A trade deal signed with great fanfare between China and Australia has been touted as a major step towards Australia shifting its economy from a “mining boom” to a “dining boom,” but the reality is likely to be more sobering.
Australia is looking to replace its reliance on exports of minerals such as coal and iron ore as mining investment wanes and demand begins to dwindle. The government would prefer to expand its food and agricultural exports to capitalize on a rapidly growing Asian middle class.
It has high hopes for the proposal for a free trade agreement (FTA) signed on Monday by Prime Minister Tony Abbott and Chinese President Xi, but the more likely winner from the deal is the services sector.
The deal is designed to open up Chinese markets to Australian farm exporters and the services sector, while easing curbs on Chinese investment in Australia. China is already Australia’s top trading partner, with two-way trade of around A$150 billion ($130 billion) in 2013.
Several major agricultural foodstuffs, including sugar, rice and cotton, are currently excluded from the FTA, and Australia’s frequent severe droughts impose a natural production ceiling on those sectors that are part of the pact.
Experts are waiting for the full text of the pact, which Australia called the best ever between Beijing and a Western country, warning the devil may yet be in the detail.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.