will be created. Measures will be taken to improve current account balance.

The second is to improve the production structure and upgrade the pattern of growth.

As you are aware, one of the main strength of China's economic growth is its huge manufacturing power. China is often referred to as the factory of the world.

There is obviously some truth in the name. China is the world's No. 1 producer of many consumer goods such as television set, bicycle, furniture, air-conditioner, etc. On the heavier side, it is No. 2 in ship making, and No. 3 in making machineries.

"Made in China" has become a target of attacks. Some European media described it as a bull in a china shop, meaning it is smashing their world trade structure.

Looking back at the history of the world, UK, US and then Japan all had their share of the title: world factory. They lead the world at different times with advanced technology and high quality manufacturing skills. They still own the majority of the brand named products.

I think China is far from fitting the title. China may be a big but not a strong manufacturing country. China's products are mostly at the low value added end. In spite of the huge volume of goods China is exporting, the value takes up only 5% of the global market. Japan takes up 15% and US 20%.

For every 100US$ goods China sells to the world, it gets only 10-20$ of processing fee. You may be aware that China needs 2000 new aircrafts in the next 15 years. But do you know that every Air-but 380 costs China the profit of 800 million shirts (China export 46.5 billion pieces of shirts and garments) it exports.

We've keenly realized that we can't expect to keep the pace of growth by staying at this level forever. We need to upgrade our production structure.

That is why renovation and technology are given priority in the new Five-Year Guidelines.

The third target is to raise the efficiency of resources consumption. For example, the per unit energy cost will be reduced by 20% for the new GDP growth. There are also specific targets for the reduction of water consumption as well as industrial waste management.

Energy and mineral resources supply is clearly the bottleneck for China. Tough measures will be taken to increase the efficiency of production, to develop new technology as well as to look for more sources of supply both domestically and internationally.

The fourth is the balance of urban and rural development. The target is to increase the urbanization level up to 47%. There is a new drive to build "socialist new rural community", which is focused on improving health, education and welfare system in the rural area.

The fifth is improving the national public services. Compulsory education will be raised from 6 years to 9 years. General public services will be given priority and the poverty population will be further reduced. There will be strong investment in improving public security and work safety.

The sixth is to strengthen sustained development. The population level is expected to be at 1.36 billion and arable land no less than 120 million hectors. The deterioration of the ecological environment will be curbed and gradually addressed. Total forest coverage will be extended to 20% of the land.

The seventh is about market reform. Further steps will be taken to reform the administrative management, as well as reforming the state owned enterprises. Financial, budget and tax reforms are expected to continue.

Here let me elaborate a bit on the reform of the state owned enterprises, which now still account for more than 60 % of the national assets.

Many people wonder why after 28 years of reform, we are still far away from completing the reform on the state owned enterprises.

It is indeed a very difficult question. We have been very successful in reforming the state owned enterprise and turning them into market regulated entities. However, the ownership reform has not been as fast. Over the past 5 years, we have transformed 37% of the ownership of state owned enterprises, that is already 80 000 enterprises.

Of the many experiments some have been good some not so smooth. For example, some private owners who leased the enterprises simple made money and left. Some of them bought the enterprises by incurring huge loans from banks and were not able to pay back.

The other difficulties are the human aspect. Enterprise reform has already resulted in cutting 49% of the work force, which are already 38 million people. Offering them a safety net is a huge financial issue for both the enterprises and local government.

We paid painful lessons in this aspect. In the 1990s, some of the people who were left at the periphery of reform turned towards super-force and cult causing social instabilities.

Many countries during the early stages of industrialization or during major reform, had to face similar challenges.

Now the state owned enterprises in China employ over 40 million people and of cause many of them are doing efficient job. But any further reform has to take into consideration of the issues concerning workers right, their family's well being, their retirement and sickness pay etc.

At the current reform pace, there are constantly about 4.6 million workers out there who left job and wait for some kind of settlement.

