China pivotal to Australia's success

Australia's first engagement with China has been focused on "rocks and crops" (mining and agriculture), steel and iron ore, and pumping liquefied natural gas offshore to the region. But now services will play a more important role in bilateral trade despite facing some significant competitive challenges.

"Rocks and crops" will continue to provide the lion's share of Australia's export revenue to China - but its "points of engagement" with Asia will expand as services trade promotes broader and deeper people-to-people relationships.

Services complement the role that "rocks and crops" and advanced manufactures play in Australia's trade; they are not a substitute for (or alternative to) them. Exports of goods build a platform that enables services trade to grow throughout the region and bring with it opportunities for investment, niches for SMEs, and richer global and regional integration.

So what is the future of Sino-Australian economic relations? While "rocks and crops" will dominate, services and education ties are expected to grow and prosper. More action for Australians in western China can also be expected.

Recently, I taught an MBA course in Chengdu in southwestern China. There we met Clint Wood, of Place Design, building landscape properties for Chengdu's burgeoning middle class, and visited the Rheem joint venture just outside the city. Western China needs roads, airports, civic buildings and schools. So there's plenty of opportunity for Australian architects, designers, construction companies and anyone with skills to build western China's physical and social infrastructure.

The urbanization of China is the story of the 21st century, and Australia will do its bit to help feed, clothe, energize, design, build for and educate China's growing urban population - particularly in the west.

Australia's economic ties with Asia have gone through many twists and turns, as the countries in the region have grappled with the tyranny of distance and the changing economic landscape. Australia began its engagement with Asia with post-war trade relations with Japan and the recognition of China in 1972 - and then by transforming its domestic structure in the 1980s and 1990s to become one of the world's most open and successful economies. Now, Australia embarks with cautious optimism on a new phase.

There are some early positive signs from Australia's new wave of engagement with the region - signs that Australians are really starting to benefit from the power of proximity in the "Asian century" - with China at the forefront.

The author is the JW Nevile Fellow in Economics at the Australian School of Business, University of New South Wales, and author of The Airport Economist.