By Richard Yetsenga Chief Economist, ANZ
Questions about the depth of Australia’s engagement with Asia keep resurfacing. Their dogged persistence alone might be evidence this is still a challenge.
Perhaps Australia will always be an outsider in the region? But perhaps insecurity or jaundice keep Australia from recognising the regional prosperity it has already shared in over a long period.
"Asia’s share of world activity more than doubled to a high of 39 per cent in 2021, and Asia’s share of Australia’s merchandise exports more than doubled to a peak of 85 per cent in 2023.”
After all, 17 per cent of the Australian population identify as Asian and 9 per cent of Australians, like me, were born in Asia.
To directly answer the question at hand: yes, Australia does build real economic partnerships in Asia. Or at least those that are real enough to Australia. A quantitative lens suggests optimism is warranted.
In 2022-23, the latest data, 81 per cent of Australia’s goods and service exports went to Asia. Only the previous year’s 81.2 per cent eclipsed that.
Even at the beginning of the ‘Asian century’, when China joined the global trading system and began its journey towards regional economic and global trading dominance, the proportion of Australia’s exports going to Asia was already 57 per cent.
For more than half a century, Australia has been overweight trade with Asia, and that overweight rose even as Asia’s economic share of world trade grew. In 1970, Asia accounted for 15 per cent of world gross domestic product (GDP) but 39 per cent of Australia’s merchandise exports.
Asia’s share of world activity more than doubled to a high of 39 per cent in 2021, and Asia’s share of Australia’s merchandise exports more than doubled to a peak of 85 per cent in 2023.
It is possible Australian trade might not equal real economic partnerships, as much of that trade is in homogenous bulk products that never directly ends up in the hands of a retail buyer.
Asia receives around 86 per cent of Australia’s merchandise exports but only 52 per cent of service exports. Perhaps the resources supplier/customer relationship is more transactional and less relational?
If so, it’s not clear that is a deficit we should mourn. Australian coal exports didn’t miss a beat during 2020 when exports to China stopped. Product was directed elsewhere almost instantly.
But Australia’s wine and lobster exports fell by 30 per cent and 64 per cent respectively. Redirection took longer and often at lower margins.
No regretting transactional trade
The reality also is that corporate Australia is narrowly focused. Only three of the top 10 Australian companies by market capitalisation are outside the resource or financial services sectors.
As an economy fortuitously rich in resources, Australia should be expected to struggle to develop alternative business streams while the resource going is good.
Resources have made Australia the 11th wealthiest economy in the world in GDP per capita terms and one of the few advanced economies to run a trade surplus with Asia. For other business streams to be worthwhile they would need to take Australia to better than 11th – a challenging hurdle.
Those businesses that do venture offshore seem to face harsh judgement at home. The Australian Financial Review in 2003 suggested many “Australian companies have been dismal failures in their overseas adventures”. The Sydney Morning Herald in 2018 used almost identical terminology: “Why so many Aussie companies are failing overseas”.
Within Australia, some seem to interpret offshore challenges as evidence expansion is never a good idea, rather than teasing out the lessons that will improve future outcomes. Australia is, after all, less than 2 per cent of world GDP.
Only one-fiftieth of the opportunity set is domestic. How much this mindset has held back the one sector, where the offshore opportunities seem plentiful, is difficult to know. The superannuation (pension) savings pool has been the fastest-growing part of the Australian economy for the last two decades.
It is equivalent to 145 per cent of GDP and is the fifth largest of its kind in the world. There seems an opportunity to export this money management expertise to Asia, and yet brands from the US, UK and Japan light the skylines of Asia’s capitals.
Superannuation funds provide a new path to Asia
Perhaps also affecting demand for Australian relationships in the region, the legacy of Australia’s discriminatory immigration policies until mid-last century is difficult to shake. Contemporary evidence suggests echoes of this linger.
One in five Australians identifies as having Asian ancestry, but this group makes up only 3 per cent of senior leadership positions. A study of Australia’s public service found people from non-English speaking backgrounds, and particularly Asian backgrounds, had starkly lower promotion prospects.
The consequence is that the senior leaders who travel to Asia for work don’t visually represent the multi-cultural Australia we are trying to sell. The legacy might also be broader than just the labour market.
Only this year the South China Morning Post cited research that found “Australia has more place names that contain the racial slur ‘Chinaman’ than any other country with significant Asian migration”. I live not far from one of them.
This heritage can mean sensible efforts to reassess and recalibrate Australia’s engagement as the region changes, can come across like they’re discovering Asia for the first time. In 1974 Prime Minister Gough Whitlam suggested Southeast Asia “is where Australia’s economic destiny lies”.
This has been followed by a series of reports reiterating the same underlying message: 1989’s Australia and the Northeast Asian Ascendancy, 2012’s Australia in the Asian Century and 2023’s Southeast Asia Economic Strategy. Asia doesn’t sit still. The strategy should evolve as well.
This is not the only legacy Australia needs to lean against. Real cross-border economic partnerships may be difficult to define, but you know when the ingredients are absent.
Janan Ganesh in the Financial Times describes “anglosphere” countries as those joined less by a common language than by an absence of hostile borders. And this apparent advantage comes at a cost.
“Anglosphere countries face the same quandary: that what protects them [from the world] leaves them uncomprehending [of it]”. Asia is not an easy place to access as an outsider, which Australia is often perceived as.
Deftness, sensitivity and patience can sometimes be a challenge to the habitual Australian way of doing things. Treading softly in every interaction would be good place to start.
As an Anglo-Australian born in Bangkok, I can still hear my father reminding me that we were guests – my parents lived in Bangkok for 14 years. But even this legacy doesn’t make building genuine partnerships, easier.
Richard Yetsenga is Chief Economist at ANZ
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
ANZ Commercial provides banking products and services to more than 600,000 businesses, as well as high net-worth private banking clients across Australia. ANZ aims to be the leading bank for Australian businesses looking to start, run or grow their business, and the private bank of choice for multi-generational families.