So I do not foresee an early solution to this complex problem and you probably will continue to work with Chinese state owned enterprises for some time. The good news is that most of those enterprises are healthy and efficient. I think there shouldn't be any discriminated against such enterprises.

The eighth target is to increase the urban and rural income by 5% annually, with the hope to significantly improve the quality of life by increasing housing, transport, education and other facilities.

The ninth is to strengthen the rule of law and build up democratic governance. One popular slogan in China is to build harmonious society, meaning harmony in people to people relations, harmony between the people and government, harmony between people and environment and harmony in the whole society.

The above 9 targets form the roadmap of China for the coming five years.

Where does Australia stand in the future development of China?

There are two points I want to make.

First, whatever we are doing, whatever is propelling our robust trading and investment relations are going to continue.

The resources trading will grow as China continues its upward curve in the industrialization drive.

The students number will grow as more Chinese parents are able to afford overseas education of their children.

More tourists will come this way as more and more Chinese are touring the world. We appreciate the special attention given in the budget to improving destination services for Chinese tourists.

Secondly, new areas of cooperation are opening up as China is upgrading its productive force. Australia is strong in the services area. The new Five-year Guidelines have offered more opportunities to Australia's strong advantages in science research and technology, law and consultancy services and many other areas.

We are already seeing more and more Australian companies and individuals entering into Chinese market.

Last month, Chinese Premier Wen Jiabao made a fruitful visit to Australia. Before leaving China, Premier Wen took an interview with the Australian before coming here. It was a very comprehensive talk by a Chinese leader on relations with Australia. Many are encouraged when he said: together our two nations have a prosperous future.

In his 53 hours in Australia, he had 19 official functions, including substantive talks with federal and state leaders, and visiting industry and research projects.

My feeling is that this visit will be recorded in both countries as an important political dialogue, at a key juncture of our relations, on how we understand each other, and where our relations is heading for.

It was very clear during the visit that, there is also consensus on both sides of the Australian political spectrum that the fast growth of China is seen as a positive development for Australia and for the world.

This gives the two countries a high degree of comfort in deciding where our relations should go.

In his talks with the Prime Minister, Premier Wen proposed for the two countries: to build cooperation partnership in the 21 century.

He suggested for the two sides to have regular leaders meeting, to speed up FTA negotiations, to expand exchanges in science & research, education and culture, and to have closer coordination on regional and international affairs.

Prime Minister Howard responded positively and added his ideas about how to move our relations forward.

Their fruitful discussions were reflected in the 8 documents signed during the visit.

Among them, the peaceful use of nuclear energy got most of the media coverage.

For China, the signing of the two documents has opened the way for commercial negotiations, which will take place at some later stage. Australia has a good legal environment and rich reserves. It is therefore one of the good options for China when considering uranium import.

Premier Wen also expressed interest in partnership with Australia on other renewable energies.

The 6 economic documents signed at the meeting between Minister Vaile and Makai are of no less importance. They cover wide areas and the total value involved amounts to 5.4 billion Aus $.

The significance of these deals is that they herald a new era for our relations. I will not be surprise if investments grow in both directions in the coming years.

When Premier Wen was here, there was wide media coverage on the visit. I read many of them and had over 40 articles translated as excerpt for the Premier and his party. The coverage touched on almost every aspect of China and our relations. It is a good opportunity for us to know how Australian media and the public view China.

Of all the events, what I enjoyed the most was the early morning walk of Premier Wen and Prime Minister Howard in Canberra. They obviously enjoyed it. During the walk, they talked about many things including each other's families. The Prime Minister was very proud of his daughter and two sons. Premier Wen also talked about his children and his pride all over the face at the mentioning of his three grandchildren.

According to Prime Minister Howard, the early morning walk was a major breakthrough in the Australian China relations.

To conclude, I want to say that I agree with the Prime Minister that, of all the important relationships Australia has with other countries, none has undergone a greater transformation over the last decade or more, as has the relationship with China.

I hope the business world in both countries will grasp the opportunities offered at this important time of changes and build our relations to a new height. Thank you.